GAIL Offers Short-Tenure Contracts, Eases Rules For Domestic Customers
Natural gas sales contracts are becoming relatively easier for buyers as state-run GAIL, the key gas supplier in the country, is now offering shorter-tenure contracts and easier terms. Gas supply contracts are usually long term and contain take-or-pay provision that mandates a buyer to off take pre-agreed quantity or pay for a minimum quantity even if it lifts less in a year. GAIL, the biggest gas marketer in the country, sources a significant share of its gas portfolio from overseas. For years, it entered into long-term, take-orpay liquefied natural gas (LNG) contracts with suppliers overseas and covered itself back-to-back by signing similar contracts with domestic gas users. But the nature of its domestic contracts is now altering. It is now offering contract for less than five years and has eased take-orpay obligations for customers, a GAIL executive said. In the past, a buyer had to pay for 90% of the contracted volume even if it lifted less in a year but now this is down to 80%, the executive said, adding that the new contracts offered more flexibility. But new terms also mean increased risk for GAIL. GAIL is offering customers the choice to have their gas prices half-linked to Henry-Hub and half to crude oil. It also offers to hedge prices so that customers escape volatility. “Nobody wants a long-term deal. We are also not insisting. We understand that it’s difficult for smaller customers to take a bet on price or even their own long-term business prospects,” the executive said. “If they default five years later, then it will be a problem for us as well.” Some of the GAIL’s smaller customers have in the past complained that the take-or-pay provision tilted the scale in favour of supplier. Last year, the Competition Commission of India began an investigation into seven cases where small industrial customers had alleged abuse of dominance by GAIL especially with respect to the way the company imposed take-or-pay liability on them in 2015.
Qatar indicates it will not object renegotiation on LNG deal with Pakistan
As Pakistan intends to renegotiate the Liquefied Natural Gas (LNG) contract with Qatar, the foreign country has reportedly indicated that it will not object if the new government in Pakistan finds any dubious activity in the contract. Although the officials at the Ministry of Petroleum did not confirm the reports, reliable sources claimed that Qatar conveyed a message that it will, at least, “not take up the issue before the International Court of Justice for a penalty”. If Pakistan finds lack of transparency in the contract, it can renegotiate despite contractual obligations, they added. Sources claimed that the Pakistani officials have also been informed that in case there was a lack of consensus on the existing contract, Pakistan could backtrack from the agreement as Qatar already has a standing demand from Indonesia and Malaysia. The Qatari government has suggested Islamabad not to make the contract a court issue, sources added. It is pertinent to mention that Petroleum and Natural Resources Minister Ghulam Sarwar Khan had recently said that if any evidence of irregularity, such as violation of the Public Procurement Regulatory rules, was found, the government would renegotiate the LNG agreement. He informed that the National Accountability Bureau (NAB) was actively probing the 15-year liquefied natural gas supply agreement between the Pakistan State Oil (PSO) and Qatargas, signed in February 2016. NAB Karachi, according to him, was actively investigating the long-term LNG deal with Qatar as well as the award of contract for the first LNG receiving terminal. Talking about the binding take-or-pay terms of the agreement with Qatargas, the minister argued that India previously renegotiated the off-take volumes and prices of LNG deals with Qatar, Australia and Russia. Earlier, PSO Managing Director Imranul Haq Sheikh informed a Senate committee that a price negotiating committee had agreed with Qatargas on an LNG price equivalent to 13.37 per cent of the rate, for the benchmark Brent grade of crude oil. Under the 15-year LNG sales and purchase agreement with Qatargas, the PSO is bound to purchase 3.75 million tonnes of LNG per annum, worth about $2 billion, and would incur penalties if it were to reduce the off-take. Pakistan has the option of renegotiating the deal in 2026, upon the completion of 10 years of purchases. However, if international market prices rose by then, Qatar would also have the option of increasing the price of LNG supplies to Pakistan. If the two contracting parties fail to reach an agreement to extend the deal by five years, it would stand cancelled. The agreement would remain in force until the end of 2031. If the buyer and supplier wished to extend it by another five years, an agreement would have to be reached by December 2029. In the event of a declaration of force majeure, the implementation of the agreement could be halted or rescinded. In case of a legal dispute, the case would be referred to a three-man arbitration court in London under the rules of United Nations Commission on International Trade. After the statement of the minister on the renegotiation of the contract with Qatar, Engro Elengy Terminal Pakistan Limited (EETPL), as per reports, challenged the government’s decision of renegotiating the return on investment agreed with the operator of first LNG import terminal, saying no provision allowed the state to renegotiate the investment agreement.
Mukesh Ambani gets PNGRB’s approval for selling loss-making pipeline to Brookfield
Billionaire Mukesh Ambani has won oil regulator PNGRB’s approval for selling his loss-making east-west natural gas pipeline to Canadian investor Brookfield, a top official said. Ambani’s Reliance Gas Transportation Infrastructure Ltd, which later changed the name to East West Pipeline Ltd (EWPL), a decade back built a 1,400-kilometer pipeline from Kakinada in Andhra Pradesh to Bharuch in Gujarat to transport natural gas discovered in a KG basin block operated by his flagship firm Reliance Industries. However, the pipeline which had a capacity to transport 80 million standard cubic metres per day of natural gas is currently operating at less than 5 per cent of its capacity as output from KG-D6 block of RIL fell sooner than expected. While the Competition Commission of India (CCI) had in September approved the transaction where Brookfield is sponsoring an Infrastructure Investment Trust (IIT) called India Infrastructure Trust as the acquisition vehicle, the Petroleum and Natural Gas Regulatory Board (PNGRB) gave its nod a few weeks back. “Yes, the approval has been accorded,” PNGRB Chairman Dinesh K Sarraf said. This will be Brookfield’s first investment in the energy sector in India. However, the acquisition price has not been disclosed. According to September 11 approval of the CCI, the pipeline housed under EWPL will be transferred to an entity called Pipeline Infrastructure Pvt Ltd (PIPL), a wholly-owned subsidiary of Reliance Industries Holding Pvt Ltd (RIHPL). “RIHPL would sell its entire issued and paid up equity share capital of PIPL to IIT,” the CCI order said. “Further, IIT will also subscribe to the non-convertible debentures to be issued by PIPL.” Brookfield Asset Management Inc’s affiliate Rapid Holdings Pte Ltd and PenBrook Capital Advisors Pvt Ltd (PCAPL) had executed a framework agreement to buy the pipeline on August 28. PCAPL is a joint venture between Peninsula Investment Management Co Ltd and Brookfield Capital Partners (Bermuda) Ltd. “By way of the proposed combination, the entire equity share capital and voting rights of PIPL is proposed to be acquired by India Infrastructure Trust (IIT), a trust to be established/sponsored by Rapid and registered under the Indian Trusts Act, 1882 and the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014,” the CCI order said. PCAPL would be appointed as the investment manager of IIT. EWPL had operating revenue of Rs 8.84 billion and posted a net loss of Rs 7.15 billion in the year ended March. The loss was mainly because of the pipeline operating at less than its capacity. KG-D6 fields, which began production in April 2009, had hit a peak of 69.43 mmscmd in March 2010 before water and sand ingress forced the shutdown of wells. This peak output comprised 66.35 mmscmd from D1 and D3, the largest of the 18 gas discoveries on the KG-D6 block, and 3.07 mmscmd from MA field, the only oil discovery on the block. Currently, the fields produce less than 4 mmscmd of gas, which EWPL transports to customers. EWPL had a total outstanding debt of Rs 137.15 billion as of March while its plant, property and equipment had an asset value of around Rs 110 billion, according to its last annual balance sheet.
Won’t depend on just petroleum products, looking for alternatives: Union minister
Union minister of petroleum and natural gas Dharmendra Pradhan on Saturday said that India will not remain dependent on just petroleum products in near future as the country has already started looking for its alternatives. While addressing the Bharatiya Janata Yuva Morcha (BJYM), Pradhan raised the issue of fuel prices and said, “I do understand the problems faced by party workers over the questions from the Opposition and common people regarding hike in petrol and diesel prices. We had promised to the people of India that we will not push our country into debt. That is the reason why we have taken some burden on ourselves and reduced the fuel prices by Rs 2.50 paise per litre and asked state governments to reduce the same amount from their end also.” Pradhan added that “oil prices are not related to the Indian market.” “It’s an international commodity. We have to sell them on the basis of their prices in the international market. Under Prime Minister Narendra Modi’s vision we won’t be dependent on just petroleum products in coming time. Today, we produce solar energy. Recently, we brought up the biofuel policy in India,” he said. Petrol prices in the national capital were reduced by 40 paise to Rs 80.45, while diesel saw a reduction of 35 paise to fall to Rs 74.38. In a bid to ease the crunch caused by soaring fuel prices, finance minister Arun Jaitley had, on October 4, announced a reduction of Rs 2.50 per litre on both petrol and diesel prices after curbing excise duty on the commodity by Rs 1.50 per litre.
Vedanta wins 10-year extension for Rajasthan oil block
Vedanta Ltd has won a 10-year extension of its contract for the prolific Rajasthan oil block, but on condition that it pays a higher share of profit to the government, the company said Monday. The 25-year contract for exploration and production of oil and gas from Barmer block RJ-ON-90/1 of Vedanta, formerly Cairn India, is due for renewal on May 14, 2020. “The Government of India, acting through the Directorate General of Hydrocarbons, Ministry of Petroleum and Natural Gas has granted its approval for a ten-year extension of the Production Sharing Contract (PSC) for the Rajasthan Block, RJ-ON-90/1,” the company said in a regulatory filing. The tenure of the RJ Block PSC has been extended for an additional period of 10 years with effect from May 15, 2020. “Such extension has been granted by the Government of India, pursuant to its policy dated April 7, 2017, for extension of pre-New Exploration Licensing Policy (pre-NELP) exploration blocks PSCs subject to certain conditions,” it said. The government had in last year approved a new policy for extension of PSCs that provided for an extension beyond the initial 25-year contract period only if companies operating the fields agree to increase the state’s share of profit by 10 per cent. Vedanta has challenged the policy and the matter is in courts now. “The applicability of the pre-NELP Extension Policy to the Rajasthan Block PSC is currently sub judice,” the firm said. The company feels that the May 1995 Production Sharing Contract (PSC) for the block provided for an automatic 10-year extension on same commercial terms if there are oil and gas left to be produced. But now, the government has midway retrospectively changed fiscal terms in the name of extension is unjust to it. State-owned Oil and Natural Gas Corp (ONGC), which as a government nominee picked up 30 per cent stake in the Rajasthan block in 1995, also was of the opinion that PSC provides for an extension on same terms. ONGC had first in May 2015, then again on at least two occasions in 2016, concurred with Cairn’s interpretation of the PSC for extension of the Rajasthan contract by 10 years on same terms. Vedanta had challenged the conditions for the extension of the contract in Delhi High Court. The Delhi High Court in July this year ordered extension be given on old terms and conditions. The Centre, however, has challenged the court order and the matter is sub judice currently.
UAE’s RAK Gas signs production sharing agreement with Zanzibar
The United Arab Emirates’ RAK Gas has signed an oil and gas production sharing agreement with Tanzania’s semi-autonomous region of Zanzibar. The government of Ras Al Khaimah, the owner of RAK Gas, said on Monday that the agreement had been signed by RAK Gas’ Zanzibar subsidiary and the Zanzibar government. Ras Al Khaimah is one of the seven emirates that make up the UAE. The agreement is for the 11,868 square km Pemba Zanzibar Block, the statement said, adding that it was Zanzibar’s first exploration project. Zanzibar Petroleum Development Company is also party to the agreement.
After years of global success, Reliance Industries faces oil shock at home
Reliance Industries , currently India’s second most valuable listed company, got rich by trading fuel across Asia, Africa and Europe while effectively ignoring its home market. Reliance’s refineries processed crude from the nearby Middle East and sold fuel to fast-growing markets in North Asia including China, Japan, South Korea and Taiwan. That began to change when India’s oil demand surged, overtaking Japan as the world’s third-biggest consumer. Reliance took more interest in the country’s retail fuel sector and has opened more than 1,300 service stations. This push into the domestic fuel market may stumble after India’s government imposed cost controls on Oct. 4 on gasoline and diesel prices to rein in recent record highs. Reliance’s shares plunged 6.9 percent on the day of the announcement and are down about 20 percent since their record close on Aug. 28. The decline has pushed Reliance’s market capitalization down to $90.47 billion and it is no longer India’s most valuable company, sitting behind Tata Consultancy Services Ltd at Rs 6.7 lakh crore. The price shock, driven by soaring crude import costs, angered consumers and triggered riots by farmers, forcing the government to react at the cost of its refiners’ health. For now, Reliance is staying with its retail plans despite the recent trouble. “When prices are cut, you have to effectively match it,” said Venkatachari Srikanth, Reliance’s joint chief financial officer, during their earnings presentation on October 17. “We are not going to let this alter broadly our strategy on retail petroleum.” In line with that, Reliance is planning as many as 2,000 retail stations with oil major BP Plc over the next three years, local media reported on Tuesday. Reliance’s domestic push made sense in an Asian fuel market that is increasingly crowded with new refinery capacity from the Middle East, Southeast Asia and China. The new capacity, combined with soaring crude prices, has eroded profit margins for producing refined fuels. With the domestic market now also under pressure from price controls, some analysts have been spooked. Sukrit Vijayakar, director of Indian oil consultancy Trifecta said the government move could “be disastrous for Reliance.” The retail move puts Reliance into competition against government controlled refiners like Bharat Petroleum Corp , Hindustan Petroleum Corp and Indian Oil Corp, the country’s biggest refiner. Reliance’s domestic strategy initially won the backing of investors and the retail fuels group was touted by company Chairman Mukesh Ambani in a speech at its annual general meeting in July. Between January and August, Reliance’s shares soared 45 percent, far outpacing the state-owned refiners as well as India’s main stock index, the Nifty 50, which gained 12.5 percent. But rising crude prices, which jumped from under $70 per barrel in early 2018 to around $85 in early October, and a tumbling rupee combined to push domestic fuel prices to records, undermining Reliance’s retail strategy despite some relief from a dip in crude prices in recent weeks. Still, Rohit Ahuja, senior vice president of India’s BOB Capital Markets, which has a buy rating on Reliance, said signs of an “oil price shock” in India were “already visible.” Reliance may gradually mothball its retail stations because of the cost controls, said Macquarie Capital Ltd Analyst Aditya Suresh in a note on Oct. 5, though the bank expects no meaningful impact on its earnings. Reliance may be better placed to thrive on exports despite the increasing competition in Asia and the Middle East. The company operates the world’s biggest refinery complex at the port of Jamnagar in the western Indian state of Gujarat. The first Jamnagar plant can process 663,000 barrels per day (bpd) of crude while the second site can process another 709,000 bpd. Reliance’s refining margins last quarter were at a premium of $3.40 per barrel over the average Singapore margin, the benchmark for Asia. However, the Singapore margin has dropped by about 50 percent since mid-2017 because of rising crude prices. Reliance also said in its results that fewer refinery outages last quarter meant global run rates were high. Still, Reliance’s refineries benefit from being among the most modern in the world. Several units process residual fuel oil, the leftovers after crude oil is initially refined, into higher-value gasoline and distillate products as well as remove pollutants such as sulphur. That ability to cut its high-sulphur fuel oil output to nearly nothing while maximising its diesel fuel output gives Reliance an advantage as the International Maritime Organization (IMO) will require new low-sulphur fuel oil used in ships starting in 2020. “IMO regulations are positive because of our mid-distillate configuration,” said Reliance’s Srikanth. With a move towards cleaner fuels as part of IMO, BOB Capital’s Ahuja said Reliance’s gross refining margins could rise by up to $5 per barrel. Beyond IMO 2020 and the Indian fuel price turmoil, the oil industry is threatened by the rise of electric vehicles and alternative fuels that could reduce oil’s use as a transport fuel. Refiners are looking at petrochemicals to replace potentially lost demand in the transport sector. “If I have to look at it from a ‘oil demand hit from electric vehicles’ perspective, it’s going to be petrochemicals that’s going to survive for them (Reliance) beyond ten years,” said Ahuja. Combined, Reliance’s refining and marketing group along with its petrochemicals division contribute more than 90 percent of the overall company revenues, its latest annual report showed. Under Reliance’s “Oil to Chemicals Journey” strategy the company is seeking to “upgrade all of our fuels to high value petrochemicals” over the next decade. “We are focusing to produce and sell at every level,” said Reliance’s Srikanth. “Between whether to sell domestically or on bulk, whether we will export, every day is an analysis of which is a better option.”
At least six companies willing to partner India in second phase of strategic oil reserves
At least six global companies have shown preliminary interest in partnering India in the development of the second phase of its strategic petroleum reserves. The country imports over 82 per cent of its crude oil supply and has fast-tracked efforts to build underground bunkers for oil storage to hedge against future supply disruptions. “We have already received interest from over half-a-dozen companies for the second phase in the past three months. These are mostly construction companies, commodity trading firms or investment banks. While most of them want to either operate or construct or source the crude, we are looking for a company which can do all the three,” H P S Ahuja, Chief Executive Officer (CEO) of India Strategic Petroleum Reserves (ISPRL) told ETEnergyworld in an interview. ISPRL is currently scouting for investors to participate in the construction of Phase-II of India’s strategic petroleum reserves and has held road-shows in New Delhi, Singapore and London. Ahuja also said the second phase of the project is planned to be developed under Public Private Partnership (PPP) mode – a first of its kind initiative in the world – adding that companies like VITOL, OPAC, Glencore and Trafigura may show interest in a project of this nature. ISPRL is a Special Purpose Vehicle (SPV) created by the oil ministry with the mandate to construct strategic petroleum reserves across the country. Under Phase-I, it has already constructed strategic reserve capacity of 5.3 million tonne (MT) across three locations at a cost of Rs 4,098 crore. This includes 1.3 MT at Vishakhapatnam in Andhra Pradesh; 1.5 MT at Mangaluru in Karnataka; and 2.5 MT at Padur in Odisha. The Union cabinet had in June this year approved setting up additional capacity as part of the second phase of the project in which India plans to constructing additional facilities at Chandikhol in Odisha and Padur in Karnataka for storage of around 6.5MT of crude. The construction of these two SPRs is expected to cost around Rs 11,000 crore and add emergency reserves that can last for 12 days in addition to 10 days achieved in Phase I. Apart from the construction of the new bunkers, the second phase of SPR will also include setting up Single Point Mooring (SPM) facilities at both the locations along with filling up of the existing Padur reserve which was constructed recently under Phase-I. During Prime Minister Narendra Modi’s visit to United Arab Emirates earlier this year, ISPRL and Abu Dhabi National Oil Company (ADNOC) had signed an agreement under which ADNOC agreed to store about 5.86 million barrels of crude oil in the Mangaluru facility at its own cost. As part of the agreement, India has already received two crude oil cargo shipments from ADNOC this year. The third shipment is expected to arrive in the first week of November, Ahuja said. ADNOC has so far filled two-thirds of the 5.86 million barrels of tank capacity at the Mangaluru facility. The agreement allows India to use the entire available crude oil stored by ADNOC at Mangaluru during emergency and also allows ADNOC to sell part of the crude oil to Indian refiners as and when required. Indian refiners maintain 65 days of crude storage. Taking that into account, the country’s crude storage capacity is likely to go up to 87 days post the commissioning of the second phase of the project. The International Energy Agency (IEA) mandates its member countries to maintain 90 days of crude storage to manage supply disruptions.
Adulterated diesel selling racket busted, two arrested
Two person were arrested after the state revenue officials busted an adulterated diesel selling racket from Dhudhrej in Surendranagar on Thursday. The officials also seized 40,000 litres of adulterated diesel that was being sold at low rates since last three months by the accused, who have been charged under the Prevention of Black Marketing Act. The accused have been identified as Shailesh Parmar and his assistant, whose identity was not revealed. Revenue officials said that the diesel seized from the accused was manufactured by a Korean company but was smuggled into Gujarat from Columbia in South America. The accused had set up a petrol pump like system with dispensers and underground storage tanks from where they sold adulterated diesel at Rs 70 per litre, which is far lower than the market rate of Rs 79-80 per litre, to truck drivers and other petrol pumps . Surendranagar collector K Rajesh told TOI “When we analysed the fuel that the accused were selling, in terms of density, viscosity we find it was not diesel, but something resembling diesel. The accused used to purchase the adulterated diesel from some South Korean company. But it was brought to Gujarat from Columbia in South America. We suspect that the fuel was smuggled into the country, but we are yet to to ascertain that.” Revenue officials further revealed that the accused also used to pilfer diesel from oil refinery and from ships that came for breaking at Alang shipyard. The accused used to mix solvents smuggled from Columbia into diesel and sell it at cheaper price. “While selling the adulterated fuel, the accused used to issue fake bills without GST numbers,” said Rajesh. The revenue officials have been investigating the duo since last one and half month. The accused have been handed over to the police which is probing which petrol pump owners used to purchase the spurious diesel from them.
Iran’s crude oil customers turn away, more cargoes being stored: Russell
The crude oil market is still uncertain over the likely impact of the renewed U.S. sanctions against Iran, but two things seem to be becoming clearer: Iran is struggling to keep buyers, and much of the crude it is shipping is being stored. While not quite a death knell for Iranian exports, news that China’s two biggest state refiners, Sinopec Group and China National Petroleum Corp (CNPC), have decided not to take any November-loading cargoes from Tehran is a serious blow. China is the biggest buyer of Iranian crude and largely stood with the Islamic republic during the previous round of sanctions against its exports. Sinopec and CNPC, though, are now skipping bookings for November because of uncertainty over whether they can secure U.S. waivers that allow their purchases to continue, Reuters reported on Wednesday. From Nov. 4, the United States will re-impose sanctions against Iranian crude exports as part of President Donald Trump’s efforts to force Tehran to accede to a more restrictive deal on limiting its nuclear and missile programmes. While crude oil market participants don’t expect that U.S. sanctions will shut down Iran’s exports completely, there is still debate over how much oil is likely to be lost, and for how long the situation will persist. What China does is key in this regard, given that it imported about 650,000 barrels per day (bpd) of Iranian crude in the first nine months of the year, according to vessel-tracking and port data compiled by Refinitiv. Iran’s crude exports have been in the region of about 2 million bpd in recent months, and it appears to be on track to record shipments around that level in October. Iranian tankers are routinely turning off their tracking transponders, presumably to disguise their destinations, making it challenging to monitor the true state of the nation’s exports. Even taking that into account, it’s worth noting that of the nine cargoes shown as arriving at their destinations in November, six are heading to China, one each to India and Greece, and one to an as yet undetermined Asian port. Iranian Crude Gets Stored There are also questions over what exactly is happening to the Iranian crude arriving in China. Much of the crude is heading to the northern port of Dalian, where it is likely to end up in bonded storage. That would mean it would be in China, but wouldn’t have cleared customs, and therefore unavailable to domestic refiners. This raises the possibility that some of Iran’s crude exports are in or are headed into storage tanks and are effectively lost to the market. This leads to a couple of points to consider, firstly that the market is adjusting quite well already to the loss of Iranian barrels, and secondly that the oil in storage at some point will come to market, which may depress demand from other suppliers when this happens. Iran’s other key customer is India, which took about 568,000 bpd in the first nine months of the year, according to the Refinitiv vessel-tracking data. This has yet to decline, with October on track for about 558,000 bpd, but there are indications this may be the high-water mark for a while. Reliance Industries, which owns the world’s largest refining complex, said on Oct. 17 that it has halted imports of Iranian crude and would buy from other Middle Eastern producers and the United States instead. Other Indian refiners are still aiming to secure U.S. waivers for Iranian imports, but questions over insurance coverage may also force them to limit those shipments. Overall, it appears both China and India are cutting back on buying crude from Iran, but by how much and for how long still has to be determined. It also appears that much of Iran’s crude is headed into storage and not really available to the market. While this will put pressure on Iranian government revenues, it raises the possibility, too, of a crude glut once the U.S. sanctions are finally eased.