Rosneft CEO says Sakhalin-1 to build its own LNG plant in Russia’s De Kastri port
Shareholders in the Sakhalin-1 oil and gas project in Russia’s far east have decided to build their own liquefied natural gas (LNG) plant in the Pacific port of De Kastri, which could supply the super-cooled gas to Japan, Rosneft’s chief executive said. The four companies – Rosneft, Exxon, Japan’s SODECO and India’s ONGC Videsh – are partners in the Sakhalin-1 group of fields. The partners were considering whether to build their own LNG plant or to sell gas to Gazprom. Gazprom, Russia’s top gas company, leads another project on the Pacific island of Sakhalin, Sakhalin-2, and is planning to expand its production capacity from the current 10 million tonnes of LNG per year. Gazprom was in talks with the Sakhalin-1 shareholders about buying gas from that project for the Sakhalin-2 expansion but the parties have so far failed to agree on the selling price. Sources told Reuters last year that Sakhalin-1 planned to build its own LNG plant at the De Kastri port in Russia’s Khabarovsk region, where Rosneft already has an export terminal for Sakhalin-1 oil. “This year, shareholders made a decision to build our own LNG plant in De Kastri with a capacity of 6.2 million tonnes (per year),” Rosneft Chief Executive Igor Sechin said in a statement on Thursday. “Its products will be much in demand in Japan due to the geographical proximity of the two countries.” Russia has two large-scale LNG plants so far, Sakhalin-2 and Novatek’s Yamal LNG. Novatek, Russia’s top private gas producer, plans to launch another one, Arctic LNG-2, in 2023. Japan has stakes in both Sakhalin-2 and Arctic LNG-2 projects. Sechin, whose Rosneft has long sought to build its own LNG plant, did not provide timing or costs of the project in the statement on Thursday. Sources told Reuters last year that the De Kastri option for the LNG plant would allow the costs to be spread among Sakhalin-1 stakeholders and the broader involvement of participants may mitigate sanctions risk. Sakhalin-1 is led by Exxon with a 30% stake while Rosneft owns 20% with the rest split between SODECO (30%) and ONGC Videsh (20%).
Iran agreed to buy OVL gas but US sanctions stalled talks
Iran had agreed to buy the gas produced from ONGC Videsh Ltd-discovered Farzad-B field in the Persian Gulf, but talks got stalled after the US reimposed sanctions against Tehran. ONGC Videsh Ltd (OVL), the overseas investment arm of state-owned Oil and Natural Gas Corp (ONGC), had in 2008 made a significant natural gas discovery in the Farsi offshore exploration block in the Persian Gulf, the company said in its latest annual report. The discovery was named Farzad-B. “Since April 2016, both sides negotiated to develop Farzad-B gas field under an integrated contract covering upstream and downstream including monetization/marketing of the processed gas, however, negotiations remained inconclusive,” it said. During 2018-19, the National Iranian Oil Company (NIOC) proposed the development of the gas field and “offtake of raw gas by NIOC at landfall point(s),” it said. “However, due to imposition of US sanctions on Iran with effect from 5th November 2018, technical studies could not be concluded which is a precursor for commercial negotiations,” OVL said. Any company investing in the Iranian oil field will attract US sanctions, crippling its ability to access the international financial system. OVL has projects in 21 countries and cannot risk being cut off from international payment system. The Exploration Service Contract (ESC) for the over 3,500 sq km Farsi block was signed on December 25, 2002. OVL holds 40 percent stake and is the operator, while the remaining stake is held by Indian Oil Corp (40 percent) and Oil India Ltd (20 percent). The exploration phase of the ESC expired on June 24, 2009. “The Master Development Plan (MDP) of Farzad-B gas field was submitted in April 2011 to Iranian Offshore Oil Company (IOOC) – the then designated authority by NIOC for development of Farzad-B gas field. Subsequently, the Development Service Contract (DSC) of Farzad-B Gas Field, though negotiated till November 2012, could not be finalized due to difficult terms in the DSC and international sanctions on Iran,” the company said. Since April 2015, negotiations restarted with Iranian Authorities to develop the Farzad-B gas field under a new, Iran Petroleum Contract (IPC). OVL has so far invested Rs 161.2 crore in the block. Company officials said Iran previously conditioned granting rights to develop the Farzad-B fields on Indian firms buying all of the gas produced at the imported-LNG equivalent rate. This proposition, which involved an investment of USD 11 billion in first developing the field and then setting up a facility to convert it into liquid gas (liquefied natural gas or LNG) for shipping to India, was considered very expensive, they said. Iran thereafter agreed to take delivery of all of the gas produced from Farzad-B offshore field at a landfall point in the Persian Gulf nation. Farzad-B field has an in-place gas reserve of 21.7 trillion cubic feet, of which 12.5 Tcf is believed to be recoverable. India and Iran were initially targeting concluding a deal on Farzad-B field development by November 2016, but later mutually agreed to push the timeline to February 2017. The deadline to wrap up negotiations was later targeted for September 2017. But, with the deal stuck over the pricing of gas, no new deadlines have been proposed.
R Kesavan takes over as HPCL’s Finance Director
R Kesavan on Thursday took over as the Finance Director at Hindustan Petroleum Corporation Ltd (HPCL). He is also the Chief Financial Officer at the government-owned oil and natural gas company, according to a statement. Kesavan was earlier Executive Director of HPCL’s Corporate Finance division for over four years. He is a fellow member of the Institute of Chartered Accountants of India (ICAI). Kesavan brings with him three decades of experience in corporate accounts, audit, treasury management, risk management, budgeting, pricing, corporate strategy and margin management.
BPCL, HPCL buy more gasoline to plug supply gaps
India’s Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) continue to import gasoline to plug a persistent supply gap as their refineries undergo maintenance and upgrade to produce cleaner fuels. BPCL on Wednesday bought 20,000 tonnes of gasoline for Sept. 16-18 arrival at Kandla at premiums of about $4 a barrel to Singapore quotes on a cost-and-freight (C&F) basis, industry sources who track the fuel said on Thursday. This has pushed its total purchases for cargoes scheduled for a seven-month delivery period over March to September to at least 110,000 tonnes. HPCL has a larger appetite for the fuel, buying more than 155,000 tonnes for September and October, with its most recent purchase made on Aug. 29 from Total, the sources said. HPCL also has an outstanding tender to buy another 30,000 tonnes for Oct. 10-12 arrival at Visakhapatnam. HPCL had been actively seeking gasoline since December last year but results of its earlier buy tenders were not clear. The companies did not immediately respond to requests for comment. India remains a gasoline exporter despite the buying spree, although its net gasoline exports between January and July this year have been reduced to a monthly average of 950,000 tonnes compared with 1.11 million tonnes for the same period last year, official data showed. Demand from India alone has been insufficient to drive the Asian gasoline market higher due to expanding refinery capacities in China, where gasoline shipments in July at 1.56 million tonnes were 75% higher than a year ago. The average Asian gasoline profit margin this year as of Sept. 4 was $4.12 a barrel, down nearly 45% of its value when compared to the same period in 2018.
Reliance Industries and BP scout for natural gas buyers
Reliance Industries and BP are seeking buyers for natural gas from their $5-billion deep sea project in the KG D6 block at a time when rates have crashed due to global supply glut. RIL and BP, which are jointly developing three fields named R-Cluster, Satellites, and MJ in KG basin, have launched the process to auction 5 million metric standard cubic meters per day of gas from the R-Cluster field that is slated to start production in April-June 2020. This will be the first output from three fields, which are expected to produce 1 billion cubic feet a day when fully developed in 2022. CRISIL Risk and Infrastructure Solutions Ltd will manage the bidding process and evaluate the bids, which must be submitted electronically on October 10. A bidder will have to quote a price (expressed as a percentage of the dated Brent), supply period, and the volume of gas required. Dated Brent means the average of published Brent prices for three calendar months immediately preceding relevant contract month in which gas supplies are made. Bidders can’t quote below 9% of dated Brent price. So, at Thursday’s Brent oil price of $60.71/ barrel, the floor price would be $5.46/m metric British thermal unit (mmBtu). The government set ceiling for gas from difficult fields, currently at $9.32/ mmBtu, would act as the cap. The global supply glut has sharply cut rates of liquefied natural gas (LNG) to below $4 per mmBtu in the spot market. Indian Oil Corp reportedly bought an LNG cargo last month for $3.69 per mmBtu, equal to the domestic formula price for gas from ordinary fields.
India’s move to bolster energy ties with Russia has nothing to do with problems with Iran: FS
India’s decision to bolster its energy ties with resource-rich Russia has nothing to do with the issues faced by the country on purchasing oil and LNG from Iran, Foreign Secretary Vijay Gokhale said on Wednesday. His comments came as India’s Ministry of Petroleum and Natural Gas and Russian Ministry of Energy signed an agreement on the expansion of cooperation in oil and gas sector, along with an MoU on the use of natural gas for transportation. The two countries also signed a MoU between Coal India Limited and Far East Investment and Export Agency to cooperate in coking coal mining projects implementation in the Russian Far East. Responding to a question, Gokhale said India’s decision diversify and expand energy ties with Russia had nothing to do with the issues faced by the country on sourcing oil and Liquefied Natural Gas (LNG) from Iran, another major player, now hit by US sanctions. He noted that Iran has been a reliable and major supplier of energy to India. However, India was scouting for more sources because of its growing energy requirements. Gokhale described the signing of agreements with Russia to ensure India’s energy security as “major breakthroughs” during Prime Minister Narendra Modi’s talks with Russian President Vladimir Putin here in the Far Eastern port city. He forecast that energy cooperation is going to be an “emerging pillar” in the India-Russia relationship, which hitherto remained focused mainly on defence and civil nuclear cooperation. He said India, which is in the process of diversifying its sources of energy, finds Russia as an attractive source. A joint statement issued after the 20th India-Russia annual summit between Prime Minister Modi and President Putin said the two sides agreed to explore joint development of oil and gas fields in Russia and India including offshore ones. “With the signing of the roadmap for cooperation in Hydrocarbons for 2019-24 during the Summit, both Sides expect bilateral cooperation in this sector to touch new heights in the next five years,” it said without giving details. The two sides agreed on a five-year road map, which will encompass two-day investments, the Foreign Secretary said. He also said India was eyeing at investing in a new energy block in Russia’s Eastern region.
Jordan receives first Iraqi oil for 5 years
Energy Minister Hala Zawati said the shipments — under a deal struck in February for deliveries by truck of 10,000 barrels of Iraqi crude per day — would cover seven percent of Jordan’s daily needs. Jordan said it received its first shipment Wednesday of Iraqi oil, interrupted for five years by the Islamic State group’s control of swathes of Iraq between 2014 and 2017. The Iraqi crude is being brought in via the Turaibil-Karameh crossing, the sole border post between the two Arab states that was closed for three years until 2017, when the jihadists were defeated in Iraq.
Vedanta may soon get freedom to market gas from Rajasthan block
The oil ministry is planning to let Vedanta freely market natural gas produced at its prolific Rajasthan block, a move that would fetch higher prices while ending any compulsion to sell gas to government nominee GAIL. Vedanta has pricing freedom but not marketing freedom, according to the current interpretation of the production sharing contract for the Rajasthan block. But ministry officials are increasingly of the view that this interpretation may not be the best and so plan to publish a clarification, which would explicitly give Vedanta both marketing and pricing freedom, according to people familiar with the matter. “Pricing freedom has no meaning without marketing freedom. It’s impossible for a seller to extract the best price if faced with just one buyer,” the person said. The production sharing contract offers enough scope for reinterpretation and doesn’t explicitly bar marketing freedom, he added. The proposed decision could widen the universe of possible gas buyers for Vedanta, which would then be expected to pick a buyer in an open, transparent auction conducted at arms’ length. Such auction would throw up higher prices than what a deal with a government nominee can, the person said, adding that higher prices would also translate into increased government revenue from the block. Last year, the government nominated GAIL as a sole buyer for gas produced from Vedanta’s Rajasthan block. Executives at the two firms held several rounds of negotiations since then, but couldn’t strike a deal. This prompted Vedanta to lobby for relief from the current marketing restriction. The government is likely to announce a clarification on this shortly, people aware of the matter said. The Rajasthan block, whose contract was extended last year until 2030, produces nearly a quarter of India’s crude oil and has begun producing natural gas in recent years. Gas production averaged 51 million standard cubic feet a day (mmscfd) in 2018-19. The target is to raise gas output to 150 mmscfd. Pricing of locally-produced natural gas has been a contentious topic in India. Key gas consumers have been demanding change in the way gas price ceiling is calculated, so the official price cap quickly starts reflecting the international slump.
BP expects oil demand to grow by less than 1 mn bpd in 2019
Global oil demand is expected to grow by less than 1 million barrels per day in 2019 as consumption slows, BP Chief Financial Officer Brian Gilvary told Reuters on Wednesday. Mounting trade tensions between the United States and China and increased signs of global economic recession are also set to weigh on oil refining margins, which BP expects will soften in the fourth quarter of the year, Gilvary said. A major change in marine fuel standards starting in 2020 has yet to impact refining margins, he added. “There is a lot of dynamic going on around demand, generally, which started off fairly robust at the start of the year, softened through the mid point. We were seeing a little bit of a pick up around our results … but that seems to have softened off again,” Gilvary said.
Antin Infrastructure hires banks to sell UK gas pipeline
Antin Infrastructure Partners has hired investment banks to kick-start a potential $1.5 billion-plus sale of one of Britain’s biggest gas pipelines, banking sources and an executive at a subsidiary of the buyout fund said. The sale of Central Area Transmission System (CATS), a 250-mile pipeline that transports gas from a cluster of North Sea fields to Teesside in northern England, is expected over the next 12 months with the help of Bank of America-Merrill Lynch and Citi, Andy Hessel, managing director at Kellas Midstream, told Reuters. Kellas Midstream is the Antin subsidiary that manages CATS, which banking sources said could fetch more than $1.5 billion. Antin, a private equity fund that mostly specialises in European energy, transport and telecoms investments, bought CATS from gas producer BG, now part of Royal Dutch Shell, and BP between 2014 and 2015. It owns 99% of the business, with Italy’s Eni and U.S. ConocoPhillips sharing the remaining 1%. An infrastructure project that was only second in size to the Channel Tunnel when it was built in the early 1990s, CATS transports about 10% of Britain’s annual gas production. Private equity investors and pension funds have been attracted by midstream infrastructure assets because of the potential for steady cash flow through long-term contracts, helping to limit risk when crude prices tumble. The North Sea offshore basin has undergone a broad change of guard in recent years as low oil prices prompted major oil and gas companies to sell assets to private equity-backed investors and specialist operators. Producers including Neptune Energy, backed by Carlyle Group and CVC Capital Partners, have raised billions of dollars to snap up assets from which they believe more oil and gas can be squeezed Antin’s energy portfolio also includes stakes in solar plants in Spain and an interest in northern French midstream oil company Pisto.