Commodity prices, access to capital among top risks for oil and gas companies: Moody’s
Global energy companies face increasingly tight access to capital in 2020, weakening their liquidity, increasing their cost of capital and intensifying default risk for companies with looming maturities, according to Moody’s Investors Service. Low commodity prices will limit opportunities for exploration and production companies to increase cash flow organically, and low-rated energy companies face the prospect of both difficult capital markets and weak conditions for mergers and acquisition activity. “We expect high volatility in oil and natural gas prices in 2020 amid growing production and slower growth in demand as well as rising geopolitical tensions,” said Moody’s in a report. Rising production in 2020 will outpace growth in demand for oil amid a cyclical economic slowdown in several large industrial countries. Short-term supply adjustments and rising geopolitical tensions in the Middle East will heighten volatility. Oil and gas producers will deliver higher volumes but essentially flat EBITDA growth in 2020, despite their capital spending cuts amid commodity-price volatility. However, the pace of production growth will slow, which will help midstream infrastructure to catch up in 2020, especially in the prolific oil-producing Permian Basin. Mid-stream EBITDA will grow by about 5 to 7 per cent in 2020 overall. The leading Democratic presidential contenders’ policy positions will be more detrimental to the oil and gas industry than the re-election of US President Donald Trump, whose pro-industry ‘energy dominance’ policy pursues limited regulation. Yet state and regulatory opposition to specific projects and practices will affect the industry more immediately than even a new presidential administration will. Constrained capital spending growth by the exploration and production companies in 2020 will translate to flat demand for oil field services in 2020, keeping prices and margins tight for the providers. Moody’s said refining margins and petrochemical spreads in Asia will remain depressed in 2020, constraining earnings growth for the region’s downstream-focused companies. The trade dispute between the United States and China and the consequent economic growth slowdown in the region has dampened growth in consumption of petroleum products and petrochemicals. The growth will not pick up significantly in 2020 especially with likely subdued economic growth in the region, especially in India and China.
China opens oil and gas exploration to foreign firms
China will allow foreign companies to take part in oil and gas exploration and production in the country, in what officials hailed Thursday as a “major reform” opening up the industry. The Ministry of Natural Resources said foreign firms registered in China with net assets of not less than 300 million yuan ($43 million) will be eligible to obtain oil and gas mining rights. The change takes place from May 1 and also applies to domestic companies. “Opening to both domestic and foreign enterprises is a major reform measure,” said Deputy Minister of Natural Resources Ling Yueming at a news conference. In the past, international companies could only enter the industry by working with Chinese firms, such as state-owned enterprises. The move comes as China looks to open to private firms more sectors of the economy that have been dominated by state-owned companies. The country’s oil and gas market has been dominated by state players such as the China National Petroleum Company and China Petrochemical Corp (Sinopec). On Thursday, the ministry also said permits for mineral resources mining will be valid for five years. Each extension period is five years as well. When firms apply for a renewal of exploration rights, their area of exploration will be cut by 25 percent, said the ministry.
Energy industry company Petronet moving towards 20 million ton production mark
India’s fuel firms are given ambitious targets, particularly the one to increase natural gas contribution to 15 per cent of the total energy mix. But Prabhat Singh, MD & CEO, Petronet LNG, believes firms have become wiser and are seizing the opportunity to ensure they offer last-mile connectivity. Petronet will have enhanced capacities and move towards the coveted 20 million tonne production mark, Singh tells Sunitha Natti What will be the fallout of the US-Iran tensions? Today, what has happened fortunately is, we are (globally) endowed with a great amount of oil and gas resources, well-diversified across geographies. Otherwise, if you see what’s really happening today globally where Iran is an issue, Saudi Arabia has been attacked six times, Venezuela, Libya and even Nigeria are having their own problems. The US also is actually running down on the inventory. So it’s a sure recipe that prices of oil per barrel would be at $130-$140 anyway. But despite all this, it’s barely crossing $70-$71, which actually indicates if there’s a balance that has suddenly come into the market. Or it could be that there are other mechanisms, which are pushing more material into the system…so I’d think this is the great time for oil and gas (industry) to make the best of what they should and focus on building infrastructure, allowing last-mile connectivity. Given it’s an opportune time, are investments materialising? If you look at India, significant investments on infrastructure happened recently such as city gas distribution (CGD) networks aggregating Rs 1200 billion. Then there’s an effort to complete the national gas grid project, and so many gas terminals are also coming up. There’s a bent of mind as well as positive action because within eight years if you don’t spend Rs 1200 billion (earmarked for CGD), you need to pay penalty for that. What more push can the government give? The best example is considered upstream activities when there was a time you are unable to get FIDs (final investment decisions) because there were no long-term contracts signed. But now people are doing it through their own balance sheets because they are realising that if they don’t take their oil and gas and sell it quickly, someone else will. It has become a wise market today. To that extent, you also see liquified natural gas plants coming up. For instance, nearly 100 mn tonnes of LNG plants are expected in the next 2-3 years. The bottom line is, everything is positive at this juncture. But isn’t there a demand contraction? There hasn’t been any slack in demand, but the anticipated increase in demand hasn’t happened as expected. In the calendar year 2018, we’ve imported 22.5 mn tonnes of LNG, in 2019 it’ll be over 23 mn tonnes and in 2020, I think it’ll be around 24 mn tonnes, which isn’t much, but as infrastructure comes up, demand will pick up. How about the fertilizers sector? Fertilizer plants that have already been sanctioned to be put up indigenously, that amount of demand of say about 10 to 10.5 mn cubic meters of gas would basically happen in the next 3 or 4 years time or whatever it takes for fertilizer plants to come up. But that’s final and beyond that you don’t need more fertilizer plants. So it’s not too big a demand, but whatever is there has been captured. How’s Petronet’s expansion taking shape? At Dahej plant (Gujarat), we already have tanks, and a third jetty is in the pipeline. We are looking at moving towards the 20 mn tonne mark and to that extent we also have to do something with regasification, which is still to happen. Within these parameters, there’s a certain percentage, like we have been already operating at 110-112 per cent capacities, and the tanks and jetties which are coming up will be supplementary. What’s the progress on making LNG a mainstream fuel? It’s going in the right direction. I think, we have already started with two LNG buses each at Dahej and Kochi. They are operational, picking employees in shifts, but it’s only a step to say that it’s possible. Therefore, when you look at the demand for trucks and heavy-duty long-distance trucks, demand is anywhere between 8-9 mn tonnes. Besides, we’ve already picked up the Delhi-Mumbai highway and another 20 locations, where we are going to put up these LNG outlets as a proof-of-concept. We’ve identified nearly 4,500 km of national highways, where this is going to happen and therefore on a phase-I, II and III basis, starting from 20 to maybe 100 and then 500 locations will be added. Phase 1 will roll out within a year’s time and next 100-500 will take another 1.5 to 2 years. Basically, the second phase should happen by say 2022-2023 and further expansion beyond that depends on how the market takes because the ecosystem needs to be developed with retail outlets and operating OMCs. Is the Kochi plant going as per plan? We are fortunate that we are doing over 1 mn tonne production and the plant is now delivering operating profits. The Kochi-Mangalore pipeline too is being commissioned, perhaps by March, which will further increase its capacity utilisation to about 30 per cent from roughly 18-20 per cent today. This increase should materialize by next financial year. Can you update us about the overseas ventures? In Sri Lanka, we are very competitive in our bidding. Right now, we have put all our commercial numbers in place and once the project’s approved, it’ll be up in say at least 26-30 months. Similarly, in Mauritius, we have something in the pipeline, while in Bangladesh, we are back in the process after a change in location.
The need for a single energy ministry
Five different ministries along with a multitude of regulators govern India’s energy sector. Petroleum and natural gas, coal, renewable energy and nuclear energy have separate ministries or departments. We also have a Ministry of Power, along with State-level bodies that regulate electricity distribution companies, or DISCOMS. Add to this, the presence of different regulators for each type of fuel and energy source which makes it cumbersome for businesses operating in this sector. Further, the petroleum and natural gas sector has two regulators – Directorate General of Hydrocarbons for upstream activities and the Petroleum and Natural Gas Regulatory Board for downstream activities. Data constraints There are also issues with data collection. No single agency collects energy data in a wholesome and integrated manner. Data pertaining to consumption are barely available while supply side data collected by agencies of respective ministries are riddled with gaps. The Ministry of Statistics and Programme Implementation collates data available from various ministries and conducts surveys at sporadic intervals. On the energy efficiency front, the Bureau of Energy Efficiency is the sole statutory authority with the mandate to regulate energy efficiency on the consumption side. There is no agency or body for the same purpose on the supply side. This stands in stark contrast to most other nations with their varied energy governance models. Developed and efficient countries such as the United States, Germany, France and the United Kingdom have their vibrant, diverse and prolific energy sectors administered by a single ministry or department. There are also instances where the energy ministry is in conjunction with other portfolios such as environment, climate change, mines and industry. For example, the U.K. has the “Department for Business, Energy & Industrial Strategy”, France has the “Ministry of the Environment, Energy and Marine Affairs”, Brazil has the “Ministry of Mines and Energy” and Australia has the ‘Ministry of Environment and Energy’. The predominance of unified energy ministries is evident. The Kelkar Committee in its report “Roadmap for Reduction in Import Dependency in the Hydrocarbon Sector by 2030” (2013) stated that “Multiple ministries and agencies are currently involved in managing energy-related issues, presenting challenges of coordination and optimal resource utilization, hence undermining efforts to increase energy security”. In the Draft National Energy Policy (NEP), the NITI Aayog has advocated that a Unified Ministry of Energy be created by merging the Ministries of Petroleum and Natural Gas (MoPNG), Coal (MoC), New and Renewable Energy (MNRE) and Power (MoP). The Department of Atomic Energy (DAE) has been left out since it has implications beyond the scope of energy and involves national security issues. The proposed ministry would have six agencies under it to handle various aspects of the energy sector — Energy Regulatory Agency, Energy Data Agency, Energy Efficiency Agency, Energy Planning and Technical Agency, Energy Schemes Implementation Agency and Energy R&D Agency. Enabling optimisation A single unified ministry of energy would help India to have an integrated outlook on energy that would enable us optimise our limited resources to meet the goals of energy security, sustainability and accessibility. In the fast-changing energy landscape of our country, having a single energy ministry would be beneficial as it would allow for a quicker policy response. Formulating an integrated and wholesome energy policy in the current governance structure is a complex and challenging task not only due to lack of coordination among ministries but also due to the absence of good quality consumption data and an inadvertent promotion of their own fuels over other choices, which may not always be the best option. The present government has already taken some steps towards unifying the governance structure of the energy sector such as appointing a single minister for both MNRE and MoP. This move has been lauded across sections of society as both those sectors are heavily interlinked. Having the same person heading both of these ministries will help resolve long-standing issues faced by both conventional and renewable power generators such as power balancing and transmission infrastructure planning. The hotly debated issue of non-payment of dues by DISCOMS to the generators might also be resolved with such synergy in administration. In the past too, this government has had the same minister for MNRE, MoP and MoC with great results in village electrification, LED bulb distribution (Unnat Jyoti by Affordable LEDs for All, or UJALA), power sector reforms (Ujwal DISCOM Assurance Yojana, or UDAY), coal block e-auctions and alleviation of coal shortages. This demonstrates the intention of the political leadership to reform the energy governance structure. The ‘Jal Shakti’ example They have already shown a disposition towards unifying critical ministries. A pertinent example is the newly created Ministry of Jal Shakti which was formed by merging the Ministry of Water Resources, River Development and Ganga Rejuvenation and the Ministry of Drinking Water and Sanitation. The objective of this action is to unify water management functions, treat the issues of water management holistically and ensure better coordination of efforts. This was a crucial decision at a time when nearly 600 million Indians faced “high to extreme water stress”, while 75% households did not have drinking water on their premises. Though the actions by this government are a step in the right direction, there is a long road ahead. Accepting and implementing the recommendations of the NEP on reforming energy governance, which is to be placed for the approval of the Cabinet soon, would need to be carefully traversed given their hard-hitting implications on the existing bureaucratic structure. But nothing is more important than ensuring energy security, sustainability and accessibility. In this age of energy transition, this can only happen with quick and holistic decision-making as well as providing a level playing field for various fuels, all of which can happen if a single ministry handles the entire sector. Such a Unified Ministry of Energy will not only enable India to keep up with the global energy transition but also to continue to be a leader in adopting cleaner energy sources. Bansidhar Bandi is a former energy economist with
Assam Govt Bans Strikes by Oil and Gas Sector Employees under Essential Services Maintenance Act
The Assam government has banned strikes by employees of oil and gas sector in the state for six months from December 31, 2019 under the ESMA, an official release said on Thursday. Strikes by the officers, workmen, contract labourers, drivers and their helpers of tankers in the sector have been prohibited under the Essential Services Maintenance (Assam) Act, 1980, the release said. This has been done in public interest and any service in any oil field or refinery of any establishment or undertaking dealing with the production, supply of petroleum products including natural gas will fall under the purview of this order, it added.
ONGC extends deadline to accept bids for 64 fields to January 17
Oil and Natural Gas Corp (ONGC) has further extended to January 17 the deadline to accept bids for its 64 small producing fields, its chairman said. The deadline has been extended on requests from some potential bidders, Chairman Shashi Shanker said. The original deadline was December 20, which was extended to January 3. ONGC had invited bids from private players in June for its 64 small fields, clubbed in 17 contract areas. The company has altered some tender conditions to encourage increased participation by potential bidders. ONGC wants private operator to bear all new costs and receive a share in the additional production beyond the baseline output. The bidder seeking the least share of revenue from the incremental production would win.
BPCL sale: Govt stares at huge setback on sell-off front
With the near impossibility of the government completing privatisation of Air India, Bharat Petroleum Corp (BPCL) and Container Corporation of India (Concor) by the end of FY20, it is staring at Rs 60,000 crore budget gap despite planning to line up ‘offers for sale’ (OFS) to garner at least Rs 40,000 crore divestment proceeds. While there may not be lack of interest for BPCL or Concor; disinvestment of Air India, due to Rs 60,000 crore debt, doesn’t look so promising even the next year. Earlier in the day, a DIPAM official said in Mumbai the stake sale of Air India, BPCL and Concor might be difficult in FY20. The Shipping Corporation stake sale may go through, but it is likely to fetch just Rs 1,800-2,000 crore. The government has garnered only Rs 18,022 crore from selloffs, which is way behind the Rs 1.05 lakh crore target. To make up for the Air India, BPCL and Concor disinvestment before March 31, sources said the Finance Ministry was weighing OFS for few profit-making public sector firms to at least achieve 50 per cent of the disinvestment target. Though not finalised, these could include National Aluminium, Coal India, NTPC, NMDC, and NBCC (India), the official said. Bharat Electronics, National Fertilizers and Hindustan Copper were also on the list. The government’s shareholding in these companies is in the 52-82 per cent range. Timeline is set to play a major role. The Disinvestment Department may issue EoIs (Expressions of Interest) by end of January for Air India and by mid-February for BPCL. But the due diligence may take four-five weeks for responding to EoIs. The prospective bidders could seek more time for due diligence since it involved huge assets and funds, sources said. In case of BPCL and Concor, another set of rules too could come in the play. “If it triggers an open offer for minority shareholders as per Sebi (Securities and Exchange Board of India) guidelines in the listed companies, like BPCL and Concor, the process will get delayed by another five-six weeks. After that the successful winner will have to get clearance from the Competition Commission of India. Only after that it will transfer the money to the government account,” said a source. While the government plans to sell entire 100 per cent stake in Air India, it will divest its total 53.29 per cent stake in BPCL and 30.8 per cent stake in Concor of the 54.8 per cent stake.
Core sector output declines by 1.5 pc in Nov due to fall in coal, crude oil and natural gas production
The growth of eight core industries contracted by 1.5 per cent in November due to a fall in coal, crude oil and natural gas production, government data released on Tuesday showed. The output of eight core sector industries — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — had grown 3.3 per cent in November last year. The core sector for October had contracted to 5.8 per cent from the 5.1 per cent contraction seen in September. The eight core industries comprise 40.27 per cent of the weight of items included in the index of industrial production (IIP). “The combined index of eight core industries stood at 126.3 in November which declined by 1.5 per cent as compared to the index of November 2018. Its cumulative growth during April to November was zero per cent,” according to an official statement. While crude oil output growth was minus 6 per cent over November last year, coal output growth stood at minus 2.5 per cent year-on-year. Natural gas production declined by 6.4 per cent, steel production by 3.7 per cent and electricity generation by 5.7per cent. However, petroleum refinery production increased by 3.1 per cent, fertilisers production by 13.6 per cent and cement production by 4.1 per cent.
Oil Minister Dharmendra Pradhan to preside over signing of contracts for OALP IV
Oil Minister Dharmendra Pradhan will today preside over signing of contracts between the government of India and winners of oil and blocks under the fourth round of Open Acreage Licensing Program (OALP). The fourth round of OALP offered the lowest number of blocks (7) and also received a tepid response from investors as compared to earlier oil and gas bidding rounds held under the revised policy. While private players did not participate under the fourth OALP round, government-owned Oil and Natural Gas Corporation (ONGC) bid for seven blocks and Oil India bid for one block. In the second round , 14 blocks attracted 33 bids while in the third round, 23 blocks received 42 bids. In the first, 110 bids were received for 55 blocks on offer. In three rounds together, 87 blocks have been awarded. “The OALP bid rounds till date have received overwhelming enthusiasm from various stakeholders of E&P industry with 4 bidding rounds being completed till date. A total of 87 Oil and Gas blocks have been awarded till date covering an area of approximately 1,18,280 Sq. Kms. Now Government is going to award 7 blocks offered under OALP bid round IV, thereby adding another 18,510 Sq. Kms. to exploration map of India,” Directorate General of Hydrocarbons (DGH) said in a statement Government launched the fourth bid round on 27 August 2019 under a revised policy framework. Under the new changes, the emphasis is on work programme, with no requirement for revenue share quotations for less explored Category II and III basins, a cap of 50 per cent for revenue share in Category I basins has been introduced. Also, an alternative dispute resolution mechanism is being implemented and a single window system of application for online clearances has also been put in place. Under OALP, a company has the freedom to carve its own blocks and let the government know about its interest in the block, which would then put that up for auction. The company, which had initially shown interest in the block, gets some preferential points during bid evaluation.
Oil minister tells gas companies to work on waste-to-energy projects
Petroleum minister Dharmendra Pradhan on Friday said both the city gas distribution companies — MNGL and Mahesh Gas — should focus on converting municipal waste into energy. He was in the city to lay the foundation stone for five new CNG stations in the rural areas of Pune district. While the Maharashtra Natural Gas Limited (MNGL) has been present in the city for over a decade, Torrent Gas, through its partner Mahesh Gas, has committed an investment of Rs 6 billion in expanding the piped natural gas network and CNG stations in Pune district. Pradhan said the city doesn’t have a dearth of scientists, thinkers, academicians or firms, which are trying to convert waste products into energy. He urged the two companies to use their might to make these initiatives a success. He said one of the two companies have just started provisioning for services in the district. According to the MNGL, it has been finding it difficult to negotiate officialdom in many places and has a pendency of over 3,000 connections (due for over 90 days).Meanwhile, Torrent Gas said in Phase I of the project, the company aims to connect 100,000 households and set up over 50 CNG stations by March 2021. “Pune can be a pilot as far as usage of environment-friendly fuel is concerned,” he said. Mahesh Gas has been authorized by Petroleum and Natural Gas Regulatory Board to establish and operate city gas distribution network in only those geographical areas of Pune district where MNGL is not present.