LPG subsidy, LNG imports, jet fuel, gas connections and many more – Demands from the oil and gas sector
Budget 2019 predictions: It’s time for Budget 2019! With barely a three days left, there are huge expectations from the upcoming Budget which will be most likely an interim one and presented by interim Finance Minister Piyush Goyal. Many speculations have hit headline, like what will be next big reforms announced by Prime Minister Narendra Modi’s government. This time major reforms are expected in the oil and gas sector from NDA government, considering 80% of India’s import depends on this segment. Many analysts are eyeing reforms in the form of LNG imports, LPG subsidy, jet fuel, GST regime and many more in the oil and gas sector. Firstly taking into consideration the LNG imports, they account 47% share in total consumption. Between April to November of FY19, consumption of natural gas has increased by 15% as against to the same period in the previous fiscal year. CARE says, “ The industry expects LNG customs duty to be waived off completely from the current 2.5%, to benefit domestic regasification terminals.” Next big reform is expected in the case of jet fuels and natural gas which are outside the umbrella of Goods and Services Tax (GST). It is only, LPG, kerosene and naphtha are which are under GST tax bracket. For this CARE said, “Bringing fuel products under the ambit of GST has been deliberated for long. The state and Centre, however, have not been able to build a consensus on revenue sharing.” Moving ahead, in regards to LPG subsidy, CARE says, “the industry expects the government to widen the fuel subsidy and include all cooking fuels such as piped natural gas and bio gas, a move to which will benefit all consumers besides making it attractive for consumers to switch to alternate cooking fuels.” In Budget 2018, the government had allotted Rs 249.32 billion as fuel subsidies where Rs 203.77 billion was earmarked as LPG subsidy and the remaining Rs 45.55 billion was classified as kerosene subsidy in oil and gas sector. Apart from this, CARE also believes that the government will have to increase the petroleum subsidy as they aim to provide LPG connections to all poor households under the Pradhan Mantri Ujjwala Yojana (PMUY). Launched since 2016, the PMUY scheme originally targeted giving LPG connections to mostly rural women members of below the poverty line (BPL) households. The list was later expanded to include all SC/ST households and forest dwellers among others. The scheme is now being extended to all poor households. Hence, whether the NDA government brings in ache din for the oil and gas sector will be keenly watched. “The total length of the two corridors of the Kanpur metro rail project is 32.38km and the completion cost, excluding the land cost and state taxes, is Rs 161.92 billion. The length of the Agra stretch of the metro, which will also have two corridors, is 30km and the completion cost is Rs 122.53 billion,” the report cited a senior official of the UP state urban development department.
India’s crude oil imports from Iran dropped 63% in December, 53% jump in shipments from Saudi Arabia
India’s crude oil imports from Iran dropped 63 per cent to 0.86 Million Tonne in December, the lowest recorded in calendar year 2018, fresh data sourced from Directorate General of Commerce Intelligence and Statistics (DGCIS) showed. India had imported 2.32 Million Tonne of Iranian crude in December 2017. Cumulatively, oil imports from Iran during the April-December 2018 period increased 18 per cent to 19.75 MT, as compared to 16.65 MT imported in the corresponding period a year ago. India’s crude oil imports from Iran have been declining since November after US’ secondary sanctions targeting Iran’s energy sector came in effect. Making good the restrictions on Iranian crude oil exports, India’s oil imports from Saudi Arabia, the largest producer of Organization of Petroleum Exporting Countries (OPEC), jumped 53 per cent 3.02 MT in December 2018. Cumulatively, India’s crude oil imports from Saudi Arabia in the April-December period jumped 13 per cent to 29.39 MT. Sanjiv Singh, Chairman of Indian Oil Corporation (IOC), India’s largest fuel retailer and one of the biggest domestic consumer of Iranian crude, earlier this month said the company is optimistic about getting another waiver from the US and complete halt of Iranian crude is a tough decision to make. India and Iran had on 2 November signed a bilateral agreement to settle oil trades through Indian government-owned UCO Bank in the Indian currency, which is not freely traded on international markets, Reuters reported. According to data sourced from DGCIS, most of the Iranian crude during April-December 2018 came through the Paradip Port which handled around 4.68 MT of Iranian crude during the period as compared to 1.91 MT handled in the corresponding period previous year. New Mangalore port handled 4.50 MT of Iranian crude during the April-December period as against 3.58 MT handled in the corresponding period previous year. Vadinar port handled 4.47 MT of Iranian crude during the period as compared to 5.35 MT handled in the nine months period previous year. Imports from other countries India’s crude oil imports from Iraq declined 3.20 per cent to 3.92 MT in December 2018 on a year-on-year basis. Iraq, one of largest producers of OPEC and the largest crude oil supplier to India in 2017-2018, maintained its position in the first nine months of the current financial year (2018-2019), supplying 34.38 MT of crude oil in the period. Iraq’s crude exports to India in the same period previous year stood at 32.28 MT. India’s oil imports from Nigeria also rose 20.53 per cent to 1.35 MT in December 2018. Crude oil imports from United Arab Emirates (UAE) in December 2018 increased 41.66 per cent to 1.87 MT. Imports from oil-rich Venezuela increased 13 per cent to 0.96 MT in December. Venezuela is one of the top five crude oil suppliers to India. However, the volume of crude sourced from the OPEC member has been erratic on the back of ongoing political and economic crisis as well as under-investment in the upstream sector which is impacting the country’s production. Cumulatively, India’s crude oil imports from Venezuela in the April-December 2018 period decreased 6.28 per cent to 13.42 MT from 14.32 MT imported in the corresponding period a year ago. India’s total crude oil import bill during April-December 2018 increased 40.6 per cent to $86.9 billion as compared to $61.8 billion recorded in the year ago period.
Croatia eyes tender for onshore gas and oil exploration in south
Croatia is preparing a tender for gas and oil exploration in the mountainous areas of central and southern Croatia, Energy and Environment Minister Tomislav Coric said on Tuesday. He did not specify any exact date, but said the tender for concessions should be ready soon. “The exploration works will take between five and seven years and then we will see how to proceed. I believe it is our duty to check what resources we have,” Coric told an energy conference. The exploration will take place in the Dinarides area which is a mountainous range covering a large part of the Balkans, including the areas of central and southern Croatia. “We will, of course, exclude the environmentally sensitive areas and the national parks. We’ve seen some positive signals in the energy community for this exploration move,” Coric added. So far Croatia has been granting concessions for exploration and exploitation of gas and oil in the northern, largely flat, areas of the country. Several years ago there was also a plan to kick off exploration activities in the Adriatic Sea, but it was dropped after protests by environmentalist groups which said such activities would threaten the biodiversity and tourist industry. Close to 20 percent of the Croatian economy is based on tourism almost entirely focused on the Adriatic coast. At the moment Croatia covers some 80 percent of its oil consumption and around 60 percent of its gas needs from imports.
HPCL’s Barmer refinery achieves financial closure
Hindustan Petroleum Corp Ltd’s (HPCL) Rs 43,129-crore refinery project in Barmer district of Rajasthan has achieved financial closure with tying up of a Rs 28,753-crore loan from a consortium of lenders, the company said Monday. HPCL, a subsidiary of state-owned Oil and Natural Gas Corp (ONGC), signed a debt syndication agreement with the consortium of nine lenders led by State Bank of India, a company statement said. “SBI is the lead lender with more than 50 per cent share in the consortium,” it said. “This is one of the largest project debt syndications in India.” The project, where HPCL owns 74 per cent stake and the balance is held by the Rajasthan government, will cost Rs 431.29 billion. Two-thirds of the project cost is being funded through loans and the remaining through equity by promoters. It comprises a 9-million ton a year oil refinery and a 2-million ton per annum petrochemicals unit. SBI Caps was the debt arranger, it added. Prime Minister Narendra Modi on January 16, 2018, started work on the project that will be completed by 2022-23. Originally, then Congress president Sonia Gandhi had laid foundation stone of the refinery on September 22, 2013. The state government is giving Rs 11.23 billion per annum for 15 years as an interest-free loan instead of previously envisaged tax breaks. This has resulted in reducing the financial burden on the state government from Rs 560.40 billion to Rs 168.45 billion. As much as 4,400,40 acres of land is required for the project, out of which, 1,454 acres will be developed as a green belt. Of the total project cost, Rs 8.42 billion has been earmarked towards pollution-control measures.
Essar to expand Hazira port capacity
Essar Group’s Hazira Port in Gujarat’s capacity is investing $20 million or about Rs 1.425 billion to ramp capacity to 95 million metric ton per annum (mmtpa) by mid of this year. The company plans to invest $70 million, or around Rs 4.98 billion, in two phases to increase Hazira Port’s capacity to 110 mmtpa. “Work is going on and a major component of the expansion project will be done in March and the entire first phase is expected to be done a few months after that,” a source said. Under the first phase, $20 million is being financed through internal accruals as well as debt. This phase includes construction of jetty. In FY2018, Hazira Port handled 41 million ton cargo. The second phase would be put into works a year before saturation of port’s capacity. As per the earlier plans, the second phase was to be completed by September 2020. At the moment, Ruias promoted Essar Ports has an operational capacity of 35 mmtpa for dry bulk and general cargo at this terminal in Gujarat. The company is also developing liquefied natural gas project at Hazira. For the second phase of the expansion, another $50 million planned to be invested is yet to be arranged. This phase includes ship unloaders, conveyor belt system, etc. In Gujarat, Essar Ports has another port at Salaya. Its 58-million ton Vadinar Port was divested in 2017 along with Essar Oil to a group led by Russian oil major Rosneft for Rs 861 billion. For Vadinar Port the company received Rs 133 billion. Last year, the cargo loading capacity at its Visakhapatnam Port facility was upgraded to handle 24 mmtpa from the earlier 12.5 mmtpa. This modernisation plan included dredging for the all-weather deep draft facility, high capacity tipplers, high capacity reclaimers, conveyor systems (9.5 km), etc at a cost of Rs 8.30 billion.
BPCL: In New Horizons
Bharat Petroleum Corporation Ltd. (BPCL) is among the leading players in the oil and gas sector, with many diverse feathers in its cap. It has for instance, been featured in the Asia Book of Records for running the largest corporate brand engagement programme in Asia. During the floods in Kerala in 2018, BPCL’s donation to the state was Rs 40 million, when the total donation of all of the petroleum industry was Rs 250 million. The Kochi refinery of BPCL has recently launched a specialty product, the food- grade Quality Hexane (FGQ Hexane) that aims to promote agro-processing. The product could turn out to be a boon for the agriculture sector. The public sector undertaking is a Maharatna with a market share of 23.8 per cent in petroleum products. In the 2017-18 financial year (FY 2018) BPCL had earned a net profit of Rs 79.1934 billion on a gross revenue of Rs 277162.23 billion. Like its peers in the oil and gas industry, BPCL too is foraying into the renewable energy space. As Urvisha H. Jagsheth, an oil and gas industry expert from CARE Ratings points out, “State-owned PSUs have been able to foray into the renewables space and have been able to expand their natural gas business, especially where gas is replacing liquid fuels.” Assuming that renewable energy (RE) will overtake fossil fuels in the long run, oil and gas majors will have to find ways to improve their performance to survive. Sabyasachi Majumdar, ICRA Group Head for Corporate Ratings says, “We expect to increase the share of RE in the all-India (power) generation to 10 per cent by FY 2020 and further to 13 per cent by FY 2022, based on capacity addition forecasts.” Being a smart player BPCL has already begun focusing on its gas resources. It has drawn up ambitious plans to become a significant player in the gas business, establishing its footprints across the entire gas value chain. In the long term BPCL is expected to have a focused presence in the downstream gas business and ensure demand security in the sector. Announcing the incorporation of Bharat Gas Resources Limited (BGRL) into the company as a subsidiary in June 2018, BPCL Chairman & Managing Director D. Rajkumar had said, “Formation of BGRL is, indeed, a significant milestone on the journey of BPCL, proving yet again, that the company will continue to create and surpass unparalleled benchmarks and accelerate into the realm of exceptional performers.” “BPCL has also decided to diversify into petrochemicals in a big way to tap the immense potential in the market,” he went on to say. “As a strategy, all future expansion plans of BPCL Group refineries are oriented towards production of petrochemicals, both commodity and niche derivatives. I am confident that soon BPCL will be a frontrunner in this space to deliver enhanced performance,” Rajkumar had said, spelling out the company’s strategy to diversify simultaneously into gas and petrochemicals. Bharat Petroleum has had a global presence for a long time. In FY 2018 it added to its portfolio a high-quality asset in the UAE. The integrated development of the 12.88 MMTPA LNG project in Mozambique was a critical milestone for BPCL too, positioning the consortium as a strategic global LNG supplier. The BPCL’s Numaligarh Refinery (NRL) earned a profit after tax of Rs 20.42 billion in 2017-18. Bharat Oman Refineries Limited is now on a growth trajectory as well and earned a profit after tax of Rs 9.84 billion, which is a phenomenal increase of 22 per cent over the previous year. At the company’s annual general meeting, Rajkumar had said, “I had shared with you last year that BPCL’s upstream subsidiary, Bharat Petro Resources Ltd. (BPRL) has established itself as a revenue generating company, with assets in all phases of upstream, ranging from exploration to production.
BP’s Whiting, Indiana refinery shuts HTU due to steam supply problems
BP shut a hydrotreater on Monday due to steam supply problems at its 413,500 barrel-per-day (bpd) Whiting, Indiana, refinery, sources familiar with plant operations said. The 24,300 bpd Catalytic Refining Unit was shut on Monday morning due to the problem, the sources said. A steam supply system malfunction forced a cut in production at the refinery earlier this month, but had been repaired.
Oil major Total plans biggest exploration drive in years
Total is launching its biggest exploration campaign for years in 2019 as part of a turnaround plan that is ditching the company’s focus on risky long-shots in favour of areas known to contain commercial levels of oil or gas. The French major aims to drill 23 wells this year, its senior vice president for exploration, Kevin McLachlan, told Reuters, in waters off Mauritania, Senegal, Namibia, South Africa, Guyana and Brazil. While the company declined to say how many wells it drilled in 2018, McLachlan said 2019 would be Total’s largest programme in years. The 23 wells planned represent about a trebling of the levels of 2017 and 2016, and is higher even than the 20 drilled in 2013, before the oil price crash. The company’s new game plan is to concentrate efforts on emerging and mature basins, which offer a greater chance of exploration success. It is moving away from its higher-risk, higher-reward strategy of targeting “frontier” areas that have not been commercially exploited, an approach which yielded scant rewards and saw outlier Total fall behind rivals. As a result the proportion of its exploration capital the African-focused company is spending on frontier areas has dropped to 15 percent, from 40 percent five years ago. “We were spending a lot of money in frontier,” said McLachlan, a Canadian geophysicist who joined Total in 2015 to lead the five-year revamp of its exploration strategy. “Now we want balance.” Most of the wells it aims to drill this year will target known giant fields, he added. Total has broken ranks with some rivals in recent years and largely ignored the rush to U.S. shale. It is looking to eke out conventional resources, particularly in Africa where it has the biggest industry presence. The strategy carries risks though, and has left the company exposed to the kind of political instability that has deterred others. McLachlan said Total’s exploration budget would remain broadly in line with 2018, when it was $1.2 billion, and 2017, when it was $1.1 billion. That is still less than half the level of 2014, when the price crash forced all majors to cut spending. LAGGING IN DISCOVERIES Appraisals of discoveries in 2018 could offer signs that Total’s shift in exploration strategy is paying off. The company announced a 1 trillion cubic feet gas discovery off Shetland in the North Sea last year. Appraisals are ongoing for the Ballymore discovery in the Gulf of Mexico with Chevron, and Calypso in Cyprus with Eni. A major discovery in 2019 could cement the turnaround after a drought between 2009 and 2014 when it spent billions in exploration with little barrels to show for it, while rivals Eni Exxon Mobil and BP, racked up successes. Yet there is still work to do in terms of converting exploration dollars into commercial success. Energy consultancy Wood Mackenzie said Total had aggressively snapped up exploration blocks in 2017 and 2018, which took it to the top of the industry table with over 189,000 square km added since 2015 – around 70,000 higher than its nearest competitor. But in terms of discoveries since 2015, Total still lags some peers, said Wood Mackenzie analyst Andrew Latham. “It is clearly behind Exxon Mobil. Exxon’s success in Guyana marks them out as industry leader,” said Latham, adding that Eni’s Zohr gas discovery in Egypt was the next top find. “Thereafter, it is competing well with the other majors, it has been involved in a string of multi-hundred million barrel big new finds, whereas in the previous four years it would have been one of the weaker or weakest of the majors.” As part of its turnaround plan, Total has created five regional exploration hubs with a concentration of geoscientists, instead of teams spread out in 38 countries. A new, central 10-person leadership team reviews and chooses projects, compared with decisions being made locally before, while people with exploration track records have been placed in executive positions for the first time. S.AFRICA RESULTS EXPECTED ‘IN DAYS’ Like some competitors, including Exxon and BP, Total is looking to deepwater exploration at a time when technological advances – particularly in 3D digital seismic imaging – is aiding a comeback in that area following a decade when industry advances have been focused on onshore shale. Of the 23 wells in Total’s drill programme this year, it has already started work at the deepwater Brulpadda field off South Africa. Two industry sources close to the project say the potential for a discovery is high and could signal a game-changer not only for Total, but also for the country. “We are expecting the results in the coming days,” Total’s Chairman and Chief Executive Patrick Pouyanne said. While Total has said the field could hold between 500 million to over 1 billion barrels of oil equivalent, one of its partner in the project is more upbeat. “The outlook for finding hydrocarbons is extremely high. The question is whether it is gas or oil, and whether it is a good-quality reservoir,” Keith Hill, CEO of Africa Oil Corp, a minority stakeholder in the field, told Reuters, adding that the field could hold 1.5 to 3 billion barrels. Other oil companies and South African authorities are likely to be watching closing. “Any potential discovery will ultimately result in the attraction of other oil companies and the growing of the oil and exploration and production industry in South Africa,” said Viljoen Storm, acting chief executive of the country’s state-owned Petroleum Agency.
OMV expects price negotiations with Gazprom to drag on until summer
Oil and gas group OMV expects to agree a price for the Siberian gas assets it plans to buy from Gazprom by summer, later than an initial plan for early this year, the Austrian group’s chief executive told Reuters. That further delays OMV’s entry into the Russian company’s Achimov IV and V phase development in the Urengoy gas fields. The two groups had agreed in 2016 to swap 38.5 percent of OMV’s Norwegian assets for 24.98 percent of the Russian assets. However, they gave in to opposition from Norway in October, cancelling the swap deal and saying OMV would buy the assets. “We will do everything we can to finalise this in the summer,” Rainer Seele said on Sunday. In recent months, OMV has shifted its focus more towards the Middle East. It announced a landmark partnership deal with Abu Dhabi’s National Oil Company (ADNOC) and Italy’s Eni on Sunday.
ADNOC seals $5.8 billion refining and trading deal with ENI, OMV
Italy’s Eni and Austria’s OMV have agreed to pay a combined $5.8 billion to take a stake in Abu Dhabi National Oil Company’s (ADNOC) refining business and establish a new trading operation owned by the three partners. The transaction, which expands ADNOC’s access to European markets, furthers Eni’s diversification away from Africa and gives OMV a downstream oil business outside Europe. It was hailed as a “one of a kind” deal by ADNOC’s Chief Executive Sultan al-Jaber. “The whole oil and gas industry hasn’t seen a transaction of this size and sophistication,” he said. Under the agreement, Eni and OMV will acquire a 20 percent and a 15 percent share in ADNOC Refining respectively, with ADNOC owning the remaining 65 percent, the three companies said in statements on Sunday. The partners will own the same proportions of the joint trading venture, they added. OMV said that it would pay around $2.5 billion, while Eni said it would pay around $3.3 billion, giving ADNOC Refining, which has a total refining capacity of 922,000 barrels per day, an enterprise value of $19.3 billion. The agreement includes output from the Ruwais Refinery, the fourth largest single site refinery in the world. WIN/WIN The new trading venture will expand market access for ADNOC Refining’s products with export volumes equivalent to approximately 70 percent of throughput. “We are already well-positioned in Asia and we want to increase our market share there …. but this will also help us to have access to European markets and beyond,” al-Jaber said. Eni has signed several deals in the Middle East in recent months as it expands outside Africa where it is the biggest foreign oil and gas producer. The company’s CEO Claudio Descalzi said the partnership would increase its global refining capacity by 35 percent. “This transaction, which allows us to enter the United Arab Emirates’ downstream sector…(will make) Eni’s overall portfolio more geographically diversified, more balanced along the value chain, more efficient and more resilient to cope with market volatility,” he said. OMV described the deal, which is set to close in the third quarter of 2019, as a major milestone in relation to its “Strategy 2025” plan. It said it would finance the deal primarily out of its cash flow. “With (this transaction) OMV has established a strong integrated position in Abu Dhabi…spanning from upstream production to refining & trading and petrochemicals,” CEO Rainer Seele said. Founded in 1971, ADNOC has undergone major change since al-Jaber’s appointment in 2016, part of wider economic reforms led by Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed Al Nahyan, who witnessed the signing of the three-way agreement. Al-Jaber has embarked on privatising its services businesses, ventured into oil trading and expanded partnerships with strategic investors.