Oil prices edge down as global growth worries threaten demand
Oil prices edged lower on Tuesday as concerns over global economic growth stoked fears over future demand. International Brent crude oil futures were down 10 cents, or 0.2 percent, at $62.64 by 0106 GMT. They closed down 0.1 percent on Monday. U.S. West Texas Intermediate (WTI) crude futures were at $53.70 per barrel, down 0.1 percent, or 4 cents. “Trade war concerns have reduced global growth expectations and with it comes a lower demand for energy,” said Alfonso Esparza, senior analyst, OANDA. The International Monetary Fund trimmed its global growth forecasts on Monday and a survey showed increasing pessimism among business chiefs, highlighting the challenges facing policymakers as they tackle an array of actual or potential crises, from the U.S.-China trade war to Brexit. Also clouding the outlook was data showing a slowdown in growth in China, the world’s second biggest economy. However, oil prices were offered some support in the wake of recent data that indicated major exporters were beginning to curtail production. In the United States, energy services firm Baker Hughes said that energy companies cut the number of rigs drilling for oil by 21 last week, the biggest decline in three years and taking the count down to the lowest since May, 2018 at 852. The Organization of the Petroleum Exporting Countries (OPEC)on Friday published a list of oil output cuts by its members and other major producers for the six months to June, an effort to boost confidence in a move designed to avoid a supply glut in 2019.
Pertamina gas unit PGN targets domestic sales of 935 billion btu in 2019
Perusahaan Gas Negara (PGN), the gas unit of Indonesian energy holding company Pertamina, targets domestic natural gas sales of 935 billion British thermal units (Btu) per day in 2019, it said in a statement * PGN is targeting domestic gas transmission at 2.16 billion cubic feet per day in 2019, according to a statement on Monday
CNPC says oil and gas output rises 4.5 pct in 2018
China National Petroleum Corp (CNPC) said its oil and gas production rose by 4.5 percent year-on-year to 286.35 million tonnes of oil equivalent in 2018. The figure, which includes CNPC’s output both at home and overseas, works out at around 5.73 million barrels of oil equivalent per day, according to Reuters calculations. The state-owned company, China’s top oil and gas producer, also said its crude oil processing volumes rose by 4.7 percent from 2017 to 207.31 million tonnes, or 4.15 million barrels per day, while refined product sales were up 9.6 percent at 199.96 million tonnes. Natural gas sales were up 13.2 percent at 180.7 billion cubic meters, CNPC said in a report on its website dated Jan. 19.
Numaligarh Refinery Limited wins ‘Refinery Performance Improvement Award’
Numaligarh Refinery Limited (NRL) has been adjudged 2nd among Indian refineries at the ‘Refinery Performance Improvement Awards’ for the year 2017-18. The award was presented by Secretary, Ministry of Petroleum & Natural Gas (MoP&NG), Govt. of India Dr. MM Kutty to Team NRL led by Director (Technical)-NRL BJ Phukan at the inaugural function of the 23rd Refining & Petrochemicals Technology Meet (RPTM) held in Mumbai recently. Instituted by MoP&NG, this award recognises the best in performance under six key parameters viz. Crude Throughput, Specific Energy Consumption, Specific Steam Consumption, Carbon Emission Intensity, Operating Cost and Specific Water Consumption. The companies selected for this prestigious award go through a rigorous test of competence and is selected by a committee constituted by MoP&NG.
Reliance seeks Niko’s exit from KG-D6 over payment default
Reliance Industries has asked its partner Niko Resources to withdraw from eastern offshore KG-D6 gas block over default in payments for field development cost, but the Canadian firm has sought to stall the move by invoking arbitration, the companies said. Niko, which defaulted on payment of loans to its lenders, has been unsuccessful in seeking a possible buyer for its 10 per cent stake in Bay of Bengal block KG-D6 or securing financing for its share of the $5-6 billion R-Cluster, Satellite Cluster and MJ development projects in the block. In its third quarter earning statement last week, Reliance Industries stated that Niko “defaulted on Cash Calls and accordingly default notice was issued as per the provision of Joint Operating Agreement (JOA)“. “Since Niko did not cure the default within the default period, RIL and BP issued notice to Niko for withdrawal from Production Sharing Contract (PSC) and JOA and assign the participating interest to RIL and BP,” RIL said. “In response to the notice, NIKO has served notice of Arbitration.” Reliance is the operator of KG-D6 block with 60 per cent stake and UK’s BP plc has 30 per cent interest. Niko, in a corporate update, said that it has on December 17, 2018 “received a notice from the non-defaulting parties requiring the subsidiary to withdraw from the KG-D6 PSC and JOA“. The company said it was evaluating its legal options regarding the notice. Niko decided not to pay a KG-D6 Block cash call that was due in early October 2018. This led to Reliance slapping a default notice under the production sharing contract (PSC). Under the terms of the joint operating agreement (JOA) between the participating interest holders in the D6 PSC, during the continuance of a default, the defaulting party shall not have a right to its share of revenue (which shall vest in and be the property of the non-defaulting parties who have paid to cover the amount in default). In addition, if the defaulting party does not cure a default within 60 days of the default notice, the non-defaulting parties have the option to require the defaulting party to withdraw from the D6 PSC and JOA. Niko had previously withdrawn from eastern offshore NEC-25 block due to cash crunch. Its 10 per cent interest was assigned to Reliance and BP. Subsequent to that, Reliance now holds 66.6 per cent interest in NEC-25 and BP the remaining 33.37 per cent.
The Future Is Now for LNG as Derivatives Trading Takes Off
With natural gas demand growing faster than for any other fossil fuel, LNG futures may be finally taking off. Derivatives represented about 2 percent of global LNG production at the beginning of 2017 as an array of contracts around the world struggled to gain traction. But by the end of last year, volumes had grown to almost 23 percent, led by a burgeoning Intercontinental Exchange Inc. contract based on S&P Global Platts’ Japan-Korea Marker spot price assessments. While volumes are a long way off established global energy benchmarks such as Brent crude — where trade dwarfs worldwide oil production many times over — the accelerating growth in LNG derivatives illustrates how the market is maturing. An explosion in supply, from the U.S. to Australia, is bringing more market participants and a shift away from traditional pricing. “There’s more short-term physical trading indexed to JKM and new counterparties active in the market,” said Tobias Davis, head of LNG–Asia at brokerage Tullett Prebon. “This creates more liquidity and in turn, builds more confidence in trading the swap and using it as a viable hedging tool.” Bright Futures JKM LNG derivatives trading is taking off as more cargoes are sold on a spot basis There are now at least six derivative contracts for LNG, ranging from U.S. Gulf Coast futures on ICE to Dubai-Kuwait-India on Singapore Exchange Ltd. The most established by far is ICE’s Japan-Korea Marker, launched in 2012. More than 17,000 contracts traded in December, a 10-fold increase from January 2017. The next most active is CME Group Inc.’s futures contract, also based on S&P Global Platts’ JKM assessment. Its monthly volume peaked in November last year at 3,335 contracts. The need for a liquid LNG benchmark has been the subject of much debate. Traditionally, when oil was used more commonly in power generation and production, it was almost exclusively valued relative to crude oil and brought and sold under long-term contracts. One advantage of that system is that oil has a liquid and established futures market that gives market participants visibility and the confidence to hedge. Long Way to Go LNG futures trail other oil and gas benchmarks in terms of open interest But oil and gas don’t move in lockstep and buyers have become increasingly reluctant to be tied to crude markets. The expansion in global supply, most notably with the development of shale reserves that transformed the U.S. into a major natural gas exporter, has opened up other options and stimulated a shift to more spot trading. About 27 percent of LNG was sold under spot- or short-term deals in 2017, up from 12 percent in 2003, according to the International Group of LNG Importers. That just increased the need for a reliable price benchmark and liquid futures market for hedging. Regional gas benchmarks such as Louisiana’s Henry Hub, the U.K.’s National Balancing Point or Dutch Title Transfer Facility reflect local fundamentals and therefore may not be ideal proxies for the global LNG trade, where the vast majority of sales are in Asia. So that’s where LNG futures come in. JKM “is much more trusted, much more accurate, and the paper market is helping make it be more responsive to price movements,” Gordon D Waters, the global head of LNG at ENGIE, said by phone on Friday. JKM contracts could reach the level of NBP or TTF “most likely within the next 5 years.” NBP and TTF volumes both averaged about 37,000 contracts a day in 2018. There’s still a long way to go. ICE JKM is still much smaller than other global oil and gas benchmarks. Exchange open interest, or the amount of outstanding bets at the end of every day, accounted for about $2 billion at the end of 2018, compared with $36 billion for U.S. natural gas and more than $100 billion for Brent oil, according to Bloomberg estimates. How the debate over natural gas pricing is playing out in Europe For a futures market to be considered truly liquid, volumes should be about 10 times the size of the actual physical trade, according to Total SA, one of the world’s biggest producers and a major participant in the JKM market. With volumes multiplying by about three times a year, JKM should reach that level in about five years, Philip Olivier, Total’s general manager of global LNG, said in October. Brent and U.S. gas traders also have much more flexibility, as they’re able to buy and sell futures by the second, with prices updating to reflect the fast-moving market. Most JKM LNG trades are still brokered offline and then cleared by exchanges. Contract values are based on a monthly average of Platts assessments, so the price updates once a day when the new assessment is added. Still, LNG has already surpassed one energy derivative. ICE’s JKM contract now has more value in open interest than the exchange’s Newcastle coal contract. The two fuels, of course, also vie in the real world for space in power plants in some regions. The Future is LNG More money is now tied up in LNG futures than in coal “If you have a look at how the coal market developed in the mid-2000s, it took over a decade to transition to a liquid exchange order book,” said Gordon Bennett, managing director for utility markets at ICE. “It definitely feels like JKM is evolving quicker.”
China Pushes LNG Imports to the Limit
China is importing record volumes of liquefied natural gas (LNG) to meet its air quality targets and may have no alternative for the next several years, experts say. In November, China’s LNG imports soared 48.5 percent from a year earlier to 5.99 million metric tons, according to customs figures. In the 11-month period, imports of 47.52 million tons climbed 43.6 percent from a year before, the official Xinhua news agency said. Total natural gas imports, including both pipeline gas and LNG, rose 31.9 percent to a record of 90.39 million tons last year, the General Administration of Customs said Monday. Last year marked the second in a row of LNG growth rates of over 40 percent as the government presses ahead with its wintertime fuel-switching policy to reduce heating with high- polluting coal. Despite higher costs and infrastructure problems, the government has shown determination to pursue the gas policy as the gap between domestic production and consumption grows. In November, China’s gas output jumped 10.1 percent from a year earlier, but the daily consumption rate also rose to a new record on Nov. 21, Reuters reported, citing the National Development and Reform Commission (NDRC). A detailed study released last month by the Oxford Institute for Energy Studies suggests that China faces a critical period between now and 2020 with implications for the international LNG market, depending on how far the government pushes its fuel-switching campaign. Total natural gas consumption in 2020 will range between 300 billion and 400 billion cubic meters (10.6 trillion and 14.1 trillion cubic feet), based on minimum and maximum estimates of coal-to-gas switching, said the study by senior researchers and analysts at Osaka Gas Co., Ltd. of Japan. Central Asian pipeline network Domestic gas production is likely to contribute 180 billion to 200 billion cubic meters (bcm), or anywhere from 45 to 67 percent of consumption. In the first 11 months of 2018, China’s gas output inched up 6.6 percent from a year earlier to 143.8 bcm, Reuters said, citing National Bureau of Statistics (NBS) data. China can fill some of the gap with imports of pipeline gas, but capacity and supplies will be limited, the study said. The country’s major Central Asian pipeline network from Turkmenistan through Uzbekistan and Kazakhstan is nearing its rated capacity of 55 bcm per year. Efforts are planned to boost the volume to 65 bcm with new compressor stations, but progress on building a fourth strand of the system through Tajikistan appears stalled. Last year, the Central Asian system increased supplies by 21 percent to 46.9 bcm, according to state-owned Turkmengaz, as reported by Azerbaijan’s Trend News Agency. Another import pipeline through Myanmar is expected to deliver only modest volumes to China in 2020, estimated at 4 bcm, despite its 10-bcm capacity. And Russia’s mammoth Power of Siberia gas pipeline project, scheduled to open next December, will supply China with only 6 bcm in 2020, the analysts said. By then, the total of pipeline gas available to China will reach only 55- 65 bcm, they said. The rest of China’s demand will have to be filled by LNG imports, although the conclusions are subject to a host of variables. Last year, China overtook South Korea to become the world’s second-largest LNG importer, surpassed only by Japan. According to the study, China had 19 receiving terminals for the tanker-borne fuel with an annual capacity of about 59.6 million tons as of last August. The volume is the equivalent of about 81 bcm. By 2020, new terminals and other infrastructure could raise LNG import capacity to as much as 70 million tons, or about 95 bcm. ‘Virtually impossible to meet projected demand’ Although some of China’s terminals have already operated at more than 100 percent of their rated capacity, the study concludes that “it will be virtually impossible to meet projected demand” if China sticks to its maximum target for switching from coal to gas. Capacity constraints will also keep China from meeting its 2020 target for raising the natural gas share of its primary energy supply to 10 percent, the study said. Gas is believed to account for about 6 percent of the country’s energy mix now. The authors also see implications for LNG demand beyond 2020 if Russia’s plans for larger volumes of pipeline gas are delayed. The study said that “LNG demand will depend above all on steady growth in natural gas imports from Russia from 2020 onward. If imports from Russia grow steadily, this makes it more likely that LNG imports will slow from 2020. Conversely, if natural gas imports from Russia do not, for some reason, grow as planned, dependence on LNG will increase further.” The conclusions suggest that China may have to pursue more moderate targets or build even more LNG infrastructure to avoid excessive reliance on Russian supplies. Mikkal Herberg, energy security research director for the Seattle-based National Bureau of Asian Research, said the report highlights both pluses and minuses for China as gas demand rises at astronomical rates. On the plus side, the finding that eastern LNG import terminals were able to operate at over 100 percent of rated capacity suggests there may be elasticity in the system, said Herberg. On the downside, the average 82-percent utilization rate of all terminals as of mid 2018 is a sign that the system will be running “pretty close to flat out” with the larger volumes expected in 2020, he said. Although the international LNG market is expected to be well supplied over the next two years, any glitch in China’s system could lead to sudden shortages. “It’s still a pretty rickety LNG and gas supply logistics system bumping up against stunning increases in LNG use,” Herberg said by email. “Lots can go wrong, especially if there’s a very cold winter in 2019 or 2020,” he said. “The system will be running so tight that things will get very difficult, and serious regional supply shortages would inevitably occur.” ‘Industry and market indigestion’ Vessel traffic at China’s
Bad bets on oil, gas spark wave of energy-fund closures
Energy fund managers took heavy losses last year with wrong-way bets on the prices of oil and natural gas, leading to a wave of closures in the volatile fund sector. The number of active energy-focused funds fell to just 738 in 2018 through September from about 836 in 2016, according to the latest available data from hedge funds industry tracker Eurekahedge. That’s the lowest number of active funds since 2010. The number of funds solely focused on oil or gas has tumbled to 179 in 2018 from 194 in 2016. Funds that have suspended operations included high-profile names such as Jamison Capital’s macro fund, T. Boone Pickens’ BP Capital and Andy Hall’s main hedge fund at Astenbeck Capital Management, along with smaller niche funds such as Casement Capital. “There is a massive decline in the number of funds, and no replacements,” said David Mooney, founder of Casement Capital. “There has been a near ‘extinction event’ in commodities hedge funds.” “We had about 16 large hedge funds trading natural gas in Houston a few years ago,” he said. “That number is now reduced to a small number of managers.” Some funds saw investors pull out because they increasingly view energy as an unsafe spot for their money. Casement suspended operations after difficulties raising investor interest, two industry sources said. The firm was supported by Lighthouse Partners, according to a regulatory filing. Lighthouse declined to comment, and Mooney would not elaborate on the reasons for Casement’s decision to close. “All hedge funds, including commodities, that are being scrutinized for near-term performance are coming under pressure,” said Jonathan Goldberg, founder of one of the best-known energy-focused hedge funds, BBL Commodities. Closures of energy-focused hedge funds have outpaced launches in the last three years, according to data from Eurekahedge. “It becomes self-reinforcing,” Goldberg said in an interview. “If people lose money and are seeing negative feedback for it, they cut risk and it becomes harder and harder to manage the business.” Macro hedge funds – those with strategies based on broad global macroeconomic trends, such as a bet that oil prices will rise – were among the hardest hit, falling 3.6 percent in 2018. That’s the weakest annual performance since 2011, when such funds fell 4.2 percent, according to the Hedge Fund Research (HFRI) Macro index, a key industry index. Through mid-December, commodity trading advisors (CTAs) were down by 7.1 percent, according to a late December estimate by Credit Suisse. In December, Goldberg said he would wind down BBL Commodities’ flagship fund and focus instead on longer-term trading opportunities. Goldberg’s BBL Commodities Value Fund lost 14.2 percent in July, Reuters reported. Goldberg said in December that returns had been “limited” recently. BAD BETS ON OIL, GAS Funds took heavy losses this past year when oil prices took an unexpected dive beginning in October amid growing worries about oversupply and weakening demand. U.S. oilfields hit an all-time production record last year at more than 11.5 million barrels a day. A sharp rise in natural gas prices in late 2018, on concerns of tight supplies and cold weather, also added to the pain because many funds had paired bets on lower natural gas and higher crude. Fluctuations in prices typically create opportunities for fund managers to book a profit, but the moves of oil and gas prices followed a prolonged period of subdued volatility in energy markets and caught fund managers off guard. Oil prices had rallied through most of the year, and hedge funds built increasingly large bets on the rally continuing. Money managers began the year with a record number of bullish open positions in U.S. crude and largely maintained them near those levels until mid-year. That changed late last year, when the U.S. granted waivers to big purchasers of Iran’s oil after reinstating sanctions on the nation, and as the United States, Russia and Saudi Arabia all produced at record levels, feeding worries about a supply glut. The market sunk in a series of volatile trading days as funds rushed to unload positions. INVESTOR PRESSURE Hedge fund investors said they do not see the situation for niche funds improving. Among those that have been having the most difficulty are natural gas funds, said one recruiter who works with several funds and banks in the commodities industry. In November, U.S. natural gas futures experienced their most volatile streak in nine years. Velite Capital, which emerged earlier this decade as one of the most profitable natural gas hedge funds, founded by star trader David Coolidge, began winding down in August. Madava Asset Management, meanwhile, shut after investor Blackstone Group requested to pull funds, according to a Wall Street Journal report. Timoneer Energy, a hedge fund specializing in natural gas futures and options, also wound down last year, sources said. The firm was set up in 2015 by a portfolio manager and three analysts from Velite. Several former members of the fund did not respond to a request for comment. Two years ago, energy executives John James and Sachin Goel planned to launch natural gas-focused hedge fund Mercasa Energy, backed by an initial commitment of $10 million from investor Titan Advisors, which has some $4.5 billion in assets under management. But the fund was not able to secure additional investments, and by early 2018, Mercasa had shut. Titan Advisors declined to comment. Ernest Scalamandre, founder of AC Investment Management, an investment firm focused on commodities, said he expects funds dedicated to oil and natural gas to remain challenged. “I don’t envision the fundamentals changing all that much for gas and or crude,” he said.
Russia is unable to cut oil production sharply: Minister
Russia is not able to cut its oil production sharply, though it would try to do it faster, Russian Energy Minister Alexander Novak was quoted as saying by Interfax news wire on Thursday. He said there are technological limitations for reducing oil output in Russia. Earlier this week, Saudi Arabia’s Energy Minister Khalid al-Falih said Russia was cutting its oil production more slowly than expected.
S.Korea’s 2018 LNG imports to hit record high over 42 mln T
South Korea’s imports of liquefied natural gas (LNG) are set to reach an all-time high over 42 million tonnes in 2018 thanks to robust power generation demand, but next year’s shipments are likely to ebb on increased coal and nuclear power. South Korea, the world’s No.3 LNG importer after Japan and China, typically takes between 33 million and 37 million tonnes of LNG a year, mainly for heating, power generation and cooking. This year, a volume of 42.8 million tonnes of LNG is the expected intake, up 13.8 percent from 37.6 million tonnes last year, according to ship-tracking data from Refinitiv Eikon. That would top 2013 LNG import levels of nearly 40 million tonnes, the country’s customs data showed. That was the year South Korea faced a series of nuclear reactor shutdowns due to a safety scandal over faulty parts, which led to an increase in gas power generation. “Gas usage for power generation sharply rose this year because the country’s nuclear utilization rate was the lowest so other power sources like gas had to fill the void,” said Shin Ji-yoon, an analyst at KTB Investment & Securities in Seoul. In the six months of the year, an average of almost half of the country’s 24 nuclear reactors were offline for planned maintenance, according to Reuters calculations based on data from state-run Korea Hydro & Nuclear Power Co. As of now, six reactors are shut down. South Korea’s nuclear utilization rates dropped to just 63.6 percent for the first three quarters of 2018, the lowest rate ever, according to the Korea Hydro & Nuclear Power data. LNG VOLUMES EXPECTED TO BE LOWER IN 2019 Coal and nuclear together produce about 70 percent of South Korea’s total electricity needs, although the country is trying to lower its dependence on those two fuels to shift its energy policy towards cleaner and safer energy in the long term. This year, gas power’s share of the country’s power supply mix outstripped nuclear-produced electricity over January-October, according to calculations on data from Korea Electric Power Corp (KEPCO).