Dip in natural gas price next month to benefit consumers, industries
Bills of natural gas consumers, be it residential or industrial, are set to get lighter with the benefit of lower gas prices expected to be passed on to consumers from April. Apart from individual consumers, reduced gas prices augur well for industries, gas-based power projects and city gas distribution (CGD) companies. Globally, natural gas prices have already plummeted due to the slump in demand consequent to the spread of the COVID-19 pandemic. The price of natural gas in spot markets have halved to around $3-4 per mmBtu, which is almost near its decadal low. Following global cues, the natural gas prices in India are estimated to be cut by a steep 25% from the next month. Based on the current formula for price determination, market estimates suggest that the domestic gas price is likely to be cut to US$ 2.5 per million metric British thermal units (mmBtu) for the six months beginning from April. The gas price was last reduced by 12.5% to US$ 3.23 per mmBtu effective from October 1, 2019. The Centre revises the price of domestically produced gas every six months based on average benchmark natural gas prices in US, UK, Canada and Russia. India’s natural gas requirement is met with both import of liquefied natural gas (LNG) and locally produced gas, mainly by public sector majors, ONGC Ltd and Oil India Ltd. Domestic gas is provided on priority basis for consumption by individual households, transportation (compressed natural gas), fertilizers and power generation among other selected sectors. “After considering operation costs and taxes, one-third of the possible 25% reduction in domestic gas price will be passed on to the consumers. The retail prices of the piped natural gas (PNG) for residential consumers and compressed natural gas (CNG) are likely to reduce by 8-10%,” said people associated with the CGD business. At present, the state-run Gujarat Gas Ltd charges Rs 712.10 (excluding tax) per mmBtu for domestic PNG and Rs 54.70 per kg for CNG in Gujarat. Adani Gas Ltd’s retail price for residential PNG and CNG in Ahmedabad is Rs 686.85 per mmBtu (excluding tax) and Rs 54.82 per kg, respectively. Low natural gas price has brightened prospects for industrial production as well. Ceramics, chemicals and a host of other industries in the state use natural gas as fuel. “We are expecting a reduction of Rs 3-4 per cubic metre in gas price supplied to ceramic tile makers in Morbi as the LNG prices have declined globally,” said K G Kundariya, chairman, Wintel Ceramics Pvt Ltd. Morbi is the largest gas-consuming industrial cluster in India with daily consumption of approximately 6 million cubic meters of gas. “Reduction in natural gas prices will certainly bring down our production costs as natural gas accounts for 35% of the production expenses incurred,” said Mukesh Ughreja, president, Morbi Ceramic Association. Low production cost is expected to help local players become more competitive in the international market and increase exports. “Those who already enjoy a strong position in the market will benefit in terms of better margins and profitability. Those who are trying to gain ground in the market, can do so by lowering their prices,” he added. The ceramic industry faced tough times over the last two years. The low gas prices in the international market and strong possibility of price reduction in the domestic market have provided a much-needed cushion to the industry. “We are expecting a reduction of Rs 5 per cubic meter in prices of natural gas supplied to Morbi ceramic industry. If that happens, Morbi will be able to save Rs 30 million in fuel cost per day,” said Ughreja. The industries in Vapi and Ankleshwar are looking at the rate revision in gas prices after the LNG prices have reduced in the international market. Vapi and Ankleshwar are the hubs of chemicals, dyes and intermediates apart from other industries including glass, paper mills, bulk drugs, pharmaceuticals, etc. “Majority of the gas users in Ankleshwar are small-scale units. There are over 600 small scale units running on natural gas. The fall in LNG prices will benefit small industries including dyes and intermediates, agro chemicals, glass etc. in the region and increase their competitiveness in the international market,” said Mahesh Patel, president of Ankleshwar Industrial Association (AIA). “Reduced natural gas price will bring down the generation cost of gas-based power projects. It will also be beneficial to stranded gas-based power projects as electricity generation from gas-based power plant becomes viable with lower gas prices,” said K K Bajaj, an Ahmedabad-based energy and regulatory expert. Currently, gas-fired power projects with cumulative installed capacity of 3,898MW are stranded in Gujarat for want of gas. According to CRISIL, the viability of Rs 500 billion capital expenditure planned in the CGD space over the next four years across India has improved with the price of liquefied natural gas (LNG) expected to be subdued during the period.
Oil slumps again as coronavirus hits demand and price war bites
Oil fell on Monday as an emergency rate cut by the US Federal Reserve failed to soothe global financial markets panicked by the rapid spread of the coronavirus, while a price war between top producers added to a growing supply glut. Brent crude fell $2.07 to $31.78 a barrel by 0729 GMT, extending last week’s plunge of 25 per cent, which was the largest weekly fall since 2008. The front-month price opened at a high of $35.84 but slipped to a low of $31.63. US crude was at $30.35, down $1.38 after slipping below $30 earlier in the session, losing ground despite US President Donald Trump’s pledge to fill strategic petroleum reserves (SPR) in the world’s largest oil consumer “to the top”. “While helpful on the margin, such (SPR) policy pales in comparison to a coronavirus plagued market that is measured in months or a price war that is expected to last several quarters or longer,” RBC Capital Markets analyst Michael Tran said. With current SPR stockpiles at 634 million barrels, or 80 million barrels less than a nameplate SPR capacity of 714 million barrels, the government buying would clean up only about 20 days of a global overhang that RBC estimates at an imbalance of 4 million bpd, Tran said. The US Fed slashed interest rates to near zero on Sunday in its second emergency cut this month, and said it would expand its balance sheet by at least $700 billion in coming weeks in a bid to ease tension in financial markets. Oil prices have come under intense pressure on both demand and supply sides: Worries about the coronavirus pandemic slashing oil buying persist, while oversupply fears have grown after top exporter Saudi Arabia ramped up output and slashed prices to increase sales to Asia and Europe. Earlier this month, the Organization of the Petroleum Countries (OPEC) and Russia failed to extend a production cut agreement that has been supporting prices since 2016. “Fear remains the crux of the problem here as market players remain unconvinced that monetary policy easing and liquidity injections will solve an essentially healthcare crisis,” OCBC Bank’s economist Selena Ling said. “The end-game to me remains not about more policy bazookas, but a peak in global COVID-19 infections and fatalities, and, or a COVID-19 vaccine cure on the horizon.” Despite the massive drop in both oil and natural gas prices last week, the US oil drilling rig count rose for a second week in a row to its highest since December, energy services firm Baker Hughes Co said in its closely followed report on Friday. The number of rigs is expected to fall, however, as producers deepen spending cuts on new drilling. More pain will be felt by US producers as Brent’s premium to WTI is close to its narrowest since 2016, making US crude oil uncompetitive in international markets. Exports are set to fall by 1 million barrels per day each in April and May, sources have said. “The big loser will be US shale, where the Republican government will possibly face a bailout decision on a heavily indebted industry sooner rather than later,” said Jeffrey Halley, a senior market analyst at OANDA in Singapore.
OPINION: Cheap oil will fund quasi-handouts for Indians
India can afford to give consumers a boost. An effective month-long ban on foreign tourist visas goes into force on Friday as the government seeks to limit the spread of the coronavirus. Travel restrictions make sense to prevent a big outbreak in a poor nation with a weak health system, but the move will hurt a sector that contributes around a tenth of GDP in a slowing economy already reeling from financial blowups. New Delhi can soften the blow by allowing consumers to pocket the benefit of low crude prices. Cash handouts have gained popularity among policymakers as they try to prop up demand that has been crushed by measures implemented to slow the spread of the breakout, and by rising fear. Consumers, the logic goes, will spend faster and more efficiently than governments. Hong Kong and Australia have already announced direct cash payouts to residents. Luckily, cash-strapped India, the world’s third largest importer of crude, has an alternative: it can pass the 40% slump in oil prices over the past month along to the market. That would be a far more efficient way to stimulate the economy than, say, cutting incomes taxes in a country where so few pay them. Economic growth slipped to 4.5% in the September quarter, but Citi analysts note that every 10% decline in oil pushes Indian GDP up 15 basis points. Diesel prices were deregulated in 2014 as global energy costs fell; petrol was liberalised even earlier. But Prime Minister Narendra Modi’s government has largely retained those savings for itself by ramping up taxes. Duties now account for about half of retail fuel prices. Officials will once again be tempted to keep the gains given New Delhi’s shortfall of tax revenues. Politicians are resisting so far, however, and prices are starting to fall. Passing on the full benefit will help to stimulate spending and relieve debt. India’s household borrowing is lower in relative terms than in other major emerging markets, but overall retail credit has risen from 12% to 17% of GDP between 2011 and 2019, says Ambit analyst Sumit Shekhar – a worrying trend given tepid investment and job creation. Low oil prices give India a window to ease the risks and fund a quasi-handout.
Petrol, diesel could get cheaper by as much as Rs 8 by next week: Report
You may have to pay as much as Rs 8 per liter less for petrol and diesel from next week, as per media reports. While some reports said that petrol and diesel could get cheaper by as much as Rs 5-6 in the next week itself, Hindustan Times went on to claim fuel prices could drop by as much as Rs 8 if the rupee-dollar exchange rate is factored in. Following the breakdown of OPEC+ talks on production cuts and Saudi Arabia’s decision to pump more oil into the market as a retaliatory step, the global oil market went into a tailspin with crude prices tumbling more than 30 per cent to just about $35 a barrel, before recouping some of the losses. The drop in crude oil prices, however, did not immediately reflect in retail prices in India. As per reports, retail prices of the day are based on the average price of benchmark international fuel of the preceding fortnight. So the drop in prices will likely get reflected in retail prices over the next 7-10 days. However, the benefits may not transfer to consumers if governments decide to raise excise duty, like the Karnataka govt did recently. Currently, excise duty, VAT and dealer commission account for about half of the retail prices of petrol and diesel in India. Fuel prices, which crossed Rs 90 mark in 2019, have been seeing a continuous fall ever since. Meanwhile, fuel prices were further reduced today due to slump in demand after the coronavirus was declared pandemic. The price of petrol was reduced by 15-16 paise and that of diesel by 12-13 paise across all major cities in the country. Petrol now costs Rs 70.14 per litre in Delhi, Rs 75.84 per litre in Mumbai, Rs 72.83 a litre in Kolkata and Rs 72.86 per litre in Chennai after the price cut. Similarly, diesel costs Rs 62.89 a litre in Delhi, Rs 65.84 a litre in Mumbai, Rs 65.22 a litre in Kolkata and 66.35 per litre in Chennai, according to Indian Oil Corporation website.
Low crude rates to boost valuation of govt share in BPCL
The government could hope to get much better valuation for its share in Bharat Petroleum Corporation (BPCL), if the current trend of low global oil prices continues well into 2020 as it will positively impact the marketing margin of the oil marketing company (OMC). As per the market assessment By Reliance Securities, for every $1 a barrel fall in crude price, the OMCs’ marketing margin is expected to improve Rs 0.45 a litre. If we factor in that since mid-January crude prices have fallen by over $25 a barrel, the OMCs gains would be manifold. But in doing direct calculation, the value of rupee also plays a big factor and it has fallen sharply, lately. Net marketing margin on diesel stands at Rs 5.5 a litre (as on March 7), while the average for Q4FY20 till date stands at Rs 3.53 a litre up 71 per cent QoQ (Q3FY20 – Rs 2.06 a litre). The net marketing margin on petrol stands at Rs 1.83 a litre against negative margin during Q3FY20. The brokerage firm said HPCL would be the biggest beneficiary of lower crude prices resulting in higher marketing margin for the refiner. The company’s net marketing margin on petrol and diesel of Rs 1 a litre can raise its net profit by 41 per cent in FY21, while $1 a barrel change in GRM will potentially increase/decrease its net profit by 17 per cent. Public sector oil refiner and retailer BPCL would be the second biggest beneficiary as its net profit would be impacted by 31 per cent in FY21 for every Rs 1 a litre rise in net marketing margin on petrol and diesel. Also, $1 per barrel change in GRM would increase/decrease BPCL’s net profit 16 per cent, Reliance Securities said. OMCs have also started importing more crude from Saudi Arabia after the US sanctions on Iranian exports. In 2019, Saudi Arabia remained the second biggest oil seller to India. It increased 19 per cent of overall crude purchase of India (4.6 million bpd) from 17 per cent in 2018. The OMCs (BPCL+HPCL+IOCL) import crude oil from Saudi Arabia. In January 2019, they purchased 24 per cent of total crude from Saudi Arabia. “The OMCs could be the largest beneficiary of sharp cut in official selling price to Asian countries by Saudi Arabia,” it said.
Hydrogen-CNG buses likely to hit Delhi roads from next month
Starting next month, buses running on Hydrogen-enriched CNG (HCNG) are likely to hit the capital’s roads. A four-tonne per day compact reformer-based HCNG production plant has come up at DTC’s Rajghat-1 bus depot and is likely to start operations from next month. HCNG, which is a cleaner fuel compared to CNG, will be used to run 50 Cluster scheme buses as part of a pilot project for six months. The Supreme Court had last year suggested looking at hydrogen-run vehicles as a solution for NCR’s poor air quality and while the technology will take some time to appear in the capital, HCNG could be a step in that direction. “The plant is ready and is awaiting approval from the Petroleum Explosive Safety Organisation, which comes under the Union ministry of commerce, and approves all gas stations and filling stations,” an official associated with the project said. “The buses that will be run on HCNG would just require some tuning and no major retrofitting,” he added. In July, Indian Oil Corporation Limited — which has developed the technology to create HCNG — and Indraprastha Gas Limited had laid the foundation stone the plant. According to IOCL, the use of compact reforming process is 30% more cost effective as compared to the physical blending of Hydrogen with CNG. It was, in fact, a directive of the apex court in July 2018 that led to IOCL and IGL collaborating to put up this first semi-commercial plant as a pilot project for conducting the study on the use of HCNG fuel in 50 BS-IV compliant CNG-run buses in Delhi. Mixing hydrogen with CNG physically is a difficult proposition and that is why IOCL came up with the compact reforming process, which reforms CNG with no need for mixing. For the pilot project, 50 buses of the Anthony Road Transport Ltd (a cluster scheme concessionaire) will be fed with HCNG and their efficiency and emissions would be recorded for six months run and then submitted to the Supreme Court. Four tonne of HCNG would be produced at the plant every day and the excess fuel generated would be used to run a generator, which would produce electricity.
Indian Oil to supply BS-VI fuels with world-class norms in Telangana from April 1
The Indian Oil will start selling Bharat Stage VI (BS-VI) fuels in Telangana from April 1 this year and adopt world-class emission norms, said R Sravan Rao, the company’s executive director and state head on Wednesday. “From April 1, 2020, India is moving completely over from BS-IV to BS-VI, which basically pertains to change in the emission norms. With the launch of BS-VI, we would be adopting world-class fuel norms,” Rao told reporters here. The development comes in line with the implementation of BS-VI emission norms from April 1. “While we are in absolute readiness to launch BS-VI statewide in all Indian Oil retail outlets of Telangana before the deadline, I would even say confidently that most of the fuel that you are buying presently in Telangana from our retail outlets already conforms to BS-VI emission standards,” Rao said. “However, we are yet to declare it as BS-VI fuel. It would be done when the formal launch happens,” he added. Rao also said that Indian Oil had recently acquired stakes in Phinergy, an Israeli battery developer, for developing ultra-lightweight metal-air batteries that can be used in electric vehicles.
BPCL buys 2 million barrels extra Saudi oil for April
Indian refiner Bharat Petroleum Corp has bought 2 million barrels of extra Saudi oil for loading in April, a company official said, after the Kingdom slashed the selling price and announced plans to raise output to record 12.3 million barrels per day (bpd). “We will be taking two additional cargoes of Arab mix…we have got a mix of Arab light and Arab medium,” BPCL’s head of refineries R. Ramachandran told Reuters. He said his company is also exploring buying additional oil from United Arab Emirates. UAE national oil company ADNOC said it would raise crude supply to more than 4 million bpd in April and would accelerate plans to boost its capacity to 5 million bpd, a target it previously planned to achieve by 2030. The extra oil the two Gulf allies plan to add is equivalent to 3.6 per cent of global supplies and comes at a time when global fuel demand in 2020 is forecast to contract for the first time in almost a decade due to the coronavirus outbreak.
In Saudi-Russia oil price war, India is a big winner
Oil price shocks always divide the world’s economies into winners and losers, sometimes producing lasting geopolitical change — and this time is unlikely to be different. But to misquote Tolstoy, every oil crisis distributes happiness and unhappiness in its own way. Crude’s biggest drop in three decades on Monday coincided with the spreading coronavirus, slow growth in China, a wave of de-globalisation affecting trade, and the emergence of the US as the world’s largest oil producer. Even for some consumer nations, gains from lower oil prices may this time be overwhelmed by the collapse in demand caused by Covid-19. Perhaps the biggest worldwide change, though, is that inflation and interest rates are already at rock bottom. That means central banks may have very little capacity to cushion the deflationary effects of falling oil costs, according to Gabriel Sterne, head of global strategy services at Oxford Economics, a UK consultancy. It’s hard to predict the impact of sub-$30 oil on governments around the world. Importing nations in Asia and central Europe would normally be expected to win, and major producers in the Middle East, northern Europe and the Americas to lose. But it’s not that simple. The Americas: Winners The US has historically won big from falling oil prices, and President Donald Trump was quick to celebrate with a tweet on Monday. But a lot has changed since the 1980s, and this time it’s a lot less clear. The US was the world’s largest oil producer in 2019, beating Saudi Arabia thanks to an explosion of shale fracking. With shale producers highly leveraged, a sustained price drop could drive some companies under and savage investment plans across the industry, creating a drag on job creation and growth. The upshot is that “a US that in the past had a lot to gain from lower oil prices, now has something to lose,” said Tom Orlik, chief economist for Bloomberg Economics. Bloomberg economics on what the oil plunge means for global growth Indeed, wiping out that competition was one reason cited for Russia’s action that helped precipitate the oil-price crash. And any major setback for shale could offset the feelgood factor voters get from low gasoline prices, which could impact Trump’s chances at re-election in November. In fact, says Sterne of Oxford Economics, a shale meltdown would tip the US firmly into the losers camp from $30 oil. Low crude prices should also benefit PERU, a net importer which bought $5.6 billion of oil products last year, although it may also delay the exploration investment needed to boost local output. The picture is more nuanced again for Brazil, where President Jair Bolsonaro could get some relief in his dealings with truck drivers, whose strike against rising diesel prices two years ago brought the country to a standstill. At the same time, plans by state-controlled oil company Petroleo Brasileiro SA to sell assets and cut debt will likely hit a wall. The Americas: Losers If the US is a borderline case, Venezuela is not. Oil is already sold at a deep discount, due to the US sanctions that reduce the country’s ability to export crude. The collapse in international prices will mean even less cash for Petroleos de Venezuela SA, one of the few remaining lifelines for Nicolas Maduro’s embattled regime. An analysis from Allianz Research on Monday put Ecuador and Colombia at the top of their list of countries most exposed if oil stays below $45, losing well over a percentage point of growth each. Ecuador looks increasingly likely to default on its debt, amid doubts over disbursements of an International Monetary Fund (IMF) loan. Mexico, meanwhile, stands to lose about 0.15% of GDP (gross domestic product), according to Oxford Economics and more according to Allianz. The government could struggle with plans to expand the role of its oil company Petroleos Mexicanos in the energy sector, while the peso’s recent plunge could hamstring the central bank’s ability to follow the Fed’s emergency rate cut. Argentina’s plans to develop its Vaca Muerta shale gas reserve, already suffering under the administration of leftist Alberto Fernandez, will have to wait even longer. The market volatility will also complicate government plans to refinance debt. Canada’s economy was already on a soft footing at the end of last year, and some economists say the oil shock could tip it into recession. Canada exported just over $59 billion of crude and bitumen in 2018, when benchmark oil prices averaged $57 a barrel. Asia: Winners China benefits from lower oil prices as a major importer, but this time it may take a while for the effects to materialise: It already has high stockpiles of oil and liquid natural gas, while the coronavirus is hindering travel and manufacturing and creating uncertainty. Under those circumstances, excessive volatility in the markets may hinder China’s economic recovery, as it needs stability across the globe to prevent further shocks to supply chains. Those concerns were on full display on Monday, when the foreign ministry took the unusual step of commenting on commodity market developments. The dramatic fall in oil prices also could have political consequences for friendly countries ranging from Iran to Venezuela — a headache Beijing doesn’t need. India, the world’s third largest crude consumer, should be among the big beneficiaries since its import bill will fall significantly. Cheaper oil could also help Prime Minister Narendra Modi’s government by allowing it to increase taxes on fuels, rather than pass the entire benefit of the price decline to consumers. This couldn’t come at a better time for Modi, whose government is under pressure over slowing growth and the biggest bank failure in India’s history. Lower oil prices are also generally good for resource-poor Japan, with cheaper gas helping consumers hit by a crisis of confidence over the coronavirus and a damaging sales-tax hike. It means lower costs for businesses as well, potentially supporting profits through a looming downturn. But the volatility is a double-edged sword. The dramatic fall on Monday helped propel a flood
Russia ‘better prepared’ than other oil-producing countries
Russian Finance Minister Anton Siluanov said on Wednesday that Russia has enough state reserves to ensure stability in its financial markets and is better prepared than many other countries with oil revenue amid low oil prices. Siluanov said Russia would be able to fully accomplish tasks set by President Vladimir Putin, which include raising living standards, without making any adjustments to the budget.