Britain’s oil and gas authority suspends licensing in 2020/21
Britain’s Oil and Gas Authority has halted its licensing rounds for offshore exploration acreage in the North Sea at least until next year, it said on Tuesday. “The OGA have temporarily paused Licence Round activity. There will be no Round in 2020/21, which will allow relinquishments to take place so more coherent areas can be reoffered in future and give industry time to deliver on work commitments in the existing portfolio of licences,” it said. “The OGA is planning for a 33rd Round and will confirm the timing as soon as it is finalised.”
Analysis: India’s move to 10 ppm sulfur limit in April could boost Asia’s gasoline market – briefly
India’s adoption of low-sulfur motor fuel standards from April 1 could provide a welcome upside for the Asian gasoline market as buyers increasingly eye cheap and ample import cargoes to build inventories, but the opportunity will not last forever as the country increasingly moves toward self-sufficiency. India is set to mandate Euro 6 equivalent Bharat Stage VI fuel grades in its domestic market from April 1. The transition will see the sulfur level in domestically consumed motor fuels fall to a maximum of 10 ppm from the current 50 ppm. While Indian refiners have been preparing for the transition for some time, recent price movements in Asia have made import barrels increasingly attractive, industry sources said. “Buying gasoline is very cheap now. Costs have been pummeled by what has happened over the last two months,” one source with an Indian company said. The outright price of benchmark FOB Singapore 92 RON gasoline has fallen almost 40% to date in 2020, S&P Global Platts data showed — the direct result of the spread of the coronavirus in the region and the weekend plunge in crude oil markets as the fight for market share ramps up between Saudi Arabia and Russia. Against this backdrop, gasoline supply in India is set to tighten due to a heavy turnaround schedule stretching into the middle of the second quarter. The average refinery outage in India is estimated at 205,000 b/d in March and 169,000 b/d in April — four to five times higher than in the same period last year, according to S&P Global Platts Analytics data. However, India’s gasoline demand remains robust, rising 3.5% year on year to 2.456 million mt in January, latest data from India’s Petroleum Planning and Analysis Cell showed. The PPAC forecasts India’s gasoline demand rising 8.43% on year to 33.43 million mt in the fiscal year ending March 31, 2021. HOME FOR CHINESE BARRELS As a result, opportunities abound for Chinese barrels to find homes in India, particularly as Chinese gasoline exports are typically low sulfur grade, market sources said. “It is not hard to obtain low-sulfur gasoline from the Chinese [refiners]; most of them can do it,” one trader said. China’s domestic sulfur content rules have tightened steadily since the adoption of China V standards in 2017 and China VI standards in 2019, which both set the maximum sulfur level at 10 ppm. The viability of Chinese exports to India was demonstrated in 2019, when state-owned PetroChina supplied HPCL with its first MR-sized cargo following the conclusion of a term deal between the parties. The deal could be repeated, as HPCL is seeking 2.736 million mt of gasoline for delivery over April 2020-March 2021 on a term basis in open tenders seen by Platts. “The base gasoline for blending could most likely also come from China,” another trader said, adding that “the fact that HPCL sought so much term [cargo] could signal that their systems are some time away from being fully ready to independently produce low-sulfur mogas.” Chinese export cargoes are expected to remain abundant through the year. “We expect [Chinese] national oil companies will accelerate gasoline exports, starting from April, after heavily run cuts and turnaround season in Q1 2020. We hold our opinion that NOCs will continue export volume to handle China’s domestic gasoline oversupplied market and total year-end exports will leap by 24.6% year on year to 476 MB/D for 2020,” Platts Analytics said in a recent report. INDIA’S INCREASING SELF-SUFFICIENCY Nevertheless, India as an outlet for Asian gasoline is not expected to be a mainstay in the long term, industry sources said. Indian refiners are expected to gradually move towards self-sufficiency, with the country seen “balanced and net long” in the longer term, one market source said. “The market cannot rely on India to be a demand center for gasoline — once the refineries come back from upgrading works, the situation will change,” a Singapore-based market observer said. State-owned Indian Oil Corporation, the country’s largest refiner, says it is ready to supply Bharat Stage VI motor fuels following the completion of a revamp program at its Mathura refinery in February, while HPCL and Bharat Petroleum Corporation Ltd have also geared up to supply domestic pump stations with the new grade. India’s electric vehicle policy might also hamper gasoline demand growth in the long term. The country’s capital New Delhi in late 2019 approved a policy that provided higher subsidies for vehicles and charging stations, lower interest rates for EV purchases, deadlines for the compulsory shift to EVs for government departments and the waiving of road taxes for EVs, Platts reported earlier. Should it meet its objectives, 25% of all new vehicle registrations by 2024 will be battery electric vehicles, according to a summary document from Delhi’s Transport Ministry.
Power ministry wants levies on LNG value chain to be removed
Price of liquefied natural gas (LNG) has been sliding in the world markets since January 2019 – about 40% – but that doesn’t seem to raise the capacity utilisation level of India’s gas-based power plants, most of which are stressed. According to sources, even such a big fall in LNG prices hasn’t made the domestic, gas-based power units viable and attractive for discoms to buy electricity from. “Cost of gas, which includes landed cost of LNG imports, regasification and transportation costs, is still high and uncompetitive in relation to coal-based plants,” a source said. Domestic gas production has plummeted over the years. Reliance Industries’ KG DG gas output, which peaked at 69.43 million standard cubic meter per day (mmscmd) in March 2010 is now stagnating at abysmally low levels, with the asset at “late life stage”. As much as 24,900 mega-watt of gas-based power stations continue to operate at very low utilisation levels (see chart); in fact their plant load factor has declined in recent months. Though touted as one of the cleanest source of reliable power, the share of electricity from gas-based power plants remain less than 4%. Union power minister RK Singh told FE that the government is considering a scheme for gas-based power plants, but said it would necessitate all stakeholders to make some sacrifices. “For example, the states such as Gujarat and Andhra Pradesh where LNG lands and where they are regasified, they have to reduce their sales tax so that gas-based power can be purchased by discoms at tariffs that are viable ,” Singh said. He added that “owners of the gas pipelines, Gail and other firms, will have to cut some slack”. “Things would improve if we have more regasification terminals,” he added. Sales tax on LNG regasification is upto 22%. Domestic gas price, which is linked to the weighted average price of four global benchmarks, is currently at $3.23/mmBtu. Spot LNG prices have fallen from $3.11/mmBtu to $1.93 mmBtu. Gas-based power is much costlier (ranging between Rs 7/unit to even Rs12/unit) compared with Rs 2.41-3.50/unit range discoms pay for other power sources, on a weighted average basis. Even with gas prices coming down, it is difficult for gas power stations to match the prevalent power tariffs. The problems for gas-based units have been accentuated with the continuous drop in the price of solar and wind-based electricity, coupled with demand growth not being at par with the surge in addition of power generation capacity. Gas consumption in the country is majorly dependent on imports, and cooking and transportation segments gets priority in terms of allocation of the fuel. About 167 mmscmd of natural gas was consumed in FY19, with 47% being imported. About 26% of gas consumed in the country was used by the power sector, but the share of power usage has been falling constantly, with only 17% supplied for electricity production in January, 2020. “ONGC supplies gas to power plants at prices as high as $7.68/million British thermal units (mmBtu), from fuel sourced from off-shore deepwater basins, which makes it impossible to sell electricity at lower prices to discoms,” a senior official from a gas-based power company told FE. “For gas based power to be affordable, it has to be priced at around Rs 3/unit, and to achieve such pricing the cost gas at burner tip should not be more than $5.5-6/mmBtu,” the power ministry had earlier informed the parliamentary committee. Owing to their ability to start and stop power generation faster than other conventional modes, gas power plants are more suitable for balancing the requirement of the grid, especially with the increasing penetration of intermittent solar and wind power. The parliamentary committee on energy had recommended to use gas-power plants as “peaking units”, to be used during periods of rise in demand. The committee had earlier expressed its dismay on the petroleum ministry and lenders for not having any solution regarding stranded gas power plants. Rajnish Kumar, chairman, SBI, had admitted to the committee that lenders are “groping in the dark” on this issue and with no solution in sight, “we have to write off this investment”.
Assam government to exercise partial right of first refusal over BPCL stake-sale in Numaligarh Refinery
The Assam government has indicated willingness to raise its stake in Numaligarh Refinery Limited (NRL) to 26 per cent from 12.35 per cent, setting the stage for Bharat Petroleum Corporation Ltd (BPCL) to sell the balance shares it holds in the subsidiary, along with transfer of management control to a Central Government company in the oil sector. The 26 per cent stake will help the State government secure some privileges available to entities holding 26 per cent under the Companies Act. The State government had the right of first refusal if BPCL is to sell its 61.65 per cent stake in NRL, a mini ratna PSU with capacity to process three million metric tonnes per annum (MMTPA) of crude, according to a memorandum of understanding signed by the two sides. “The Assam government has responded to a BPCL request seeking its stand on exercising the right of first refusal over BPCL’s stake in NRL,” a government official briefed on the development said. The government has decided to privatise BPCL after hiving off NRL, which will be sold to a Central Government company in the oil sector if Assam government decline to exercise its right of first refusal to buy the shares owned by BPCL in NRL. On Saturday, the Central Government issued a global expression of interest (E0I) seeking bids for its 52.98 per cent stake in BPCL. With the Assam government officially communicating to BPCL its desire to raise stake in NRL to 26 per cent, BPCL will have to sell 13.65 per cent of its 61.65 per cent stake in NRL to the state government. The balance 48 per cent held by BPCL (post sale of 13.65 per cent to Assam government) will be sold to a government company, most likely Oil India Ltd, the government official mentioned earlier said. Oil India currently holds 26 per cent stake in NRL. This which will jump to 74 per cent after buying the 48 per cent take from BPCL, making it the majority shareholder of NRL. The share-sale in NRL will be handled by the same transaction advisors and asset valuers appointed by the Department of Investment and Public Asset Management (DIPAM) for the stake-sale in BPCL. DIPAM has hired Deloitte Touche Tohmatsu India LLP to manage the deal. BPCL will sell 13.65 per cent stake to the Assam government at the same price discovered in the bidding process for the sale of 48 per cent stake to a government oil company. “This will avoid the task of having to discover price only for the government of Assam,” the government official said.
Berkshire Hathaway to not invest C$4 bln in Saguenay LNG project
Warren Buffett’s Berkshire Hathaway Inc has decided not to invest C$4 billion in a liquefied natural gas (LNG) plant by the Saguenay port, CBC News reported on Thursday, citing Radio-Canada. The marine terminal to ship LNG to overseas markets is expected to be built roughly 230 km northeast of Quebec City, at a cost of C$9.5 billion ($7.08 billion), according to the report. GNL Quebec, the company behind the project, confirmed it had lost a significant potential investor, but did not say who it was, CBC News reported.
RIL is India’s Exxon, AT&T, Amazon rolled into one: Bernstein
Reliance Industries Limited (RIL) is India’s answer to Exxon, AT&T, and Amazon rolled into one, according to a research report by brokerage, Bernstein. According to the report, RIL is a unique company with activities spanning oil and gas, telecoms, retail, media and fintech, and one of the most diversified conglomerates in India, if not the world. There is simply no other company like it, it said. In India, Reliance dominates energy, telco, and retail in the same way that Exxon, AT&T, and Amazon do in the US. Over the past decade, Reliance has been able to achieve market leadership positions in business segments that incumbent players and investors would never have thought possible. This is a testament to Reliance’s management skills and its ability to navigate some of the complexities that come with being a large operator in India, the report said. Despite some failures along the way, what has impressed most is the strategic vision and execution capability of Reliance management to enter and “win” in new business areas, analysts at Bernstein said. Energy remains the cash cow of the business, but in the near term, it is likely to face margin pressure. Although Reliance plans to sell down a stake to Aramco, this does not mark a retreat from energy, with India likely to be the fastest-growing market for refined fuel products and petrochemicals over the next 20 years. “In telecoms, we expect Reliance will increase its market share to 44 per cent by the end of FY22 as it consolidates its leadership position in the market,” the report said. Perhaps the greatest growth opportunity is in organised retail. “We expect India’s retail market, which is currently 90 per cent unorganised and ready for digital disruption, to reach $1.2 trillion by 2025,” the report by Bernstein added. Reliance is the offline leader with $18.5 billion in revenues and 11,000 plus stores. The company is best positioned in new commerce, digitizing neighbourhood stores (30 million), and eCommerce apps (JioMart and AJIO). “Beyond retail, we see opportunities in fintech and media, where there are clear opportunities for synergies with telecoms. Reliance is at the start of a secular growth phase driven by telco, retail and new economy related businesses. It is a quality compounder that every Indian portfolio should own,” the report added. Reliance Industries (RIL) has disrupted the energy and telecoms industries in India and i s on the cusp of doing the same to retail, fintech, and media. With its enviable track record of innovation and execution, we believe the best is yet to come. Energy remains core to the business and we expect further expansion in this sector. India is forecast to be the fastest-growing market for refined and chemical products over the next decade. Reliance partnerships with BP and Aramco should support this growth. Reliance has achieved market leadership in telecoms. In just under three years, Reliance reached 34 per cent share of market revenue in India, higher than expectation. Based on current net add run-rates, it will likely reach 44 per cent share by the end of the next financial year. The report has posed a question on could Reliance become India’s Amazon? Retail is a large market in India (estimated to reach $1.2 trillion by 2025), currently unorganised (90 per cent) and ready for digital disruption. Reliance is the offline leader ($18.5 billion revenues, 11,000+ stores). The company is best positioned in New Commerce – digitizing neighbourhood stores (30 million) – and in eCommerce (Grocery/Fashion and Lifestyle categories).
Ruias-led Essar committed to India’s growth story
The Ruias-led Essar is committed to the India growth story after an aggressive debt reduction of Rs 1400 billion over last three years. This is the message Ravi Ruia and Prashant Ruia have conveyed to banks and fund houses just before Essar’s 50th anniversary celebrations. The Ruias’ Essar Group has said that after completing its aggressive deleveraging exercise over the last three years, which saw its debt reduce by a staggering Rs 1400 billion, its quality of earnings is now much more healthy and sustainable. “Our existing portfolio of companies are firmly rooted in the India growth story and we remain committed to growing the business,” Ravi Ruia and Prashant Ruia said in a letter to bankers and domestic fund houses. The letter is part of the Group’s efforts to update its stakeholders as it kickstarts its 50th anniversary celebrations. The Essar Group has indicated that it is “poised to embark on a new phase of growth, while driving growth in its existing portfolio.” Essar has hinted that its confidence in the future growth prospects comes out of the twin developments of a substantial deleveraging in the balance sheet and strong prospects in the remaining portfolio of businesses. Essar will continue to use its entrepreneurial skills, vast pool of human resources, and decades of experience and innovation in pursuing fresh opportunities and creating value for all its stakeholders, said the letter jointly signed by Ravi Ruia and Prashant Ruia. In infrastructure, Essar has said it operates ports and terminals in India, UK and Africa, and has commercial interests in turnkey project construction in India and middle east. In the metals and mining sectors, the Essar Group has exposures in iron ore mining, pelletisation and coal mining in USA and Indonesia. In new age services, Essar said it has business interests in digital solutions and customer experience platforms in India, Europe and USA. In the energy sector, Essar has noted it has commercial interests in oil, gas and coal bed methane exploration and production in India, Vietnam and Nigeria; oil refining and retailing in UK and power generation in India and Canada. Essar said that despite major business and regulatory challenges, it has successfully and consistently created world-class assets. The Greenfield assets built by Essar have attracted significant Foreign Direct Investment (FDI) of US $40 billion, which is reflective of the superior and world-class quality of those assets. The Essar Oil-Rosneft deal alone saw over Rs 860 billion (US $13 billion) of FDI, the country’s largest until date, it claimed. The Ruias noted Essar had played a vital role in the country’s development, with capital investments of over Rs 2000 billion ($28 billion) in the vital sectors of ports, steel plants, oil refining & retail, oil & gas exploration & production, power generation & transmission, mining, shipping and telecom, with substantial equity from the Essar Group. Essar claimed to have “built some of the finest assets in these sectors, creating thousands of jobs, and contributing several billions of rupees to the Indian exchequer by way of taxes and royalties.” “We have fulfilled our Corporate Social Responsibility with focused community uplift programmes in the areas of livelihoods & entrepreneurship, women’s empowerment, health, education, infrastructure and environment. The positive impact of these initiatives makes a difference in the lives of 500,000 people from 500 villages across 8 Indian states,” the Ruias said in the letter.
Indonesia to cap gas prices for PLN at $6/mmBtu to cut subsidies
Indonesia’s government plans to reduce the price of natural gas sold to power plants to reduce subsidies it has to pay to the state-owned utility, the energy minister said on Friday. The government wants natural gas sold to power plants to be kept at a maximum of $6 per million British thermal units (mmBtu), Minister Arifin Tasrif told reporters. Power plants managed by state utility Perusahaan Listrik Negara (PLN) currently pay an average $8.4 per mmBtu this year. The government is already working on a new gas pricing policy for industrial customers to bring down their prices to around $6 per mmBtu, from $8-$9 per mmBtu, to lower the energy costs of manufacturers. Tasrif did not say when the price cap for PLN would take effect, but the policy for industrial manufacturers should be covered in a regulation to be implemented this month. Under the pricing policy for industry, to compensate gas sellers when market prices for natural gas are higher than the cap, the government will slash the revenue it receives from the gas producers’ contracts. The energy ministry’s director general of electricity, Rida Mulyana, separately told reporters that capping gas prices for PLN will reduce the utility’s costs significantly, as 38 per cent of the company’s fuel expenditures are for natural gas. PLN’s total fuel cost for this year is estimated to reach 146.67 trillion rupiah ($10.28 billion). The government will lose some revenue from the share it receives from natural gas sales, but subsidies and compensations it must pay to PLN will also be reduced, Mulyana said, forecasting a net savings of 4.51 trillion rupiah. The government had previously budgeted 54.8 trillion rupiah in subsidies for PLN in 2020, assuming the utility will begin charging some customers market prices in January. The energy ministry, however, has recently decided not to raise electricity tariffs until June 2020, extending its policy of freezing rates since 2017. Indonesia, Southeast Asia’s largest economy, grew 5.02 per cent last year, the weakest in three years. Growth may slow further this year as the spread of coronavirus globally hit its tourism and trade, as well as its financial markets.
Gujarat: Petroleum experts mine Kutch rocks
There is a sudden rush of geologists, both from India and overseas, to study the sedimentary rock formations in the arid region of Kutch for oil and gas exploration. So even as oil and gas companies are yet to find commercial success here, these onshore rock reservoirs are a case study for carrying out drilling and other exploration activities in sea or offshore fields as they are called. The reason: hydrocarbon rocks found on the surface in Kutch have a striking similarity with those found under the seas in areas that are identified for hydrocarbon exploration. It is difficult to dig data from hydrocarbon blocks lying beneath the sea which makes Kutch a hot destination for oil and gas explorers to find success formulas for offshore studies. A team of sixteen scientists from British Gas plc and Reliance Industries Ltd recently visited the Kutch University, which has been studying these rocks. Next on the list are a team of scientists from Australia and Europe, said an official of Kutch University. Oil and Natural Gas Corp Ltd (ONGC) has already begun work to produce gas from the new sedimentary basin in Kutch offshore in the next few years. While the offshore basin is estimated to hold 1 trillion cubic feet of gas reserves that could put Kutch on India’s oil and gas map, the company is also studying the hydrocarbon deposits on rocks in inland areas. “The rocks on the surface are like open books for the petroleum geologists. They studied the oil extracts derived from sea rocks and found them akin to Kutch rocks. Similar was the case with fossils found inside the rocks,” said M G Thakkar, Head of Earth and Environment Science department of Kutch University. “This is important because the decomposed body of micro-organisms help in formation of oil,” he adds. The department is working with companies including RIL, BP, ONGC and other geologists who are studying these rocks, according to Thakkar. The geologists can also estimate the volume of oil reserve in offshore regions by studying the same kind of rocks that are found on the surface here. The hydrocarbon rocks found in Kutch are from the Tertiary Age; they are 65 million years to 200 million years old. About a few million years ago Kutch was submerged in the sea with the rocks beneath them. Over a period, the sea levels receded and made way for the land to emerge, with the rocks on the surface.
Market forces to benefit India, consumers; US gas can be competitive for India: FERC
US Federal Energy Regulatory Commission (FERC) Chairman Neil Chatterjee on Tuesday advocated market forces being allowed to decide energy markets, and said India has the appetite for the “competitive” US gas. FERC, which regulates the electricity and natural gas sector in the US, is discussing an MoU with India’s Central Electricity Regulatory Commission (CERC) to share its experience with the capacity market, oversight and enforcement, Chatterjee told reporters here. Drawing from the experience of US markets, he said subsidies distort price signals in the market. “Markets provide efficiencies and benefits to consumers. Ultimately market forces will be to the benefit of India and Indian consumers.” On this fourth trip to India in two years, the son of a migrant Indian, Chatterjee said the US has seen states subsidizing a form of energy generation that they prefer but “when states step back and do maths, they will see that their consumers have benefited to stay in the market”. “For markets to work efficiently, pricing has to be accurate,” he said, adding market forces are successfully driving down prices of all sources energy in the US. He said India desires to move to a gas-based economy but will have to rely on imports as unlike the US it does not have abundant affordable domestic supply. The US is now a net exporter of energy. “The US is providing an alternate source that is beneficial to our allies. And environmentally as well,” Chatterjee said. “US gas can be competitive and I think there will an appetite for US gas here.” India has signed up long-term contracts for 5.8 million tonnes per annum of liquefied natural gas (LNG) from US companies but imports only small volumes out of it because the rates, after including freight and taxes, are not considered viable by users such as in the power sector. “All the signals I see, people continue to be bullish about the price specs for US LNG,” he said. Also, India is looking at importing coal from the US, he said, adding such transactions will strengthen diplomatic ties between the two nations. FERC, he said, is engaged with the CERC on market design such as the wholesale competitive electricity market in the US. “Thrilled we will be able to share the experience (with CERC),” he said. “We have seen tremendous benefits in the US in terms of consumer cost, maintain electricity reliability and positive environmental impact,” he said.