IndianOil goes up value chain, signs fuel supply deal with US
To ensure a steady inflow of crude oil at a time imports from Iran are falling, state-run Indian Oil Corp (IOC) has become the first domestic company to sign a long-term supply contract with the US. The oil marketing company, in a statement released on Monday, said the annual deal is worth $1.5 billion and will be effective for FY20. “IOC has finalised a term contract for import of up to 3 million tonne of crude oil of US origin grades as a part of its strategy to diversify term crude sources,” the company said, adding the contract was finalised on February 15. FE in January reported IOC was looking at long-term contracts with US suppliers, and that negotiations were on while non-availability of official selling price (OSP) was proving to be a hurdle. Till now, Indian refiners have been buying US crude oil in spot markets since 2017. FE had reported that Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) might also sign long-term contracts with the US since IOC was the negotiator and the terms were likely to be finalised for all three national oil marketing companies. Unlike national oil companies with whom Indian refiners predominantly deal, US suppliers do not declare OSPs. Most state-owned oil explorers publish OSPs for different streams of crude oil and long-term customers are offered these prices. These prices are revised periodically and in most cases monthly. OMCs need approval from their boards to sign term deals with non-government foreign oil producers. Prior to signing the term contract, IOC had entered into a term-tender deal with the US in August for 6 million barrels of US crude oil under a single tender for delivery between November 2018 and January 2019. The expected value of India’s oil imports from the US is likely to be about $4 billion this financial year, which is likely to go up as trade between the two countries expands. According to reports, crude oil import from sanction-hit Iran fell to 270,500 barrels per day (bpd) in January from the estimated 300,000 bpd, or 1.25 million tonne per month, allowed as per the waiver extended by US for six months starting November. Before US put sanctions against Iran, the Persian Gulf country was the third largest supplier of crude oil to India. It currently is at seventh spot.
Govt reverts back to old system of awarding oil and gas blocks
The government Tuesday approved new rules for bidding out oil and gas blocks as it reverted back to a two-decade old system of awarding areas based on exploration work commitment, granted marketing and pricing freedom to yet to be developed discoveries and allowed ONGC to induct private firms in existing fields. In a bid to boost flagging domestic production and cut imports, the Cabinet headed by Prime Minister Narendra Modi approved “a transparent, investor-friendly and competitive policy framework to accelerate exploration activities and provide impetus to expeditious production of oil and gas,” an official statement said. The new system of awarding blocks in not so prolific areas will replace a two-year-old method of awarding them to companies offering the highest revenue share to the government. The Cabinet approved awarding of exploration blocks in Category-I basins, where commercial production of hydrocarbon has already been established, on the basis of a mix of work commitment and revenue share in the ratio of 70:30, Finance Minister Arun Jaitley told reporters here. Exploration blocks in Category II and III basins will be awarded purely based on the exploration work programme. This, he said, was based on the recommendation of a six-member panel, headed by NITI Aayog Vice Chairman Rajiv Kumar, which was formed on directions of Prime Minister Narendra Modi last year to give a boost to domestic exploration. He said there will be no revenue or production sharing in these contracts but the government will get a share in case of windfall gains. The trigger for such a sharing has been fixed at USD 2.5 billion in a financial year from the block. The BJP-led NDA government had two years back moved from production sharing contracts, where acreage for exploration of oil and gas was allocated to firms offering the largest work programmes (such as carrying out seismic survey and drilling of wells), to revenue sharing contracts, where the firm offering highest revenue to the government was given the blocks. In the older system, the explorer was guaranteed that his entire cost will be allowed to be recovered once commercially exploitable oil and gas is found. But in revenue sharing contract, the cost has no bearing and the companies are supposed to bid the revenue or production that they would give to the government at different levels of output and price. The move to revenue sharing was despite several industry players stating that prospectivity in the country was poor and there was a need to give incentives to companies for exploration. India has 26 sedimentary basins measuring 3.14 million square kilometers. These are classified into four categories: Category-I basins where commercial production has been established like Cambay, Mumbai Offshore, Rajasthan, Krishna Godavari, Cauvery, Assam Shelf and Assam-Arakan fold belt; Category-II basins with known accumulation of hydrocarbons but no commercial production so far such as Kutch, Mahanadi-NEC (North East Coast), Andaman-Nicobar and Kerala-Konkan-Lakshadweep. The category-III basins have hydrocarbon reserves that are considered geologically prospective such as in Himalayan Foreland basin, Ganga Basin, Vindhyan basin, Saurashtra basin, Kerela Konkan basin, Bengal basin; and Category-IV which are the ones having uncertain potential which may be prospective by analogy with similar basins in the world. These include Karewa basin, Spiti-Zanskar basin, Satpura-South Rewa-Damodar basin, Chhattisgarh basin, Narmada basin, Deccan Syneclise, Bhima-Kaladgi, Bastar basin, Pranhita Godavari basin and Cuddapah basin. “To incentivize enhanced gas production, marketing and pricing freedom has been granted for those new gas discoveries whose Field Development Plan (FDP) is yet to be approved,” the statement said adding fiscal incentive is also provided on additional gas production from domestic fields over and above normal production. To raise output from existing nomination fields of ONGC and OIL, enhanced production profile will be prepared by both PSUs. “For production enhancement, bringing new technology, and capital, national oil companies will be allowed to induct private sector partners,” it said. The production enhancement scheme for nomination field of state-owned ONGC and OIL is likely to augment production by leveraging new technology, capital and management practices through private sector participation, it added. The committee included Cabinet Secretary P K Sinha, Economic Affairs Secretary Subhash Chandra Garg, Oil Secretary M M Kutty, NITI Aayog CEO Amitabh Kant and ONGC Chairman and Managing Director Shashi Shanker. The operators in Category II & III areas be given more concessions such as full marketing freedom to expedite production. An official statement issued after the Cabinet meeting said the objective of the policy is to attract new investment in exploration and production (E&P) sector, intensification of exploration activities in hitherto unexplored areas and liberalizing the policy in producing basins. “Considering stagnant/declining domestic production of oil and gas, the rise in import dependence and decline in investment in E&P activities, the need to bring further policy reforms was felt,” it said. “The policy provides for shorter exploration period and fiscal incentive for the commencement of early production. The contractor will have full marketing and pricing freedom for crude oil and natural gas to be sold at arm’s length basis through a transparent and competitive bidding process.”
India an investment priority for Saudi Aramco – CEO Amin Nasser
Saudi Aramco said on Wednesday that investing in India is a priority for the company, and it expects the country’s oil demand to rise to 8.2 million barrels per day by 2040. “India is an investment priority for Saudi Aramco,” CEO Amin Nasser said at a panel discussion in New Delhi. Nasser is part of the entourage travelling with Saudi Arabia’s Crown Prince Mohammed bin Salman, who is in India for a one-day visit. The prince, known as MBS, is in India along with leading Saudi businessmen and company representatives at the invitation of Prime Minister Narendra Modi. Nasser said India currently buys about 800,000 barrels a day of Saudi Arabian oil. “India looking for stronger ties with Saudi,” said Sanjiv Singh, chairman of India Oil Corp Ltd, India’s biggest state-owned crude oil refiner. The panel discussion was also attended by SABIC, a unit of Aramco and the world’s fourth-largest petrochemicals maker.
Modi’s poll math puts at risk $44 billion refinery with Saudis
India’s poll politics and Prime Minister Narendra Modi’s ambition to win a second straight term has claimed an unlikely victim. A proposed $44 billion oil refinery on the western coast to be built with investments from Saudi Arabia. On Monday, Maharashtra government decided to relocate the project, a day ahead of Saudi Crown Prince Mohammed bin Salman’s visit to India. BJP, which leads the government in the nation’s richest state, has been facing stiff opposition from ally Shiv Sena over the site of the refinery. “There is a lot of political risk associated,” said Sri Paravaikkarasu, an analyst at industry consultant FGE in Singapore. The refinery’s completion “also depends on what is going to be the outcome of the next general election, who wins or if it is going to be a single party or a coalition government.” While the project is crucial for meeting India’s expanding appetite for fuels, shoring up popular support of the farmers who account for over 60 per cent of the population is key for Modi’s re-election bid in polls due by May. Its ally Shiv Sena holds considerable influence in a state that elects the second-largest number of lawmakers and the ruling party hopes the deal will help contain discontentment over job creation and a slowdown in economic sentiment. Maharashtra Chief Minister Devendra Fadnavis announced relocating the project from the proposed location in Ratnagiri district just after sealing the alliance with the regional party that had joined the farmers in opposing the oil refinery in the area. The project will now be built at a different location, Fadnavis said, without specifying the new area. The mega plant, announced in 2016, hasn’t made much physical progress as locals refused to hand over land fearing damage to farming in the region famous for its Alphonso mangoes and cashew plantations. It is also classified as an ecologically-sensitive area. Saudi Arabian Oil Co., popularly called Saudi Aramco, and Abu Dhabi’s state oil producer Abu Dhabi National Oil Co. agreed to jointly pick up half of the equity in the planned 60 million-tons-a-year refinery and downstream petrochemicals units. Aramco, the world’s biggest oil exporter, and Adnoc are seeking to strengthen ties with refineries in Asia to lock up market share in the region driving growth in global oil demand. Rising demand for oil products in India has drawn investments in the refining and fuel retailing business from Russia’s Rosneft to BP and Total in recent years. Refiners are spending billions of dollars for adding capacities to satiate India’s demand. “India has the fourth largest refining capacity in the world. This will further grow by about 200 million metric tons by 2030,” Modi said on February 11. FGE estimates that the first phase of the project may be ready only by 2027-28. “But now looking at the recent developments we think probably that also in an optimistic timeline,” Paravaikkarasu said.
Gail India Ltd offers new swap of U.S. LNG volumes – sources
Gail India has offered a cargo of liquefied natural gas (LNG) loading from the United States on June 27-29 this year, two traders said. Gail is also seeking an LNG cargo for delivery into India’s Dahej or Hazira terminals on Sept. 8-12. The tender for both cargoes closes on Feb. 21. Including this tender, Gail has offered 10 cargoes from its U.S. offtake for loading in 2019 and 2020.
Russia’s Sakhalin 2 offers 10 LNG cargoes for 2019-2020 – sources
Russia’s Sakhalin 2 has offered 10 liquefied natural gas (LNG) cargoes for loading over May 2019 to March 2020, several industry sources said on Tuesday. The cargoes are being offered on either a delivered ex-ship (DES) basis or a free-on-board (FOB) basis, two of them said. They are for loading on May 1, May 30, June 18, June 26, June 28, Sept. 28, Nov. 12, Nov. 30, Dec. 28 and March 22, 2020, one of the sources said. The cargoes will be priced on a JKM-linked basis, a second source said. Bids are due by Feb. 26 and are valid until Feb. 28, the source added.
AITUC condemns plan to auction oil, gas blocks of ONGC, OIL
A central trade union on Monday condemned the plan to privatize 97 oil and gas fields discovered by state-run oil firms, terming it as a “quid pro quo” by the government to corporates. The All India Trade Union Congress (AITUC) argued that the government has no moral right to take such decisions now as there will not be any session of the Lok Sabha to vet such proposals. “Reports have appeared in the press that a Group of Ministers-GoM- (headed by the Finance Minister and assisted by Ministers of Coal, Commerce, Power, and Petroleum) has received and approved in its very first and last meeting, plans to auction 97 ‘small’ oil and gas fields discovered by ONGC and OIL, the navaratna public sector companies, to private corporates,” the AITUC claimed. A cursory reading of the report shows that the proposal originated in the Prime Minister’s Office, followed by a bureaucratic panel, headed by the CEO of the NITI Aayog and thereafter, rubber-stamped by the GoM, the union said in a statement. The union said that even big fields that will be left for ONGC and OIL to operate, will be saddled with stringent conditions of showing “enhanced production profile”, which, if not adhered to, will also be taken away from them and handed over to the private parties. The AITUC noted that the NITI Aayog recommendations also say that the new private players should not be charged for the past expenses of discovery or development! It needs to be stated here that the worker’s unions in the oil sector have been agitating against such moves including the strike action. They were assured by the concerned management that no such move is being made, it added. The Modi government has no moral right to take such decisions now that there will not be any session of the Lok Sabha to vet such proposals. This seems more like a parting gift by Modi Government to the Corporates in return for the hospitality of the past five years – a quid pro quo!, it alleged. The AITUC called upon the people of India and petroleum workmen unions and officers’ associations to resist this.
Qatar to Buy Up to 60 New LNG Vessels
Qatar Petroleum (QP) is expected to order 60 new liquefied natural gas (LNG) carriers to serve new customers once it ramps up its annual capacity from the current 77 million tonnes (mt) to 110 mt after building four liquefaction trains by 2024. A report in Gulf Times quoted the Minister of State for Energy Affairs Saad bin Sherida al-Kaabi, who is also president and CEO of QP saying that the state-run oil company has a team, which is in talks with different ship builders worldwide. “It should be between 50 and 60 vessels that we will require to transport the expanded output of LNG. It will be very substantial number, but things will become clear with time,” he said. He added: “We have a dedicated team of experts who are already working on that element (to acquiring vessels). They have visited different shipbuilders around the world. There will be international tenders put in place to procure the ships. Everything is going ahead as per the plan. Asked if Qatar is considering building LNG carriers in the country itself, he said, “We have no such plans as it would be very expensive to build such vessels in the country. We will get them manufactured outside the country.” He said that Nakilat has a large and well-equipped shipyard in Ras Laffan Industrial City and has built a number of vessels with its partners, taking advantage of its expertise and low cost of raw materials and manpower, but the building of LNG carriers needs different expertise, which makes QP mostly geared towards South Korea that has proven its expertise in this field. This is for the second time that he noted that QP is looking to South Korea and other countries for its ship building needs.
Gas to keep central role in Dutch energy demand – GasTerra
The Netherlands will remain a heavy user of natural gas for years to come, despite big production cuts at its Groningen field, gas trading company GasTerra said on Friday. The Dutch have been one of the major gas suppliers in Europe for decades, exploiting what once was Europe’s largest gas field in the northern region of Groningen. But the Dutch government last year said it would end production at Groningen by 2030 after a string of earthquakes directly related to gas extraction damaged thousands of houses and buildings. The Dutch still rely on natural gas for about 40 percent of their total energy needs and are not expected to end their gas dependency soon. “The use of gas-fired power stations may even increase in the next decade in order to secure electricity supplies,” GasTerra Chief Executive Annie Krist said in the company’s annual report published on Friday. “In the years to come the Netherlands will still have to produce and import several billion cubic metres of natural gas.” Most of the gas will come from abroad, GasTerra said, as the Groningen production cuts turned the Netherlands into a net importer of gas for the first time since the 1950’s two years ago. Imported gas covered almost 55 percent of the total Dutch gas need in 2017, Statistics Netherlands said last year. The growing demand for foreign gas has so far been mainly met by Norway, with its exports to the Netherlands up by a third in 2017. GasTerra is the sole buyer of Groningen gas, which is extracted by a Royal Dutch Shell and Exxon Mobil joint venture. The company also trades gas in the Netherlands and beyond from smaller Dutch fields and from Norway and Russia. Groningen output has already been cut by 60 percent since its 2013 peak of 53.8 billion cubic metres (bcm) per year, and dropped by a fifth in the most recent year, to 20.1 bcm. Extraction is set to fall to 15.9 bcm in the year through October 2020, the government said earlier this month.
IOC gets “green nod” for storage and distribution terminal in Telangana
The Expert Appraisal Committee under the Environment Ministry has given “green signal” to Indian Oil Corporation Ltd for setting up a grass root petroleum storage and distribution terminal in Telangana. According to the minutes of the meeting held recently, the proposal involves setting up petroleum storage and distribution terminal comprising 28 tanks with combined capacity of nearly 165 million litres with an investment outlay of Rs 570 crore at Malkapur village, Yadadri district. “The EAC, after deliberations, recommended the project for grant of environmental clearance, subject to the terms and conditions as under…,” the EAC said. “At least 2 per cent of the total project cost shall be allocated for Corporate Environment Responsibility (CER) and item-wise details along with time bound action plan shall be prepared and submitted to the Ministrys Regional Office,” it said as one of the conditions for EC. The total area available for the project is over three lakh sqm, of which greenbelt will be developed in an area of over one lakh sqm covering 33 per cent of the total project area. “The estimated project cost is Rs 570 crore. Total capital cost earmarked towards environmental pollution control measures is Rs 35 crore and the recurring cost (operation and maintenance) will be about Rs 3.06 crore per annum. Total employment opportunity will be for 35 people directly and 460 people indirectly,” the minutes said. The State Expert Appraisal Committee (Telangana) in its 36th meeting held during December 4-5, 2017 recommended Terms of References (ToR) for the project. Public hearing for the proposed project has been conducted by the State Pollution Control Board on September 26, 2018. The main issues raised during the public hearing were related to employment and health facilities, the EAC said. There are no national parks, wildlife sanctuaries, biosphere reserves, tiger/elephant reserves and wildlife corridors within 10 km of the project site. Prior approval shall be obtained from the Petroleum and Explosives Safety Organisation (PESO) for the site and layout plan submitted to the Ministry along with the proposal for EC. In case of any change therein post PESO approval, the proposal shall require fresh appraisal by the sectoral EAC, it added.