IOC maintains interest in BPCL, may bid on lower offer size
The country’s largest public sector refiner and retailer, Indian Oil Corporation (IOC), may consider bidding for the Centre’s stake in Bharat Petroleum Corporation Ltd (BPCL) if such a need arises and the government agrees to reduce the quantum shares on offer in the company, including a waiver from mandatory open offer. Top official sources said that BPCL would fit well into the scheme of things of IOC, and together the entity would become a powerhouse of refining and retailing activity, which would give tough competition to other players in the field, including the global giants eyeing the Indian market. When asked recently, IOC Chairman Sanjiv Singh did not deny IOC’s interest in BPCL, but said: “These are big offerings where the Government of India’s entire stake is being sold.” Though the government is keen to offer its entire 53.29 per cent stake in BPCL to a strategic investor, most likely a global oil and gas giant such as Aramco, it has kept other options ready in the form of possible interest from companies such as IOC. Official sources said that there is a fear that no company, including global majors, may commit to invest close to Rs 1 lakh crore required to complete the transaction at one go. So, if the BPCL stake sale does not evince interest from MNCs, as an alternative, the government may sell half or around 26-27 per cent of its share to another PSU such as IOC. Market regulator Securities and Exchange Board of India (Sebi) may also extend a waiver from the mandatory open offer to minority shareholders of BPCL as it had done in the case of ONGC, picking up the entire government stake in HPCL and Power Finance Corporation’s (PFC) acquisition of government stake in REC. The Department of Investment and Public Asset Management Disinvestment (DIPAM) has already started the process of appointing advisors for the sale of the entire government stake in BPCL. While the mandate of advisors is to come up with a fair valuation of BPCL, identify investors and close the deal, sources said they may also present two scenarios — one where 53.29 per cent stake is sold to a strategic investor, and the other where a strategic investor will pick up half of this stake but take management control by virtue of having the largest shareholding. In the second scenario, the government will continue with a holding of up to 26 per cent stake in BPCL, a portion of which it might dilute when the strategic investor comes up with an open offer. It may also keep a portion of the holding for sale at a later stage at a higher valuation after the investor pumps in money into the company and lets it grow. The government’s stake is worth over Rs 60,000 crore at the prevailing price of BPCL shares on the BSE. If the buyer has to further acquire 25 per cent share in an open offer as per the takeover code, the total amount will rise to close to Rs 1 lakh crore. This is considered too high even by international standards. On its part, DIPAM is working out a plan to offload the entire government equity to a strategic partner, possibly a large overseas oil entity such as Saudi Aramco, Total, ExxonMobil or Shell. However, with the oil market globally facing a slowdown and demand not picking up despite supply squeeze, the appetite for a large acquisition becomes difficult. While no Indian company looks like mobilising such huge funds for BPCL’s acquisition, industry experts hinted that companies from Russia and the Gulf region could be targeted to get the necessary investment. This, sources said, could be done through government-to-government talks as most oil companies in those regions are state controlled. BPCL will be an attractive buy for companies ranging from Saudi Aramco of Saudi Arabia to French energy giant Total SA, which are vying to enter the world’s fastest-growing fuel retail market, including entry in retail space where BPCL has significant presence. Alternatively, the government could also keep other oil PSUs such as IOC and OIL India on a standby to go in for share buybacks if strategic sale to a private partner meets with little success. BPCL operates four refineries in Mumbai, Kochi in Kerala, Bina in Madhya Pradesh and Numaligarh in Assam with a combined capacity to convert 38.3 million tonnes of crude oil into fuel. It has 15,078 petrol pumps and 6,004 LPG distributors. The government proposes to raise Rs 1.05 lakh crore from disinvestment in the current financial year. It had exceeded asset-sale targets of Rs 1 lakh crore in FY18 and Rs 80,000 crore in FY19.
Petronet LNG’s Kochi terminal touches break-even sales volume of 1 mmtpa
After a few initial glitches, Petronet LNG’s Kochi terminal seems to be on its course with meeting Kerala’s natural gas requirements. The ₹4,700-crore terminal languishing due to under capacity utilisation ever since its commissioning in 2013, has now touched a break even volume of one million tonnes per annum sales. “We have already registered a 20 per cent growth in capacity utilisation, thanks to increased intake of natural gas by BPCL Kochi Refinery and FACT,” TN Neelakantan, Terminal Head, Petronet LNG Ltd (PLL), told BusinessLine. BPCL has enhanced its offtake by 2.4 million standard cubic metre per day (MSCMD), while that by FACT accounts for 0.9 MSCMD. Above all, the road movement of LNG as liquid is also on the rise for customers in Thiruvananthapuram and Tamil Nadu, he said. With the commissioning of the Mangaluru pipeline connectivity by GAIL, he expressed the hope that the Kochi terminal would attain an additional 15-20 per cent surge in its capacity utilisation. Mangaluru is a good consumption point since firms such as MRPL, Mangalore Chemicals and Fertilisers, ONGC Mangalore Petrochemicals require natural gas for their production requirements, he said. Besides, the proposed Proplylene Derivatives Petrochemical Project (PDPP) of BPCL-Kochi Refinery here would also add further to natural gas usage, he added. LNG-based bus Petronet LNG is also set to achieve a major breakthrough in public transportation in India by launching buses laden with natural gas as fuel for the first time in the country. Two buses each will be deployed in Kochi and Dahej soon for staff movement. This milestone achievement has been made possible after amendments were made to the country’s MV Act proposing the use of LNG as a fuelling option for motor vehicles, said Neelakantan. The move, according to him, will provide a greater impetus for LNG usage in long-distance buses. Once filled with LNG, these buses would ply about 800 km, which would be ideal for long-haul traffic to reduce transportation cost, he said, adding that Gujarat and Kerala governments have evinced interest in introducing LNG buses. Foray into marine sector Petronet LNG Ltd is also looking at entering in the marine sector where the company is in advance stage of launching a fishing boat with natural gas as fuel. “PLL is carrying out a pilot project jointly with Kerala Development and Innovation Strategic Council and Matsyafed for converting a fishing boat with natural gas as fuel. The State government is interested in the project as LNG boats would considerably bring down operating cost of trawlers especially in the time of fluctuating fuel prices.” However, Tony Mathew, General Manager, GAIL, cited some uncertainties with respect to the progress of the pipeline work in the 444-km Kochi-Mangaluru section. Unexpected rains and technical difficulties in carrying out underground drilling works in Chandragiri River in Kasargodu are impacting the work. “We are tackling the issues one by one. So far 99 per cent of the work was over and the remaining work in the 2-km stretch is expected to be completed in the set time frame itself,” he said.
Refinery project to be completed by 2022: Rajasthan CM
Chief minister Ashok Gehlot on Monday said construction of the Pachpadra refinery in Barmer was his government’s top priority. The project is a joint venture of the state government and HPCL. Around 25% of the work has been completed and a tender of Rs 10,000 crore has been floated for further work. The project is expected to be completed by 2022, he said. The CM said that work was going on at a war footing and would be completed on time. After its completion, there will be multidimensional development of the state, he added. He added that the government would set up a petrochemical hub here which will help in boosting industrial development in the area in addition to generating thousands of jobs. He added that local people would be given priority in employment and youth would be trained in technical fields through skill development. HPCL CMD M K Surana apprised the delegation via a model about crude oil coming to the refinery and the refining process. HPCL Rajasthan refinery CEO S P Gaikwad explained the basic difference between the plant and other refineries.
Opec sees its oil market share shrinking, lowers demand view
Opec will supply a diminishing amount of oil in the next five years as output of U.S. shale and other rival sources expands, the exporter group said, despite a growing appetite for energy fed by global economic expansion. Opec’s production of crude oil and other liquids is expected to decline to 32.8 million barrels per day (bpd) by 2024, the group said in its 2019 World Oil Outlook published on Tuesday. That compares with 35 million bpd in 2019. Rising climate activism in the West and widening use of alternative fuels are putting the strength of long-term oil demand under more scrutiny. The Organization of the Petroleum Exporting Countries (Opec) cut its medium- and long-term oil demand forecasts in the report. Opec supply has been falling in the last few years under a pact with Russia and other non-members to support the market. The resulting higher oil prices have bolstered non-Opec output and Opec is expected to restrain output in 2020. “Non-Opec supply prospects have been revised up sharply, as U.S. tight oil, in particular, has again outperformed expectations,” Opec Secretary-General Mohammad Barkindo wrote in the foreword of the report, using another term for shale. The United States has pushed its oil output to record highs due to a shale revolution that allowed new technology to tap reserves previously deemed uneconomic. Opec supply has declined as a result of voluntary curbs and U.S. sanctions on Opec members Venezuela and Iran. Vienna-based Opec expects supply of U.S. tight oil to reach 16.9 million bpd in 2024 from 12.0 million bpd in 2019, although the expansion will slow and peak at 17.4 million bpd in 2029. LOWER DEMAND FORECAST Opec, a 14-country, Middle East-dominated producer group that counts world No. 1 oil exporter Saudi Arabia, Iraq and Iran among its members, cut its forecast for global oil demand over the medium term. The organisation, which pumps almost a third of global oil supply, now sees oil consumption in 2023 reaching 103.9 million bpd, down from 104.5 million bpd in last year’s report. Longer-term, oil demand is expected to increase by 12 million bpd to reach 110.6 million bpd by 2040, also lower than last year’s forecast. Opec cited a recent lowering of economic growth forecasts plus efficiency gains and use of other fuels for the lower demand outlook. It said it expected oil use in industrialised countries, or those in the Organisation for Economic Cooperation and Development, to decline after 2020. Electric cars, while still a very small share of the global fleet, are “gaining momentum”, Opec said. They will account for nearly half of all new passenger cars in OECD countries by 2040, almost a quarter of those in China and more than 26% globally. Opec still hopes to boost production in coming decades thanks to its abundant and cheap-to-extract reserves. It expects supply from non-Opec producers to hit a high of 72.6 million bpd in 2026 and fall to 66.4 million bpd by 2040. “In the long term,” Barkindo wrote, “it is Opec that will be expected to meet the majority of oil demand requirements.”
The high and low of LNG market
Liquefied natural gas (LNG) prices have come down and are falling continuously. Although current summer prices have a seasonal effect, there appears to be a constant trend as well. Several policy issues have emerged in importing countries in the region which include whether long-term LNG supply contracts are advisable and is there a scope for renegotiating existing contracts both in price and non-price terms? Last September, JKM-Japanese LNG prices varied between $4.50 and $4.90 per million British thermal units (mmbtu). In other regions, same prices prevailed. Only a decade back, LNG prices were four times as much. Then some five years ago, three South Asian countries – Pakistan, Bangladesh and India – entered into contracts with Qatar at twice the current prices. Pakistan’s Finance Division refuses guarantee to LNG importer Spot market is a relatively new phenomenon in LNG. Spot prices used to be higher than long-term contract prices until 2014. But as the spot market developed and its share increased, its prices decreased and are now lower than long-term prices. LNG market has become very competitive with the entry of the US with its cheap shale gas resources and increase in general supply elsewhere. The US gas is competing with Qatar gas despite a considerable difference in distances. India is lifting 50% of its LNG demand from the US, which earlier was a net importer suffering from short supply. It is now a big exporter. Russian gas has also come into the regional market, creating a highly competitive environment and price and non-price pressures. Another trend seems to be emerging, however, it is not sure if this will persist with the same intensity in future. Winter January 2019 LNG spot prices were $8.555 per mmbtu, which came down to $4.5 in July (summer). Is it a seasonal effect due to lower summer demand in the West or it is part of the long-term decline or price adjustment? Will winter prices approach Qatar’s long-term price levels or even higher is yet to be seen? Already, spot prices have recovered to $6.5. Lower prices will heighten the pressure to renegotiate prices. It would mean that the lower price trend is permanent. Spot prices in Pakistan In Pakistan, October LNG spot prices – based on last three month’s average Brent crude oil prices and the multiplier of 8.391% as opposed to Qatar’s 13.37% – were $5.2 per mmbtu as compared to Qatar’s contract price of $8.2837, which makes Qatar LNG prices 61% higher than the current spot prices. The weighted average cost of LNG is $7.78. This average will go down as more and more spot buying is done to reduce the share of Qatar LNG. This will happen with the increase in demand. Prevailing spot prices in India are even lower at almost 50% of Qatar-India LNG contract prices. Qatar’s long-term prices are becoming extremely unaffordable, both in India and Pakistan. Qatar LNG prices are the same in both the countries, higher than international market prices and there is discontent over the issue in both the countries. The pressure on Qatar to adjust prices downwards is mounting, although price-opening clauses may be in its favour. In Pakistan, the share of LNG market was about 25% last year (2018-19). It is expected to increase in the long term with the exhaustion of domestic gas reserves. PLL refuses to open commercial offers for LNG supply However, the LNG demand has been low over the past months and one procurement bid has been cancelled recently. Power demand is much lesser than supply due to the addition of new coal and re-gasified LNG plants and because of seasonal factors as well. RLNG-based electricity is expensive due to expensive LNG supply from Qatar at $10-12 per mmbtu. Had spot LNG been there at $5-6 per mmbtu, RLNG-based electricity would have been competitive and LNG demand would have been higher. Knowledgeable people had opposed the installation of LNG and imported coal-based power plants at a fast pace, predicting excess supply. Had economic downturn not been there, even then, it is inconceivable that excess electricity supply could have been absorbed. The government is considering cheaper electricity tariffs for the winter season. Perhaps early steps are required to retire inefficient power plants to face the demand-supply asymmetries. Then there is back-to-back supply arrangement, penalties on non-or-short supply etc. Demand is variable, but contracts are for fixed quantities. The proposed privatisation of RLNG power plants is facing problems due to these issues and privatisation of gas companies will face similar issues. LNG procurement by private sector The more urgent issue is created by the induction of private-sector parties in LNG procurement. There are no new consumers. Private LNG companies will take away consumers from the existing gas companies – the latter don’t like it and are resisting the move. A possible solution could be a price equalisation charge on private-sector/spot LNG imports calculated on the basis of weighted average cost of LNG (Waco LNG). The surcharge will be paid to PSO, which is tied to long-term expensive LNG contracts. This will bring down PSO’s cost by $2 on average, making RLNG competitive and pushing it lower in the merit order. This arrangement may have to be extended till 2025 when price negotiations would be due with Qatar. A new LNG terminal policy has been announced. Private-sector LNG import provision has been on the table for quite some time now. This has not happened yet. The CNG group appears to be the first to make gas supply to its members. This group will be able to procure at spot prices of $5-6 at least in summers as opposed to $10-12 average LNG cost of the two gas distribution companies – SSGC and SNGPL. Clearly, this sector of the market can possibly be allowed to go to the private sector. However, if that is done, priority sectors like textile and fertiliser will also want to have the same facility. Both fertiliser and textile exporters are already receiving gas at subsidised prices.
GAIL’s Jamshedpur City Gas Distribution project inaugurated
GAIL (India) announced the inauguration of supply of domestic Piped Natural Gas (PNG) and Compressed Natural Gas (CNG) station in Jamshedpur. The work for laying a 125 KM long spur pipeline from Purulia to Jamshedpur was also commenced. This will feed CGD networks of East Singhbhum, West Singhbhum and Seraikela- Kharsawan geographical areas. Several rolling-steel, wire and pipe along with automobile industries would be benefited by the availability of cheaper and continuous fuel. The projects are being implemented by GAIL (India) which is constructing the prestigious Jagdishpur Haldia Bokaro-Dhamra and Barauni Guwahati Natural Gas Pipeline (JHBDPL), popularly known as the Pradhan Mantri Urja Ganga and also the City Gas Distribution (CGD) projects in Ranchi and Jamshedpur. Total Area of Jamshedpur City Gas Distribution (CGD) project is around 3562 Square KM. Under this CGD project more than 0.1 million households will be benefited. 125 commercial connections, 85 Industrial connections & many CNG vehicles will also be benefited. It will also help to increase the possibilities to set up Gas based Industries in and nearby Jamshedpur, increase Job opportunities for youth and multiply the revenue of Jharkhand state.
Israel-Egypt gas pipeline deal seen imminent
A deal that would transfer control of a natural gas pipeline between Israel and Egypt is expected to be closed in the next few days, the companies said on Sunday. Texas-based Noble Energy, Israel’s Delek Drilling and Egyptian East Gas Co have partnered in a venture called EMED, which last year agreed to buy a 39% stake in the subsea EMG pipeline for $518 million that will carry Israeli gas exports to Egypt. In a regulatory filing in Tel Aviv, Delek said the shares have already been transferred to the buyers while the funds are currently being held in a trust. It noted that no closing conditions remained. “Upon the transfer of the full amount of the consideration to the sellers, which is expected to be performed in the coming days, the EMG transaction will be closed in practice,” Delek said. Partners in Israel’s Leviathan and Tamar offshore gas fields had agreed to sell $15 billion worth of gas to a customer in Egypt — Dolphinus Holdings — but last month the deal was amended to boost supply by 34% to about 85 billion cubic metres, or an estimated $20 billion. Noble and Delek are key partners in both Leviathan — which is set to start production in the coming weeks — and the existing Tamar field off Israel’s Mediterranean coast. “The closing of the EMG transaction marks the dawn of a new era for the Israeli energy market – Israel’s transition to the status of a regional natural gas exporter,” said Delek Drilling CEO Yossi Abu. “The Leviathan project is moving ahead on schedule … and we expect to begin piping the gas from Leviathan already before the end of the year.” The supply deal with Egypt is expected to start in January. To buy into EMG, which owns the 90 km subsea pipeline between Ashkelon in Israel and El-Arish in Egypt, the three partners formed the joint company EMED. East Gas holds 50% of the venture while Delek Drilling and Noble own 25% each. The EMG pipeline has a planned capacity of around 7 bcm per year, with a possibility of increasing that to around 9 bcm per year via the installation of additional systems. Delek Drilling’s shares were up 6.1% in afternoon trading in Tel Aviv.
Petroleum and Natural Gas Regulatory Board bats for bringing natural gas under GST
Inclusion of natural gas in the goods and services tax regime, pipeline tariff reform and pricing freedom for all domestic gas would be necessary to make the proposed gas trading hub a success, the chief of Petroleum and Natural Gas Regulatory Board has said. India is aiming to build a gas trading hub to help develop the domestic gas market, and the downstream regulator, PNGRB, is working out regulations for the proposed hub. “There will be so much confusion in trading gas on hub without GST. People will withdraw. It will not be a happy situation,” PNGRB chairman Dinesh Kumar Sarraf told ET. This is because tax rates on natural gas vary from state to state and it would be hard for buyers and sellers entering physical contracts on the exchange to juggle multiple rates, he said. A single predictable tax rate would make it much easier for the market, Sarraf said. Natural gas, crude oil, jet fuel, petrol and diesel were not included in GST when it was rolled out two years ago as states, heavily dependent on petroleum taxes, resisted.
ONGC issues tender to supply 750,000 scmd of natural gas
India’s state-owned Oil and Natural Gas Corporation (ONGC) has issued a tender to supply 750,000 standard cubic meter per day (scmd) of natural gas beginning December 26, 2019 for three years from its eastern offshore gas field in Andhra Pradesh. The pricing basis for the tender is linked to Platts LNG DES West India price assessments. The reserve gas price for the tender would be calculated based on the simple average of daily Platts DES West India price for three months preceding the relevant month in which gas supplies are made plus a $1 per million British thermal units (MMBtu) constant, Platts said. The bids are required to be quoted as a premium over the reserve gas price, which will be published by ONGC on a monthly basis in $/MMBtu. Based on the above formula, the reserve price for November would be $5.93/MMBtu, Platts data showed. In comparison, the Reliance and BP domestic gas tender’s reserve gas price — priced at 8.4 per cent of Brent — for November would be around $5.08/MMBtu. “Price for the Reliance and BP domestic gas tender, bids for which are due November 6, is based on a lagged “3-0-1″ pricing formula, with an average Dated Brent price of three months prior to the month of delivery,” Platts said in a statement. The ONGC tender would be conducted over two bid rounds. The first bid round would assess the technical and commercial availability of bids and the second round would be price bids. Bids for the tender are due November 12 and will be valid for 180 days from the date of opening of the un-priced bids. Natural gas produced from discoveries in deep-water, ultra-deep-water and high pressure-high temperature areas can be priced independently, but has a price ceiling of $8.43/MMBtu for October 2019 to March 2020. The government sets the price ceiling bi-annually. The ceiling price would be the lowest of imported prices of LNG, fuel oil or weighted average price of coal, fuel oil and naphtha. The price of domestic natural gas was set at $3.23/MMBtu for October 2019 to March 2020 from regular gas fields.
Israel-Egypt gas pipeline deal seen imminent
A deal that would transfer control of a natural gas pipeline between Israel and Egypt is expected to be closed in the next few days, the companies said on Sunday. Texas-based Noble Energy, Israel’s Delek Drilling and Egyptian East Gas Co have partnered in a venture called EMED, which last year agreed to buy a 39% stake in the subsea EMG pipeline for $518 million that will carry Israeli gas exports to Egypt. In a regulatory filing in Tel Aviv, Delek said the shares have already been transferred to the buyers while the funds are currently being held in a trust. It noted that no closing conditions remained. “Upon the transfer of the full amount of the consideration to the sellers, which is expected to be performed in the coming days, the EMG transaction will be closed in practice,” Delek said. Partners in Israel’s Leviathan and Tamar offshore gas fields had agreed to sell $15 billion worth of gas to a customer in Egypt — Dolphinus Holdings — but last month the deal was amended to boost supply by 34% to about 85 billion cubic metres, or an estimated $20 billion. Noble and Delek are key partners in both Leviathan — which is set to start production in the coming weeks — and the existing Tamar field off Israel’s Mediterranean coast. “The closing of the EMG transaction marks the dawn of a new era for the Israeli energy market – Israel’s transition to the status of a regional natural gas exporter,” said Delek Drilling CEO Yossi Abu. “The Leviathan project is moving ahead on schedule … and we expect to begin piping the gas from Leviathan already before the end of the year.” The supply deal with Egypt is expected to start in January. To buy into EMG, which owns the 90 km subsea pipeline between Ashkelon in Israel and El-Arish in Egypt, the three partners formed the joint company EMED. East Gas holds 50% of the venture while Delek Drilling and Noble own 25% each. The EMG pipeline has a planned capacity of around 7 bcm per year, with a possibility of increasing that to around 9 bcm per year via the installation of additional systems. Delek Drilling’s shares were up 6.1% in afternoon trading in Tel Aviv.