India on course for lowest fuel demand growth in 6 years
Growth in demand for fuel in India is on course to fall to its lowest in at least six years as the economy slows and after heavy rains impacted gasoil consumption, which accounts for about two-fifth of the nation’s overall fuel use. In the fiscal year to March 2019, fuel demand rose by 3.4 per cent, the lowest in five years. During April-September, consumption of refined fuels – a proxy for oil demand – rose 1.4 percent from a year ago, according to government data. “It means in the next few months (in this fiscal year) fuel demand need to grow by 3 per cent-4 percent to reach last year’s levels, which looks unlikely,” M.K Surana, chairman of state-run Hindustan Petroleum Corp told a news conference. HPCL controls about a quarter of India’s retail fuel market. Slowing economic and industrial activity has already led some global agencies to cut their fuel demand forecast for India. The International Energy Agency expects oil consumption growth to drop to 170,000 barrels per day (bpd) in 2019, the slowest since 2014. Asia’s third-largest economy expanded by just 5 per cent in the June quarter, its slowest pace since 2013, and the International Monetary Fund has cut its growth forecast for this fiscal year to 6.1 per cent from an initial 7 per cent. Industrial output shrank at its fastest rate in more than six years in August, and passenger vehicle sales slumped 23.7 per cent in September, the eleventh straight month of declines. “Diesel (growth) is a concern, petrol is not,” Surana said, adding gasoil demand should pick up now because the monsoon season was over. Heavy rains impact road transportation, construction and industrial activity and, by extension, demand for diesel. Surana said lower demand for diesel has dragged down overall fuel demand growth, notwithstanding rising consumption of liquefied petroleum gas, jet fuel and gasoline. In April-September, annual diesel demand grew by just 1 per cent while gasoline demand rose by 9 per cent. Last year, diesel demand grew by 3 per cent. “Definitely I don’t think it will be 3 per cent in this year, it will be lower than that”, Surana said.
ONGC sells January Russian Sokol crude at high premium
Indian oil explorer ONGC Videsh sold one cargo of January-loading Russian Sokol crude at a premium of around $9.25 a barrel to Dubai quotes, hovering around its highest level since September 2013, two traders said on Friday * The buyer of the cargo was likely trading house Glencore * ONGC offered the 700,000-barrel cargo to load over Jan. 4-10 * Prior to this, ONGC sold one cargo of December-loading Russian Sokol crude at a premium of around $9.20-9.25 a barrel to Dubai quotes
IndianOil delivers first parcel of low sulphur marine fuel
Indian Oil has emerged as the first company to deliver the parcel of 0.5 per cent sulphur380 CST marine fuel oil to international ship. The company has thus complied with International Maritime Organisation guidelines which require all the seagoing tanker vessel to switch over to marine fuel having a sulphur content of 0.5 per cent from January 1, 2020, against the current limit of 3.5 per cent. The company in a statement issued here said that the first bunker sales of this very low sulphur fuel oil (VLSFO ) in India were made during this week from Kochi and Kandla. In Kochi, supplies were made to the international tanker MV UACC Ras Tanura sailing to South Africa. Indian Oil is also planning bunker fuel deliveries at the ports of Mumbai, Mangaluru, Tuticorin, Chennai, Visakhapatnam, Paradip and Haldia by mid-November. VLSFO with 0.5 per cent is produced from sweet crude oil grades and complies with ISO 8217:2017 RMG380 standard. As part of the company’s commitment to safeguard the environment and to reduce pollution, Indian Oil had become the first company to implement the guidelines by starting deliveries ahead of the mandated schedule.
Rebooting What’s Possible in India’s Gas Market
India is something of a conundrum for global LNG players. I recently returned from a week in Delhi, just as the capital was making headlines for one of the worst episodes of air pollution, while the country’s energy mix remains dominated by cheap domestic coal. At the same time, gas price sensitivity continues to stymie investment and contracting negotiations. Progress has been made with LNG import terminals but delays to pipeline infrastructure and convoluted gas allocation policies frustrate demand growth. And of course, India’s infamous bureaucracy and pace of decision-making could test the patience of even a Hindu saint. In this environment, most of the world’s major LNG suppliers have only modest exposure to India. In comparison to China, where Shell, Total, ExxonMobil, BP and PETRONAS combined have over 30 Mtpa of contracted supply, their India portfolios amount to only something like 5 Mtpa of SPAs. Strategies for cracking the Indian gas market have proven elusive. This is now set for change. BP, Total and ExxonMobil have all announced recent deals and investments with Indian partners, suggesting that Big Oil is rethinking what is achievable in the country. Moving from a passive LNG contracting model or upstream entry through a traditional PSC, I see the Majors now pushing to ‘make it happen’ in India. This India reboot reveals new thinking, investing through the value chain, targeting specific sectors and building strong local partnerships. This is driving deal-making that is both innovative and that works for both Indian partners and consumers. India overtakes South Korea as world’s third-largest LNG market by 2030 Yes, India is challenging. But the outlook for gas and LNG demand growth remains robust. New regasification and downstream network connections are (slowly) unlocking latent gas demand and although we’re unlikely to see government’s target of a 15% share of the primary energy mix for gas by 2030 being met, opportunities are aplenty. LNG imports rose by 14% year-on-year in 2018 to reach 22 Mtpa, around 56% of total demand, and we expect them to climb to 40 Mtpa by 2030 and then 70 Mtpa in 2040. At this rate of growth, India will overtake South Korea as the third-largest Asian LNG market by 2030 and be as important as Japan by 2040. Now is the time for reboot It is this scale of growth that is now leading to a reboot of what is achievable in India – 28 Mt of uncontracted LNG demand by 2030 tends to do this (I’m excluding the September 2019 Petronet LNG MOU with Tellurian here). In addition to pursuing their own pre-FID LNG projects, Shell, Total, PETRONAS, ExxonMobil and BP have also built up long LNG offtake positions to expand their portfolios over the past two years. Combine this with a moderating Chinese LNG demand growth through 2019, and the importance of India becomes easy to understand. Rising competition is also a factor. US project developers have made inroads into India and with its growing portfolio of flexible, low-cost supply, Russia’s NOVATEK is aggressively targeting Indian buyers, signing MOUs in September 2019 with H-Energy and Petronet LNG. And of course, India is inevitably a major target for Qatar’s uber competitive and proximate mega train expansions. ‘Making it happen’ in India It’s been a busy few months for the Majors in India. Back in June, BP announced FID on the MJ project in the offshore KG D6 block with local partner Reliance Industries. The project is the third phase of the KG D6 integrated development plan and sees BP cement its place as the largest foreign player in India’s upstream sector. With the partners committing to around US$5 billion of investment across the three phases of KG D6, the plan will ultimately see 1 bcfd of gas supplied into the domestic market as the phases come onstream 2020-2022. Undoubtedly the strength of Reliance as a local partner is encouraging BP that things can get done in India. Also looking to get things done in India is Total. The company announced in October the acquisition of 37.4% stake in domestic player Adani Gas. The deal will act as a means for Total to supply portfolio LNG into India (particularly additional Mozambique trains in future) and to access the Adani Gas pipeline network and domestic end-users through its expanding domestic distribution and retail networks. As with BP/Reliance, a strong local partner with established relationship and an ability to manoeuvre bureaucracy will be critical to future success. Two separate preliminary partnerships were also announced in October by ExxonMobil with both ONGC and Indian Oil. The ONGC deal aims at closer collaboration on upstream investment, for example joint bidding on blocks. The second deal with IndianOiI will explore ways to lower the cost of gas delivered to the Indian market. These are further examples of Majors looking to build strong local partnerships, and with FID expected on Rovuma LNG in Mozambique in Q1 2020, India will be a key target market for ExxonMobil. Challenges and risks exist but opportunities abound India doesn’t come without risk and the list is long. How quickly can reform take place? Can India really afford LNG? Will partnerships stick? Could gas get squeezed between cheap coal and low-cost solar in the power sector? Might Qatari LNG stitch up the Indian market? How durable are long-term contracts? I could go on. But I always return to scale and opportunity. A reboot of what is possible in India is now firmly underway.
Brazil govt says need to learn lesson after most blocks unawarded in oil auction
One of the last big pre-salt rounds in Brazil finished on Thursday with only one block awarded, in another blow for authorities who have been criticized over the high cost of access to the areas. State-run Petrobras and a unit of China National Petroleum Corp were awarded the Aram block, the round’s most promising area, after submitting an offer with the minimum profit oil allowed. In a press conference following the auction, Brazilian authorities expressed disappointment. Decio Oddone, the head of Brazilian oil regulator ANP, said he expected at least three of the oil blocks to receive offers, adding that the rules for auctions needed to be changed. Brazilian Mines and Energy Minister Bento Albuquerque said the country needed to learn a lesson from this year’s auctions.
BPCL privatisation: Pradhan says no role of govt in business; competition to benefit consumers
Days before the Union Cabinet takes up a proposal to privatise state-owned BPCL, Petroleum Minister Dharmendra Pradhan on Thursday said the government has ‘no business to be in business’, and cited examples of telecom and aviation sectors where opening up had led to increased competition and price cuts to the benefit of consumers. Refusing to comment specifically on the possibility of government selling its 53.29 per cent stake along with management control in oil marketing and refining firm Bharat Petroleum Corp Ltd (BPCL) for about USD 10 billion (around Rs 70,900 crore), he said the role of the government should be to create policy framework guarantees “affordability, accessibility, sustainability and security” of fuel to consumers. “When Prime Minister (Narendra Modi) says the government has no business to be in business, it is not a slogan. It is a philosophy,” he said. “Our PSUs have done a commendable job in the building modern India and ensuring availability of fuel to the common man. But the common man will benefit most from the competition.” Pradhan said telecom and aviation sectors are shining examples of what competition can do for consumers. Opening up of these sectors to private players had led to a crash in phone call rates and internet charges as well as provided the wider options to travelers to choose from affordable airfare. “This democracy is committed to the common man of the country. We have to create ease of living through more open and process-driven regulation. Product is important, who is running it is not important,” he said. He refused to be drawn into timelines for stake sale in BPCL, the country’s second-biggest state-run oil refining and marketing company. It is being speculated that the Union Cabinet may take up a proposal to privatize BPCL as early as next week. Stake sale in BPCL is critical for the government to meet its disinvestment target of Rs 1.05 lakh crore set for the current fiscal year.
IGL second quarter net profit doubles to Rs 416 crore
City gas distributor Indraprastha Gas Limited (IGL) today said its consolidated net profit for the September quarter doubled to Rs 416 crore on the back of improved volume and value of sales. The company’s revenue from operations increased 19 per cent to Rs 1,873 crore during the second quarter (July-September) of the current financial year. Overall sales volumes during the quarter rose 12 per cent to 605 million standard cubic meter (mmscm) while the value of sales during the quarter jumped 19 per cent to Rs 1,866 crore, as compared to the corresponding quarter last fiscal. “Total gross sales value during this quarter is Rs 1,866 crore registering a growth of 19 per cent over sales turnover of Rs 1,564 crore shown in Q2 of FY19. Product wise, CNG recorded sales of Rs 1,438 crore, registering a growth of 22 per cent and PNG recorded sales of Rs 428 crore registering a growth of 10 per cent over the previous year,” the company said.
Spain becomes Europe’s cheapest gas market on flood of low-cost LNG
The Spanish gas market has become the cheapest in Europe for the first time, distorted by an influx of low-priced liquefied natural gas (LNG) cargoes that keep arriving in the country despite subdued demand. Gas prices in Spain – Europe’s major LNG market – usually hold a premium over prices on some major European gas markets because the country imports gas from fewer supply sources. But in the past week Spanish gas prices for day-ahead, weekend and December delivery dropped to the lowest level across the continent as once expensive LNG has been trading lower than gas on some European gas hubs this year, flooding markets including Spain. “Plenty of LNG is coming to Spain but (it) looks like no one wants to buy gas (on the domestic market). It’s terrible,” an industry source in Spain said. The day-ahead contract on Spanish gas hub PVB was around 1.3 euros below Europe’s benchmark Dutch gas price on Thursday, a gas trader said. Spanish December delivery gas was around 0.37 euro cheaper, while the weekend contract was more than 2 euros cheaper, according to another source. Spain has imported 14.24 million tonnes of LNG this year so far, a 50% increase from the same period in 2018, Refinitiv data shows. Spot LNG arriving to the country now was purchased at least one or two months ago. “Price gave incentive to importers to do so (at that time). The problem is that if demand is not strong, the system is unable to cope, so the price collapses,” one gas trader said. Traders pointed out that power prices are low in Spain and said that strong wind is decreasing demand for gas in power generation now. Gas storage in Spain is almost 95% full, a situation similar to most European gas markets. LNG stocks have also been high, with importers holding off on processing the liquid earlier this year, awaiting higher prices and creating a block in the supply chain. As more cargoes arrive in the country now, LNG has to be re-gasified and sent to the gas system to give room for new arrivals, which is leading to an oversupply on the Spanish market. Looking forward, traders forecast a more balanced situation in the first quarter of 2020 as the LNG influx may reduce slightly, while demand is likely to rise. “Having (Spanish gas hub) PVB at a great discount to Dutch or French (gas) will impact future imports of LNG in Spain,” one trader. “Importers will have to price this possibility as a risk, therefore potential future bids will be lower and probably that will impact on how competitive the Spanish importers can be.”
Japan marks 50 years of LNG imports with eye on Asia growth
Japanese gas buyers on Wednesday marked the 50th anniversary since the first cargo of liquefied natural gas (LNG) arrived in Japan, now the world’s biggest importer of the fuel. The arrival of the cargo on Nov. 4, 1969 helped transform Japan’s energy system, which had relied on oil, coal and gas from coal in an era of high growth, before nuclear power was developed. But Japan’s energy situation is undergoing huge changes in the wake of the Fukushima nuclear disaster in 2011, which pushed LNG imports to record highs as reactors were closed and the government liberalised the gas and power markets. LNG demand is forecast to decline steadily as more reactors are switched on and renewables backed by government-mandated high prices are developed. Coal has also seen an increase since Fukushima but social pressure on emissions means its use is being questioned. “Japan has been leading the way to grow the LNG market, but we now have to think from a global viewpoint as Japan’s domestic demand will fall due to an ageing population and declining birthrate,” Michiaki Hirose, chairman of the Japan Gas Association, told reporters on Tuesday. Hirose is also chairman of Tokyo Gas, the country’s biggest city gas supplier. Japan’s gas industry should contribute its knowhow to help develop LNG markets in Southeast Asia where energy demand is expected to grow, Hirose said. The industry should also promote LNG as a backup to compliment power supply fluctuations seen in renewables, he said. Japan’s industry minister said in September that Japan and its private-sector firms would invest $10 billion in LNG projects worldwide, in a strategy to boost the global LNG market and reinforce the security of energy supply. LNG is a natural gas that has been cooled to minus 162 degrees Celsius. At that temperature, natural gas turns liquid, which takes up to 600 times less space than in its gaseous state, making it feasible to deliver anywhere in the world. Nov. 4 marked 50 years since the “Polar Alaska” LNG ship arrived at Negishi LNG Terminal in Yokohama, near Tokyo, jointly operated by Tokyo Electric Power Co, now JERA, and Tokyo Gas, transporting LNG from the Alaska LNG Project owned by Phillips Petroleum, now ConocoPhillips. JERA, Tokyo Gas, Mitsubishi Corp, which acted as a buyer’s agent 50 years ago, and ConocoPhillips held a ceremony for the 50th anniversary on Wednesday in Yokohama. Nov. 4 was a public holiday in Japan.
Total-Adani deal signals robust investment appetite in gas ‘sweet spot’ India
Total’s move to buy a more than one-third stake in Adani Gas is a sign of the growing appetite that global energy firms have in investing in India’s gas sector, with analysts hopeful that New Delhi’s push to encourage the consumption of cleaner fuels would increasingly attract more such investments. “The Total-Adani joint venture creates a put option on Total’s global LNG portfolio in a market with huge potential for demand, a move replicated in other countries as sellers become partners with buyers,” said Chinmayee Atre, LNG analyst at S&P Global Platts Analytics. Total announced in October that it would acquire a 37.4% stake in Adani Gas and also set up a joint venture for marketing natural gas in India and Bangladesh. Adani Gas, one of the four largest distributors of city gas in India, is 74.8% owned by Adani Group. As part of its strategy to develop new gas markets, Total is expanding its partnership with Adani Group, which includes the Dhamra LNG import and regasification terminal in eastern India, and could potentially include Mundra in the west, Total said. GROWING INTEREST OF ENERGY MAJORS Total’s gas ambitions for India come a time when other international oil majors, like Shell and BP, are stepping up efforts to play a bigger role in India, where the share of gas in the energy mix is as low as 6%, compared with a global average of 24%. “Similar deals maybe possible as other domestic oil companies foray into the gas marketing space,” Atre of Platts Analytics said. With international gas production rising sharply and India being one of the most under-penetrated gas markets, many international companies were keen to invest in India’s gas sector to have an early mover advantage, analysts said. “India is a sweet spot as far as gas is concerned,” said Sumit Pokharna, oil and gas analyst at Kotak Securities. “Looking at growing global supplies, India offers a strong value proposition because of cost economics. More international companies might look to invest in the gas value chain in India.” India’s dependence on LNG imports is set to rise as domestic production is expected to grow at a compound annual growth rate of 8.89% over the next five years, while demand is expected to increase by a compound annual growth rate of 11.07% over the same period, according to Platts Analytics. Wood Mackenzie forecasts that India’s LNG demand will double from 37 Bcm in 2018 to 75 Bcm by 2030, providing a major growth opportunity for Total. “Total’s investment in Adani is undoubtedly a show of faith in India’s gas demand growth,” Wood Mackenzie Research Director Nicholas Browne said. “The government has a target to increase this to 15% by 2030. While we don’t consider this likely, gas demand is set to grow considerably.” In addition to Total, Reliance and BP are jointly investing up to $6 billion to develop already-discovered deepwater gas fields off theeast coast of India, which is expected to boost gas output by 30-35 million cu m/d (1 Bcf/d) in phases over 2020-2022. In addition, Shell’s country chairman for India Nitin Prasad recently told Platts that Shell was keen to participate actively and grow in the Indian gas market. Earlier this year, Shell became a full owner of the Hazira LNG and Port venture following the acquisition of a 26% equity held by Total. The terminal has a regasification capacity of 5 million mt/year. Shell is developing truck-loading facility at the Hazira LNG terminalas the company is keen on supplying LNG to industrial and transportation segments. EFFORTS TO GROW DISTRIBUTION NETWORK The city gas distribution sector in the South Asian nation is a segment that could witness more interest from international companies in the coming years, analysts told Platts. “The Total-Adani deal also solves the issue of unavailability of infrastructure as an impediment for demand to pick up in upcoming South Asian LNG buyers like India. City gas is expected to be one of the biggest growth drivers for India’s gas market,” Atre said. The Total-Adani joint venture comes when Adani Gas is aiming to expand its distribution of gas over the next 10 years through its 38 concessions covering 7.5% of the Indian population, and market natural gas to industrial, commercial and domestic customers targeting 6 million homes. It is also looking at 1,500 retail outlets of natural gas for vehicles. An official at an international oil and gas company based in India said that the city gas distribution space could witness a few more international companies buying stakes, although they could be relatively smaller compared with the Adani-Total deal. “The Total-LNG deal is a master stroke in my view. There will be more consolidation in the city gas distribution space. A lot of capital expenditure and effort is required to grow that network,” the official added.