India’s crude oil production falls 7% in May, pushes import dependence to 85%
India’s crude oil production in May this year fell 7 per cent to 2,800 Thousand Metric Tonne (TMT) due to fall in production from fields operated by Oil and Natural Gas Corporation (ONGC), Oil India and private operators. The fall in domestic crude oil production pushed the country’s crude oil import dependence to 85 per cent in the month as compared to 83.8 per cent recorded in the corresponding month a year ago. ONGC, the country’s largest producer of oil and natural gas today invited private participation to help the company boost hydrocarbon production from 64 nomination marginal fields. Cumulatively, domestic crude oil production decreased 7 percent to 5,519 TMT during the first two months (April-May) of the current financial year (2019-2020), as compared to the corresponding period a year ago. ONGC ONGC’s crude oil production in May fell more than 4 percent to 1760 TMT. Cumulatively the company’s domestic crude oil production in the first two months of the present financial year fell 5 percent to 3,450 TMT. According to the oil ministry, major reasons for lower production were less offtake by consumers in Tripura, Cauvery, and Rajahmundry. Oil India Oil India, the second government-owned oil and gas explorer posted a 4 percent fall in its oil production to 274 TMT. Cumulatively, the company’s crude oil production during the first two months of the current financial year dropped 4 percent to 539 TMT. The major reasons for the slippage were less than the planned contribution from work over wells and drilling wells. Pvt/ Joint Ventures Crude oil production from private players and Joint Ventures (JVs) fell 13 percent to 767 TMT during the month of May. Cumulatively production by this segment dropped 12 percent to 1,529 TMT during the first two months of the current fiscal. The drop in production is attributed to lower production from Cairn Oil and Gas fields in Mangala, Bhagyam, Aishwariya and Raageshwari Deep Gas (RDG) due to operational issues and delays.
ONGC plans exploratory drilling in 12 Gujarat blocks
Oil and Natural Gas Corp Ltd plans to invest around 5 bln rupees on drilling 46 exploratory wells in 12 of its producing mining lease blocks in Gujarat in the Cambay basin, a senior company official told Cogencis. All the proposed wells would be drilled in areas falling in the Mehsana district. These 46 wells would be spread over an area of around 450 sq km. An exploratory well is a test well drilled to locate recoverable oil and gas reserves. If hydrocarbons are discovered through an exploratory well, it is followed by drilling of development wells to extract oil and gas. The depths of these 46 wells would vary between 2,000 mtr and 3,000 mtr and the duration of drilling is seen at three to four months per well, said the official, who did not wish to be named. ONGC expects to receive all government clearances for the project within a couple of months, following which it will start the work. The project is part of ONGC’s efforts to raise domestic oil and gas output in a bid to reduce dependence on imports. India is among the biggest consumers of crude oil but meets over 83% of its requirement through imports, leading to outflow of valuable foreign exchange. The government has been pushing upstream companies to increase exploration and production of hydrocarbons. ONGC, being the largest upstream company in the country, is at the centre of this effort. ONGC produces around 70% of the country’s crude oil and 60% of its natural gas. In this project, the blocks where drilling is planned are Jotana, Linch, Nandasan, North Shobhasan Extension, Jotana-Warason, Kadi, Linch Extension-1, Linch Extension-2, Mansa, Jakasana, East Shobhasan, and Bhalol Extension. ONGC owns 100% stake in all these blocks. ONGC has already drilled over 500 wells in the region, including many exploratory wells, and the hydrocarbon reserve data from these has been quite encouraging. The company feels that there is still a lot of scope in exploring new sub-surface structures in the basin, for which this project has been planned. At 1237 IST, shares of ONGC were 0.3% higher at 152.80 rupees on the National Stock Exchange.
Challenges await implementation of PNGRB’s concept paper on tariff determination: ICRA
The Petroleum and Natural Gas Regulatory Board (PNGRB), had granted exclusive marketing rights to certain pre-existing CGD networks, post its formation, for a limited period. These CGDs have reached the end of the timeframe for exemption from the purview of a common contract carrier. Hence, PNGRB has formulated a concept paper to determine a process to open up these CGD networks to competition with the intention of promoting fair competition and efficient use of resources while also protecting the interests of the consumers. This regulation will not be applicable to entities that have pre-determined transportation rates as part of the PNGRB bidding process for authorisation, carried out in the ten rounds of bidding until now. The concept paper talks about two options for determining the transportation rate – 1) The Cost of Service methodology allowing for a post-tax normative return on equity of 14%. Or 2) A transparent online bidding process based on a fixed reserve price or based on a self-determined reserve price by the company concerned. Ankit Patel, Vice President and Co-Head, Corporate Ratings, ICRA, “We have analysed the impact of the above regulation on the incumbents if the Cost of Service methodology is implemented for major incumbents. The findings indicate that about 65%-75% of the contribution of these entities can be met from the recovery of the network tariff. The rest of the contribution is generated from marketing/commodity margins.” ICRA believes that the impact of third-party competition to existing operators could be more pronounced in the PNG (Industrial) segment as the larger absolute volumes and the ease of tying up directly with a group of industrial customers would be relatively easier compared to the CNG segment, where domestic gas allocation needs to be sought to have a number of end-consumers. For the PNG industrial volume, large single location opportunities (Morbi, Ankleshwar-Bharuch, Ahmedabad) with high penetration of gas are attractive for competition. Nonetheless, the CNG segment too could be vulnerable in cities where there are bulk consumers such as State Transport Corporations, which can be weaned away at a lower tariff. Key operational challenges will be the strong promoter backing of authorised players (transmission network owned by GSPL/GAIL in case of GGL, IGL, AGL and MGL) and the complexity involved in giving access to the third party in terms of the variation in gas demand, requirement of multiple contracts to be signed and determination of idle capacity in different parts of the city/region, etc. “The oil marketing companies (OMCs) would be the most immediate interested entities for third party marketing as they have access to gas as well as an already existing network of retail outlets. The OMCs would especially be interested in direct sales of CNG in metro areas if they find it a large enough opportunity with a reasonable margin. Nonetheless, as a key risk mitigant, many of the incumbent CGD operators have signed medium to long-term agreements with the OMCs for co-locating their CNG stations at attractive marketing margins; moreover, some of the OMCs are also either the majority or the minority shareholders in these CGD entities,” Patel added. As regards the overall impact of the concept paper and its implementation over the long term, K. Ravichandran, Senior Vice-President and Group Head, Corporate Ratings, ICRA said, “We believe that while PNGRB has rolled out this concept paper and invited comments from the public, the PNGRB Act, 2006 itself may require amendments in light of the Supreme Court order dated July 1, 2015, in IGL Vs PNGRB case on the powers of the Board to fix tariffs. There is also a possibility that the existing players may challenge the final regulation in courts, which could delay it further. Hence, credit profiles of authorized entities would not be immediately impacted. While competition could intensify over the medium to long term, operational challenges, such as determination of surplus capacity and access code will require resolution for the actual materialization of third-party competition in the CGD business.”
Govt likely to give up direct controlling stakes in ONGC, IOC, NTPC, GAIL
India will likely give up direct control of its most-profitable state-run behemoths as Prime Minister Narendra Modi seeks to keep the budget deficit in check, while reviving investments to spur economic growth. The government has identified the biggest energy companies such as Oil & Natural Gas Corp., Indian Oil Corp., NTPC Ltd. and GAIL India Ltd. as probable candidates for cutting its direct holding to below 51 percent, Atanu Chakraborty, who steers Modi’s asset sale department, said in an interview Monday in New Delhi. “Government’s indirect holding, through arms such as Life Insurance Corp. of India, will stay above 51%.” Finance Minister Nirmala Sitharaman last week set a record Rs 1.05 trillion ($15 billion) asset sales target in the year started April 1, while proposing to raise taxes on the wealthy, extract higher dividends from the central bank and increase duties on gold and gasoline to boost revenue and lower the budget gap to 3.3% of gross domestic product. The proposal to lower direct holdings in some state-run companies below 51% was also part of Sitharaman’s budget proposals, which she said would be considered on “case-to-case basis.” “The government has to consider bringing in strategic investors and give them a say in the management,” said Deven Choksey, managing director at K.R. Choksey Shares and Securities Pvt. in Mumbai. “That will spur the growth of these companies.” The index for state-run companies on BSE Ltd. has gained 3.5% so far this year compared to a 7.1% gain in the broader benchmark S&P BSE Sensex. Indian Oil shares on Tuesday added 4.6%, while ONGC rose 0.1% and NTPC slid 0.3% as of 12:45 p.m. in Mumbai. In 2017, then-Finance Minister Arun Jaitley aimed to create an integrated public sector oil major to match the might of the international oil and gas giants by combining some or all of its stakes in listed domestic oil and gas firms. ONGC in January 2018 completed buying the government’s 51.1% stake in Hindustan Petroleum Corp. for $5.78 billion, helping the government to narrow the nation’s budget gap. Some of the state stake sales will happen this year, Chakraborty, secretary at the Department of Investment and Public Asset Management, said. Exchange-traded funds are the most attractive route, he said.
Iran accuses US of using crude oil sanctions to gain market clout
Iran’s oil minister has accused the US of using sanctions to “shock” the global oil supply and gain market clout for its booming shale oil production. Washington abandoned a landmark 2015 nuclear deal between Tehran and world powers last year and reimposed sanctions on the Islamic republic’s crucial oil sales as well as other parts of the economy. “I think one of the reasons for sanctions against Iran and Venezuela is opening up the market for American oil sales,” Oil Minister Bijan Namdar Zanganeh said in an interview with state TV late Sunday, a transcript of which was provided by his ministry’s SHANA news agency. “This much oil production needs a market and could not be compensated for with regular OPEC cuts, therefore America needed to shock the market to find a place for itself. Some sanctions are (imposed) so that Americans can keep producing and developing shale oil,” he added. New technology that allows for extracting oil and gas from shale rock formations has led to a boom in oil production in the US in recent years. Zanganeh said that according to US figures, shale oil’s breakeven cost can be as low as $40 per barrel. Benchmark Brent crude was trading at around $64 dollars a barrel in London on Monday. The US is currently the world’s biggest oil producer followed by Russia and Saudi Arabia, and is set to become a net exporter from 2021, according to the International Energy Agency. The White House said in April that tightening sanctions on Iran will have “no material impact” on oil prices given the large supply of US oil on the global market. OPEC, pressured by US output, abundant global crude supplies and weak oil demand growth, agreed last week to extend by nine months daily oil output cuts first announced in December aimed at supporting prices and soaking up excess supplies. Iran, whose production has been severely hit by US sanctions, is exempt from the cuts agreement along with crisis-stricken Venezuela and Libya. Battling what he called “the most severe organized sanctions in history,” Zanganeh last week vowed to keep selling oil via “unconventional means”. Iran’s state TV recently aired a programme showing an Iranian-flagged tanker under US sanctions that delivered one million barrels of crude oil to China, one of the remaining partners to the nuclear deal and which has rejected Washington’s efforts to cut Tehran’s oil exports to zero.
IOC, GAIL pact to take stake in Adani’s Dhamra LNG project expires, no investment made: Dharmendra Pradhan
State-owned refiner Indian Oil Corp (IOC) and gas utility GAIL India Ltd’s initial agreement to buy a 50 percent stake in Adani Group’s Rs 50 billion Dhamra LNG project in Odisha has expired, Oil Minister Dharmendra Pradhan said on July 8. IOC and GAIL had on September 21, 2016, signed a “non-binding MoU” with Adani Petroleum Terminal Pvt Ltd to take 39 percent and 11 percent stake respectively in the planned 5 million tonnes a year liquefied natural gas (LNG) import terminal at Dhamra, he said in a written reply to the Lok Sabha. The MoU was “subject to management approvals of IOC and GAIL and successful negotiation of the respective regasification agreements,” he said. “The MoU has expired on September 20, 2018.” “Further GAIL and IOC have informed that no capital expenditure has been made by them on this project,” he said without saying if the two firms have altogether scrapped the plan to buy a stake in the Dhamra LNG project or they continue to be in dialogue with the Adani Group. He also did not give reasons for the expiry of the MoU. Adani Petroleum Terminal Pvt Ltd was to hold the remaining 50 percent stake. IOC had in 2015 signed up to use 60 percent of the terminal capacity for importing gas for its refineries at Haldia in West Bengal and Paradip in Odisha. GAIL too had signed up for 1.5 million tonnes of the terminal’s regasification capacity. The MoU for taking an equity stake in the Adani terminal followed GAIL dropping plans in March 2015 to set up a floating LNG import terminal at Paradip. IOC too had in 2012 signed an MoU with Dhamra LNG Port Corp Ltd (DPCL) to develop an LNG terminal at the port. After shelving their respective plans, the firms signed a pact with Dhamra LNG Terminal Pvt, a firm owned by Adani Enterprises. “GAIL has informed that in September 2012, GAIL engaged a consultant to undertake a feasibility study for exploring the possibility of setting up Floating Storage & Re-gasification Unit (FSRU) project(s) in upper part of the east coast of India which would facilitate development of natural gas market in eastern part of India,” Pradhan said. The consultant shortlisted two locations – one falling near Dhamra port and the other close to Paradip port in Odisha. “Before finalising the location, it was decided to have consultations with Indian Ports Association and Government of Odisha. Meanwhile, Paradip Port Trust also approached GAIL and expressed their interest in the establishment of the LNG regasification terminal in the Paradip Port water. “Accordingly, GAIL entered into an MoU with Paradip Port Trust on October 26, 2013, for a period of three years. However, during the meeting held in March 2015, it was discussed that as gas demand in the eastern part of the country would take some time to mature, setting up of two competing LNG terminals at the same time in such close proximity would not be commercially viable on a standalone basis,” he added. While GAIL has dropped plans of a 4 million tonnes project at Paradip, Petronet LNG – a firm in which GAIL and IOC are promoters, has shelved plans to set up a 5 million tonnes a year LNG import facility at Gangavaram in Andhra Pradesh. GAIL, along with GdF and Shell, had proposed a 3.5 million tonnes floating LNG terminal at Kakinada while IOC has freshly built a 5 million tonnes facility at Ennore in Tamil Nadu. Real estate player Hiranandani Group is looking to set up a Rs 24 billion, 4 million tonnes floating LNG import terminal off Haldia in West Bengal. In the October 2013 MoU, the Paradip Port Trust was to invest Rs 6.50 billion in breakwater and dredging and GAIL was to invest Rs 24.58 billion for the 4 million tonnes terminal which could be expanded to 10 million tonnes.
IndianOil, IGL to commission H-CNG station in Delhi by November
Indian Oil Corporation (IndianOil) and Indraprastha Gas Ltd (IGL), which is setting up a 4-tonne-per-day compact reformer-based H-CNG station at Delhi Transport Corporation’s (DTC) Depot-1 at Rajghat, will help in reducing emissions and improve the fuel economy of the vehicles in the country. Field trials for the project will be conducted on 50 DTC buses using the patented technology developed by IndianOil’s Research & Development Centre, the company said in a statement. As per the directive of Supreme Court, IndianOil and IGL collaborated to put up its first semi-commercial station as a pilot project for conducting a study on the use of H-CNG fuel in 50 BS-IV compliant CNG buses in Delhi. The station is planned to be commissioned by November 2019, and the performance report will be submitted to the Supreme Court after a trial of six months. The Environment Pollution (Prevention and Control) Authority has been authorized to monitor the trials by the Supreme Court. Sanjiv Singh, chairman, IndianOil, said, “It is for the first time that we are producing hydrogen through this patented process. We are standing at the cusp of a breakthrough, with this hydrogen-based technology offering a tailor-made solution to deal with air pollution in our cities. We intend to scale-up after initial trials and extend this technology to even older vehicles.” Sunita Narain, member, Environment Pollution (Prevention & Control) Authority, said,” We are witnessing the dawn of a hydrogen-based economy. The initiative will go a long way in not only reducing air pollution but will also contribute towards achieving energy security.” According to the company officials, hydrogen-spiked CNG (or H-CNG), when used in an engine in place of CNG, results in cleaner combustion, thereby reducing emissions and improving fuel economy. H-CNG, produced from natural gas through IndianOil’s patented Compact Reformer technology, when tested at the Automotive Research Association of India (ARAI), resulted in a 70% reduction of carbon monoxide and 25% reduction in hydrocarbon emissions as compared to baseline CNG. It is estimated that the compact reforming process will be 30% more cost-effective compared to the physical blending of hydrogen in CNG for deriving the same benefits.
No proposal to merge state-owned firms: Pradhan
Oil Minister Dharmendra Pradhan Monday said there is no proposal, at present, for the merger of state-owned oil and gas entities under consideration of his ministry. While state-owned Oil and Natural Gas Corporation (ONGC) had last year acquired government stake in Hindustan Petroleum Corporation Ltd (HPCL), Indian Oil Corp (IOC) and Bharat Petroleum Corp Ltd (BPCL) were both keen on acquiring gas utility GAIL India Ltd. “At present, there is no proposal to merge state-run oil and gas entities under consideration of the ministry,” Pradhan said in a written reply to a question in the Lok Sabha here. He had on February 7, 2018, told the Rajya Sabha that IOC and BPCL have separately indicated to the petroleum ministry their interest in taking over GAIL to add natural gas to their oil refining and marketing business. Then finance minister Arun Jaitley had in the Budget 2017-18 unveiled the government’s plan to create integrated public sector oil majors “through consolidation, mergers, and acquisitions” so that the merged company has the “capacity to bear higher risks, avail economies of scale, take higher investment decisions” and is “able to match the performance of international and domestic private companies”. In response to this, ONGC expressed interest in taking over refiner HPCL and completed the Rs 369.15 billion acquisition in January last year. “IOC and BPCL had written to the ministry for integration with GAIL (India) Ltd. However, the government has not taken any decision in this regard,” Pradhan had said last year. In the reply on Monday, he said ONGC has acquired 51.11 per cent of government equity shareholding in HPCL. “Post-acquisition by ONGC, HPCL will continue to be a central government public enterprise (PSE), having become a subsidiary of ONGC. It will maintain its cultural uniqueness and brand identity,” he said. For GAIL, it was said that the government may separate the firm’s natural gas transportation and marketing business and sell off the later to a prospective bidder. Incorporated in August 1984 by spinning off the gas business of ONGC, GAIL (India) Ltd owns and operates about 14,000 km of natural gas pipelines in the country. It sells around 60 per cent of natural gas in the country. The government has a 54.89 per cent stake in GAIL India.
Budget 2019 waives Rs 1 per tonne excise duty on oil output
Budget 2019 India: As a token incentive for crude oil producers — especially who plan to bid for 66 hydrocarbon fields offered by ONGC and Oil India for enhanced recovery — the government has decided not to charge the Rs 1 per tonne excise duty for their production, which was introduced in Budget 2019. The charge will be nil for ‘crude petroleum oil produced in specified oil fields under production-sharing contracts or in the exploration blocks offered under the New Exploration Licensing Policy through international competitive bidding’, the Budget documents states. A Rs 1 per tonne of excise duty has been levied on domestic crude oil production and a similar amount as Customs duty will be charged on imported crude, as per the Budget. The two together will contribute Rs 250 million to the exchequer. Till now, a national calamity and contingent duty (NCCD) of Rs 50 per tonne was charged on petroleum crude oil. “In certain cases this levy (NCCD) has been contested on the ground that there is no basic excise duty on these items. To address this issue, a nominal basic excise duty is being imposed,” finance minister Nirmala Sitharaman had said. State-run ONGC and OIL have invited bids for marginal nomination fields on partnership basis with the intention to maximise recovery from these fields by infusion of new technology. These fields contribute a meagre 5% to the total hydrocarbon production at present. The firms have already announced various incentives for fields to be offered under production enhancement contracts. The bids would be evaluated on the basis of revenue-sharing from the incremental oil and gas production and it will be applicable on incremental production over and above the baseline production under business-as-usual scenario, the current production. Also, unlike in a farm-in contract, bidders will not have to reimburse ONGC the capital investment already made in these fields. Winners will have marketing and pricing freedom to sell oil and gas on arm’s length basis through a competitive process. ONGC and OIL have been battling to increase production from these fields and despite PM Narendra Modi’s call to reduce import dependence, India’s crude oil imports was at 83.8% of the requirement in 2018-19 and is expected to increase to 86.8% in 2019-20. The state-run firms are offering a contract period of 15 years extendable by five years for the 64 fields on offer. Winners will also get a reduction of 10% in the royalty rate for additional production of natural gas over and above current production. Explorers will also be permitted the right to explore all kinds of hydrocarbon and will be given incentives for achieving production higher than the committed incremental production. Experts believe the exemption made for specified fields are done to further encourage overseas explorers. “During roadshows, often investors ask for incentives. This is one of them, though may not address the issue fully,” said an oil sector expert. “The fields offered under the Discovered Small Fields (DSF) may be a part of it,” said the expert. Under DSF policy, 57 contract areas have been bid out by the directorate general of hydrocarbons.
China refiners curb fuel output after massive new plants stoke glut
China’s fuel producers are making extended curbs to their output in the third quarter after supply from mammoth new refineries stoked an already-sizeable glut, potentially dragging on crude oil demand from the world’s biggest importer of the commodity. Private refiner Hengli Petrochemical ramped up its 400,000-barrels per day (bpd) plant in northeast China to full capacity in May, while Zhejiang Petrochemical began trial runs around the same time at a similar-sized refinery on the east coast. In the wake of that wave of fresh supply and amid slowing local demand for fuels such as gasoline and diesel, refiners are cutting their crude processing, or throughput, industry sources and analysts said. That drop should sap their appetite for crude imports, pulling down on international oil prices that have already been hit by fears over a slowing global economy. The swollen surplus of fuel products could also send China’s fuel exports surging to new highs and further pinch Asian refining profits. “For markets that are already consumed with fears about a global recession … headline numbers of oil demand growth slowing alongside talk of run cuts seem to reinforce a bearish narrative,” said Michal Meidan, a London-based analyst at Energy Aspects. Small-scale refiners known as ‘teapots’, mainly located in Shandong province, are coming under the most pressure to make fresh output cuts, analysts said, extending curbs many of them made in May and June. Teapots have been seen as a bellwether for China’s oil demand since 2015 when they became first-time crude oil importers. They now make up a fifth of the nation’s total crude imports. Dongming Petrochemical Group, the province’s largest independent refinery, is closing its 240,000-bpd plant this week for two months of maintenance in the wake of “poor margins”, according to a company source. That comes after plants were losing 300-350 yuan ($44-$51) on each tonne of crude oil they processed in June, their largest such loss in nearly four years, said Shi Linlin, an analyst at consultancy JLC, and analyst Wang Zhao at Sublime China Information, another consultancy in the province. Seven plants in Shandong – including Dongming – with a total crude processing capacity of 470,000 bpd will be offline in July for overhauls, JLC estimates. That’s equivalent to a throughput cut of 14 million barrels of crude in July alone, or nearly 4 percent of the country’s processing levels in May. Meanwhile, two major coastal plants run by Sinopec Corp, Asia’s largest refiner, are planning to trim throughput by nearly 2%, or roughly 10,400 barrels per day, in July-September from the second quarter, plant sources said. That comes after these two plants were hit by refining losses in June for the first time this year. Sinopec did not respond to a request for comment. All refinery sources declined to be named as they were not authorized to speak to the media. ONSLAUGHT FROM HENGLI The losses at small refiners come a month after behemoth Hengli cranked up operations at its plant in the northeastern port of Dalian. Hengli, traditionally a polyester maker, shipped its first gasoline cargo in early June. That was 80,000 tonnes sold to Sinopec at 5,300 yuan ($769.48) a tonne at an ex-plant rate, which is 700 yuan, or 12 percent, below prices offered by Shandong teapots, said two sources with direct knowledge of the transaction. The refiner in June placed a total of over 500,000 tonnes of gasoline at 300 to 500 yuan a tonne below market rates on average and sold a similar amount of off-specification diesel fuel with smaller discounts as its fuel quality has yet to stabilise, the sources said. “We were indeed marketing at promotional rates to build our customer base. But this is a temporary marketing strategy as we are new to the market,” said a Hengli spokesman, without elaborating. The Hengli and Zhejiang plants are together expected to account for about 6.4 percent of total Chinese crude oil throughput.