India looking at cutting west coast refinery capacity as cost escalates to $60 bn
India is looking at cutting capacity at its biggest oil refinery to match lower fuel demand projections and contain costs which jumped to USD 60 billion due to meeting stringent environment norms and relocation of the plant, top officials said. State-owned Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) together with Saudi Aramco and Abu Dhabi National Oil Co (ADNOC) plan to set up a 60 million tonnes refinery-cum-petrochemical complex on Maharashtra coast. The refinery was projected to cost USD 44 billion (about Rs 3.08 lakh crore) but meeting stringent environment norms such as not producing petroleum coke, and relocation of the plant has jacked up the cost to an estimated USD 60 billion (about Rs 4.2 lakh crore). “Supreme Court has mandated that you cannot sell petroleum coke and so to produce fuel without any such residue requires the use of best in class technology and will cost more,” an official said. Also, the unit will now be set up in Raigad district as land acquisition at a previous site in Ratnagiri district was stalled due to farmer protests. “Land acquisition is a small cost in the project of such size. To say that the project cost has increased by USD 16 billion or Rs 1.12 lakh crore just because the site was relocated is absurd,” he said. “We would have paid some money for purchasing land at Ratnagiri. We would pay for land at Raigad too, which can be higher or lower, I don’t know. It can be slightly more than Ratnagiri but it certainly cannot be over Rs 1 lakh crore more.” Maharashtra government will decide on the price of the land, he said. The consortium has engaged Engineers India Ltd (EIL) to do a cost study which should be out by next month, another official said. Also, a detailed feasibility report (DFR) is being prepared that will detail the cost. Simultaneously, demand assessment is being done keeping in mind the government push for moving away from petrol/diesel driven vehicles and adopting electric vehicles (EVs). The two will be married to arrive at an optimal refinery configuration, he said adding that the preliminary cost estimate going up to as much as USD 60 billion from USD 44 billion previously was primarily due to producing fuel meeting the stringent environment norms including those set by the Supreme Court. “We will come up with different scenarios – should we do a 60 million tonnes unit in one go or should we do a 40 million tonnes refinery first and built another 20 million tonnes later if there is demand for fuel. Alternatively, should we build a 20 million tonnes refinery first and later scale it up depending on the demand,” he said. The refinery configuration would also depend on financing power of the companies involved. The three PSU firms can put in Rs 30,000 crore to Rs 40,000 crore as equity and equivalent money would come from Saudi Aramco and ADNOC as they own 50 per cent of the project. But the rest of the money will have to be financed from domestic sources or raised internationally, the official said. “The final call will have to be taken by the government. Can banks finance about Rs 3.5 lakh crore in just one project?” he said. The project, he said, will have to be approved by the Cabinet and it will have to take a call on how much financing can be put in one project. Another official said the DFR, which will include the type of products the refinery will produce, will not be ready before 2021 and it would take 4-5 years to build the project from thereon. Initially, the refinery was considered to include three crude units of 20 million tonnes each that could produce petrol, diesel, LPG, aviation turbine fuel (ATF) and feedstock for making petrochemicals such as plastics, chemicals, and textiles. While the project will give IOC a strong foothold in western states as catering to customers in the west and the south is difficult with its refineries located mostly in the north, for HPCL and BPCL this will increase their capacity as their Mumbai refineries cannot be expanded further. Currently, the country has a refining capacity of a little over 232 million tonnes, against the domestic demand of 194.2 million tonnes in fiscal 2017. According to the International Energy Agency, this demand is expected to reach 458 million tonnes by 2040. The country is the world’s third-biggest oil importer. But the fuel demand is slowing due to a slowdown in the economy as well as a shift towards EVs. IOC has 11 refineries with a capacity of 81.2 million tonnes, while BPCL runs four with a capacity of 33.4 million tonnes and HPCL operates three refineries with a capacity of 24.8 million tonnes. Saudi’s interest in the project can be seen as securing its future with a large customer as India has been moving away from Saudi to other markets like Africa, Latin America, and even the US.
ONGC displays gas potential of Khubal to prospective customers in Tripura
ONGC Tripura Asset, in association with department of Industry and Commerce, Govt. of Tripura, organized an awareness campaign workshop on ‘Khubal’ Gas on Tuesday at the International Trade Fair Centre of Hapania, Agartala. The meeting hosted by Asset Manager of ONGC O.P Singh, and organized by Surface Manager of ONGC Puneet Kishore. The workshop received several queries from prospective customers from small and medium scale industries. ONGC has struck gas at Khubal field (NELP Block) in Panisagar area near Dharmanagar, North Tripura district. According to the ONGC, “It is felt that it is essential to spread awareness and share plans of ONGC to start gas production and supply from Khubal field amongst state government officials, prospective consumers and transporters.” ONGC added, “ The event was aimed to spread awareness amongst the prospective customers about the ONGCs discovery of gas in Eastern/Northern ( Khubal area) part of Tripura, also ONGCs presence in South Tripura (Gojalia & Tichna) besides identifying the prospective customers for ONGCs Khubal Gas ( NELP Block) discovery, Demand Assessment around the area.
Japan LNG buyers talk tough as spot prices drop to 3-year lows
An inexorable decline in spot market prices for liquefied natural gas (LNG) is pushing utilities in Japan to be more aggressive in price reviews built into traditional long-term contracts linked to oil prices, lawyers and analysts said. The utilities are also looking to buy more LNG on the spot market, where prices are plumbing three-year lows and are around half the average contract import price for buyers in Japan, the world’s biggest importer of the fuel for power generation and industrial use. The tougher stance marks a shift for Japanese utilities, which have long favoured stability of supply over price, partly because they have been able to pass on costs to consumers. But liberalization in Japan’s energy markets means the old guard utilities are losing customers to new entrants and they are desperate to cut costs. “Given the gas and power markets liberalisation and intensifying domestic competition in Japan, it is very important for Japanese utilities to achieve competitive LNG prices so price review negotiations are becoming more intense,” said Thanasis Kofinakos, head of gas and LNG consulting, Asia Pacific, at Wood Mackenzie. According to reports, including one from Bloomberg, Japan’s second-biggest city-gas company, Osaka Gas, is in arbitration with Exxon Mobil Corp’s PNG LNG project in Papua New Guinea after failing to get a reduction in prices during a price review. “We decline to comment on any details of price negotiations,” said Osaka Gas spokesman Takahiro Yamane. Exxon Mobil, operator and marketer of PNG LNG, also declined to comment. “(Price review) negotiations did not end up in a settlement and so arbitration is the next available contractual recourse,” said Kofinakos, adding that it was possible that more contract reviews would go to arbitration. He said it was the second price arbitration in Asia, after Australia’s North West Shelf LNG – operated by Woodside Petroleum – started proceeding against South Korea’s Korea Gas Corp (KOGAS) last year. But even if Osaka Gas succeeds in getting prices reduced, they are unlikely to be more than 5% below the agreed contract price, said one gas executive who has been involved in many LNG projects and price reviews. “The last company you want to take on is Exxon,” he said. RISKY BUSINESS Japan’s average import price of LNG on a thermal heating unit basis was almost double the spot price for the fuel in June. Spot prices have since fallen to more than three-year lows. Arbitration is risky and also expensive, costing as much as $15 million, said one Singapore-based lawyer who handles LNG contracts. One recourse for the utilities is to buy more spot cargoes and many have said they are trying to do that. Tokyo Gas, Hokkaido Electric Power, Tohoku Electric Power, Kyushu Electric Power and Hokuriku Electric Power have all said they are looking at ways to take advantage of cheaper spot LNG. But the utilities are also limited in the number of spot cargoes they can take because most of their supply is met via the binding long-term contracts. That is a hangover from the 2011 Fukushima disaster that shut Japan’s nuclear reactors, which had met 30% of the nation’s power needs. Without the reactors, electric power utilities rushed to sign long-term gas contracts, many of which are just starting up. “It remains to be seen whether negotiations will succeed in resolving dissatisfaction over prices, and if they do not, whether buyers will back down or start (arbitration) proceedings,” said a Tokyo-based lawyer specializing in gas projects.
Gujarat Gas to set up 200 CNG stations in two years
In its most ambitious expansion ever, city gas distribution company Gujarat Gas Ltd is planning to set up 200 compressed natural gas (CNG) stations across India in the next two years, even as the government pushes the idea of electric vehicles. Last financial year, the company added 69 CNG stations, the highest ever to its tally of over 344 CNG stations. Gujarat Gas Ltd (GGL) is present across 23 districts in the State of Gujarat, Union Territory of Dadra & Nagar Haveli and Thane Geographical Area (GA) (excluding already authorised areas), including Maharashtra’s Palghar district. In 10th CGD bidding round announced by the PNGRB, the company has won 6 GAs comprising 17 cities in the state of Punjab, Haryana, Madhya Pradesh and Rajasthan. “The management has guided for setting up another 200 CNG stations over the next two years, which is expected to drive double-digit volume growth in the CNG segment over FY20-22E. This creates more stability in volume trends and also a stronger margin profile for the company,” Centrum Research said in its report dated 31 July. For the first quarter of this financial year, Gujarat Gas posted a 91.65% increase in net profit to ₹234.04 crore, against ₹122.12 crore a year ago. Sales rose 48.13% to ₹2614.61 crore during the quarter, from ₹1765.13 crore in the same period of the previous financial year. The company’s operational revenue was up 47% to ₹2,671 crore in the first quarter, against ₹1,814 crore in the year-ago period. Earnings before interest, tax, depreciation and amortization or EBITDA margin jumped sharply to ₹5.6 per standard cubic metres. The company has around 23,200 km of gas pipeline network. It distributes around 8.5 million metric standard cubic metres of gas per day to about 13,55,000 households, around 2 lakh CNG vehicles (serving per day) and to over 3,540 industrial customers.
Pakistan seeks 10 LNG cargoes in Oct-Dec 2019
Pakistan issued a tender for the supply of 10 liquefied natural gas (LNG) cargoes between the start of October and the end of December, Pakistan LNG documents seen by Reuters showed on Tuesday. The tender is likely to be welcomed by the spot market, which has been weighed down by ample global supplies, with cargoes trading at below $4 per million British thermal units (mmBtu) last week for the first time in years. State-owned Pakistan LNG sought four cargoes in October, two for November and four more cargoes for December, with bids due by Sept. 5, the documents showed. Pakistan LNG last issued a short-term LNG supply tender in May, when it sought five cargoes for the end of July to September. The offers came in at 7.13% to 8.54% of Brent crude or around $4.4 to $5.3 per mmBtu at the prices of that day. It also issued one of the largest tenders ever in June for 240 cargoes over a 10-year period which closed last month, but contrary to its normal procedures, it has not yet announced the lowest bidders. Sources told Reuters that Italian oil major Eni, China’s overseas energy unit PetroChina, the trading arm of Azeri state oil company SOCAR and commodities trader Trafigura bid for that mega-tender. Pakistan’s LNG tenders are keenly watched because prices are normally revealed, shedding light on an otherwise opaque market. For the latest tender, the delivery windows are: Oct. 1-2, Oct. 11-12, Oct. 16-17, Oct. 28-29, Nov. 12-13, Nov. 30, Dec. 10-11, Dec. 16-17, Dec. 21-22, Dec. 26-27.
Cairn Energy signs pact for sale of 10 per cent stake in Norway project
UK-based Cairn Energy PLC today announced it has entered into a farm-out agreement for the sale of a 10 percent interest in Nova development offshore project in Norway. With effect from 1 January 2019, ONE-Dyas Norge AS will acquire 10 percent in the project by paying $59.5 million and the customary working capital adjustments on completion. “Following this transaction Cairn will retain a participating interest of 10 per cent interest in the Nova development and reduce its capital expenditure to the end of 2021 in the Nova area by around $110 million,” the company said in a statement, adding it will use the proceeds to fund the group exploration and development activities. The Nova field development plan was submitted and approved in mid-2018 by the Norwegian Petroleum Directorate with first oil targeted in 2021. The transaction remains subject to written consent by the Norwegian Ministry of Petroleum and Energy, partner and third-party approvals. Jefferies International Limited acted as financial advisor to Cairn in connection with the farm out agreement. The gross asset value of the interests being transferred, as per Cairn’s Annual Report issued on 12 March 2019, was $62.5 million and the net asset value was $28.5 million.
India raises cost of oil refinery project with Aramco by 36 per cent
India has increased the cost estimate of a giant refinery and petrochemical project to be jointly built with Saudi Aramco and Abu Dhabi National Oil Co by more than 36%, after protests by farmers forced the relocation of the plant, four sources said. The 1.2 million barrels-per-day (bpd) coastal refinery in the western state of Maharashtra is now expected to be built at Roha in the Raigad district, about 100 km (62 miles) south of Mumbai. The new cost estimate of $60 billion for the refinery was given to Saudi Arabia’s energy minister Khalid al-Falih at a meeting with Indian Oil Minister Dharmendra Pradhan last month in New Delhi, said the four sources familiar with the talks between the two ministers. “The $60 billion is a preliminary estimate that was told to Saudi Arabia. The final number will be decided on the basis of a detailed feasibility study,” said a source present at the meeting. The project cost at the signing of a deal with Saudi Aramco in 2018 was pegged at $44 billion. The four sources requested anonymity because of the sensitivity of the matter. Despite the cost expansion, the project is still expected to be commissioned in 2025, the sources said. Global oil producers are vying to gain entry into India to establish a stable outlet for their output and to earn profit from the South Asian nation’s strong gasoline and petrochemical demand prospects due to the rising disposable income of its 1.3 billion population. The world’s third-largest crude oil importer aims to raise its refining capacity by 77% to 8.8 million bpd by 2030. The state government suspended land acquisition at the previous site in Ratnagiri – about 400 km south of Mumbai – after thousands of farmers refused to surrender their land, fearing the project could damage a region famed for its Alphonso mangoes, cashew plantations and fishing hamlets that boast bountiful catches. “It is a huge escalation in cost. But since the project is of a mega-scale, we expect the investment to be staggered,” said Sri Paravaikkarasu, director at Singapore-based consultancy FGE, adding that her firm was doubtful the 2025 timeline of the project would be met. The sources said the cost escalation is mainly due to the delay in land acquisition for the project and that all calculations need to be reworked. State-run companies – Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum – own 50% of the Ratnagiri Refinery & Petrochemicals Ltd (RRPCL), the company building the project. Saudi Aramco and ADNOC hold the remaining half. B. Ashok, chief executive of RRPCL, declined comment on the increased cost estimate, and there was no immediate response from India’s national oil ministry. Saudi Arabia’s Energy Ministry and Saudi Aramco also did not respond to a Reuters request for comment. The Maharashtra state government has promised that land at the new site would be acquired by end-December. A consortium led by Russia’s Rosneft acquired a controlling stake in Nayara Energy in 2017, illustrating the interest in India refining sector. Saudi Aramco is also in talks to buy a minority stake in Reliance Industries’ refining, marketing and petrochemical business, and analysts say any further delay in a land acquisition may force it to take a harder look at the private Indian refiner’s assets. Investment in a new west coast refinery is a better option as this would give Aramco more say in the operation and configuration of the project, said Paravaikkarasu. “But if land acquisition is not completed within this year, then Reliance appears to be a better option as this is a running project and they can monetize the investment from day one.”
OMCs issue letters of intent for 9,000 new petrol pumps
State-owned oil companies have issued letters of intent for more than 9,000 new petrol pumps as part of their biggest-ever expansion of fuel retail network. The companies are moving quickly to select dealers for new pumps that would help double their retail network in just a few years, serve customers better in less-penetrated micro markets and meet the growing challenge from the private sector. In November 2018, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) had launched the process to select petrol pump dealers at about 78,500 locations across the country. Companies received applications for about 95% of locations – single applications for 39% and two or more applications for 56%. The companies suspended the selection process after the general elections were announced in March but resumed once results were out late May. Two broad categories of pumps have been offered by companies – one, where a dealer is chosen via draw of lots and the second where the highest bidder is selected. So far, winners for 33,200 locations have been picked up by companies, of which 9,000 have been issued letters of intent and about 110 new pumps are already commissioned, according to people familiar with the matter. A letter of intent, as the name suggests, contains company’s intent to appoint an applicant as a dealer at a certain location, subject to his fulfilling certain conditions such as developing land on the specified location, depositing security deposit, arranging working capital and securing a bunch of government licences necessary to operate a pump.
Mozambique kicks off construction of $25-bn gas project
Mozambique on Monday started constructing a multi-billion-dollar liquefied natural gas project offshore, operated by the US energy giant Anadarko on the country’s remote northern coast. President Filipe Nyusi laid the foundation stone in Palma in the Cabo Delgado province, hailing the $25-billion Rovuma basin LNG project. “With this project, Mozambique will change, Palma will change,” he told thousands of guests who witnessed the project launch in the impoverished region, just two months before national elections. The country’s gas deposits are estimated at 5,000 billion cubic meters and would make Mozambique a major exporter of liquefied natural gas. Annual production is expected to start in 2024 with an estimated output of 12 million tonnes. The government is predicting strong future growth for the former Portuguese colony on the back of its resource bounty. Mozambique is hoping the discovery of the gigantic gas reserves at the beginning of the decade will bring about an economic rebirth in the southeast African nation. The project is forging ahead despite Islamist insurgent attacks that have claimed more than 250 lives and frustrated operations. A shadowy jihadist group has targeted the Muslim-majority Cabo Delgado province since October 2017. Convoys carrying contractors for Anadarko have been attacked at least twice, although the company has previously told AFP it does not believe it had been deliberately targeted. Anadarko has previously said Mozambique’s natural gas reserves, “are among the best and the largest in the world”.
Petrobras LPG unit seen attracting Mubadala, SHV, Itausa bids
Bidding groups led by Brazilian investment firm Itausa Investimentos SA , Abu Dhabi state investor Mubadala and SHV Energy of the Netherlands are expected to submit binding proposals to acquire state-controlled oil company Petroleo Brasileiro SA ‘s LPG unit, two sources with knowledge of the matter said on Monday. Private equity firms CVC Capital Partners and Advent International have decided not to bid, the sources said ahead of a Wednesday deadline, after deciding the deal would be a better fit for strategic buyers. CVC and Advent declined to comment. The Brazilian government said in July it was discussing new rules to increase competitiveness in the natural gas industry, including liquid petroleum gas (LPG), in a move that is likely to affect bids for Liquigas, as the Petrobras unit is known. Itausa has partnered with local LPG distribution firm Copagaz to place a bid, the sources said, asking for anonymity to disclose private talks. SHV Energy, which distributes LPG in Brazil through its Supergasbras subsidiary, is also expected to bid in a consortium with local rival Consigaz, they said. Mubadala Investment Company PJSC is planning to deliver a binding offer as well, the people added. Itausa, SHV and Supergasbras declined to comment. Copagaz, Consigaz and Mubadala did not immediately comment on the matter. It remains unclear whether Ultrapar Participacoes SA will partner with another investor to bid for Liquigas. In 2016, Petrobras had agreed to sell Liquigas to Ultrapar, but the deal was blocked by Brazil’s antitrust watchdog. Now, to comply with the rules Petrobras created to avoid new antitrust hurdles, Ultrapar needs to join up with other investors if it wants to bid. Those rules restrict any LPG distributor with a more than 10% market share from taking any more than a 30% stake in a bidding consortium. Petrobras is expected to raise between 2.5 billion reais ($630 million) and 3 billion reais ($755 million) with the sale of the unit. Petrobras received eight bids on the first round, on June 11. Banco Santander Brasil SA, which is advising Petrobras on the deal, declined to comment. The Liquigas sale is the next step in Petrobras CEO Roberto Castello Branco’s plan to sell assets and increase expenditures in core offshore exploration areas. So far this year, Petrobras has raised more than $12.7 billion, selling pipeline network company TAG for $8.7 billion and privatizing fuel distribution unit Petrobras Distribuidora SA through a share offering that raised $2.5 billion. Last month, the company also sold three oil fields for $1.5 billion.