Oil at $100 to do more harm than good to global growth; India among losers
Rising oil prices are prompting forecasts of a return to $100 a barrel for the first time since 2014, creating both winners and losers in the world economy. Exporters of the fuel would enjoy bumper returns, giving a fillip to companies and government coffers. By contrast, consuming nations would bear the cost at the pump, potentially fanning inflation and hurting demand. The good news is that Bloomberg Economics found that oil at $100 would mean less for global growth in 2018 than it did after the 2011 spike. That’s partly because economies are less reliant on energy and because the shale revolution cushioning the US. Ultimately, much depends on why prices are pushing higher. A shock amid constrained supply is a negative, but one due to robust demand just reflects solid growth. Both forces are now in play, driving Brent crude up about 22 per cent this year. 1) What does it mean for global growth? Higher oil prices would hurt household incomes and consumer spending, but the impact would vary. Europe is vulnerable given that many of the region’s countries are oil importers. China is the world’s biggest importer of oil and could expect an uptick in inflation. There are also seasonal effects to consider, with winter looming in the Northern hemisphere. Consumers can switch energy sources to keep costs down, such as biofuels or natural gas, although not quickly. Indonesia already has instituted measures to push more use of biofuels and limit the economy’s reliance on imported fuel. For a sustained hit to global growth, economists say oil would need to hold above $100. The dollar’s gain of this year doesn’t help though given crude is priced in greenbacks. 2) How can the world economy absorb oil at $100? Bloomberg Economics found that $100 oil will do more harm than good to global growth. Yet there are important differences in the condition of the world economy today compared with 2011. “The shale revolution, lower energy intensity, and higher general price levels mean the impact will be smaller than it once was,” economists led by Jamie Murray wrote in a recent report. “The price of a barrel will have to go much higher before global growth slips on an oil slick.” 3) How will Iran and Trump impact the market? Geopolitics remains a wild card. Renewed US sanctions on Iran are already crimping the Middle East nation’s oil exports. While President Donald Trump is pressuring the Organization of Petroleum Exporting Countries to pump more, there is limited spare production capacity. In addition, supply from nations including Venezuela, Libya and Nigeria is being buffeted by economic collapse or civil unrest. Still, Goldman Sachs analysts predict $100 will not be passed. 4) Who wins from higher oil prices? Most of the biggest oil-producing nations are emerging economies. Saudi Arabia leads the way with a net oil production that’s almost 21 per cent of gross domestic product as of 2016 — more than twice that of Russia, which is the next among 15 major emerging markets ranked by Bloomberg Economics. Other winners could include Nigeria and Colombia. The increase in revenues will help to repair budgets and current account deficits, allowing governments to increase spending that will spur investment. 5) Who loses? India, China, Taiwan, Chile, Turkey, Egypt and Ukraine are among the nations who would take a hit. Paying more for oil will pressure current accounts and make economies more vulnerable to rising US interest rates. Bloomberg Economics has ranked major emerging markets based on vulnerability to shifts in oil prices, US rates and protectionism. One of the biggest winners might also find itself on the losing end: Oystein Olsen, Norway’s central bank governor, warned that western Europe’s biggest petroleum producer risks problems if the industry takes its eyes off controlling costs. 6) What does it mean for the world’s biggest economy? A run-up in oil prices poses a lot less of a risk to the US than it used to, thanks to the boom in shale oil production. The old rule of thumb among economists was that a sustained $10 per barrel increase would shave about 0.3 percent off of US output the following year. But tallies now, including that of Moody’s Analytics chief economist Mark Zandi, pencil in a hit of around 0.1 percent. While the diminishing American reliance on imported oil has positive economic consequences at the industry level, poorer households would feel the weight of higher prices at the pump. They spend about 8 percent of their pre-tax income on gasoline, compared to about one percent for the top fifth of earners. 7) Will it lead to higher inflation around the world? Energy prices often carry a heavyweight in consumer price gauges, prompting policymakers including those at the Federal Reserve to focus simultaneously on core indexes that remove volatile energy costs. But a substantial run-up in oil prices could provide a more durable uptick for overall inflation if the costs filter through to transportation and utilities. 8) What does it mean for central banks? If stronger oil prices boost inflation, central bankers on balance will have one less reason to keep monetary policy loose. Among the most-exposed economies, central bankers in India already are warning about the impact as the nation’s biggest import item gets more expensive. Greater overall price pressures also could prompt faster monetary policy tightening in economies such as Thailand, Indonesia, the Philippines and South Africa.
PM Modi says paucity of energy does not let any nation come out of poverty
Prime Minister Narendra Modi said today energy is essential for financial development and its paucity does not let any nation come out of poverty. Claiming that the day is not far when India will overtake Britain’s economy, he said while 13 crore families received gas connections in the country in 60 years, his government gave connections to 10 crore families in the last four years. Modi was addressing a gathering after inaugurating the Mundra LNG Terminal, Anjar-Mundra and the Palanpur-Pali-Barmer gas transmission projects at Anjar in Kutch district of Gujarat. “Energy is essential for development. Paucity of energy does not let any nation come out of poverty. If one needs freedom from poverty, wants financial development and a self-sufficient country, energy is necessary. Without it, even a mobile phone cannot be charged,” he said. Modi said several prime ministers and chief ministers came and went, but he was fortunate to get the opportunity to inaugurate the third LNG (liquefied natural gas) terminal. “Gujarat is the gateway and hub for LNG and the epicentre of energy. As the third LNG terminal is dedicated to the country, all of them will fulfil their responsibility of sending energy to the east coast,” he said. He said there was a time when people were happy with ‘kachcha’ roads, but now people want modern development. Now, people want railway, highway, i-way, gas grid, water grid, power grid, optical fibre network. In a way people want modern infrastructure, he said. “In 60 years, 13 crore families received gas connections in the country. In four years (since coming to power), we gave connections to 10 crore families,” Modi said. The prime minister said his government’s aim is that in the coming days no family would have to cook on wood. “The day is not far, when the country’s economy will overtake Britain’s economy,” he added.
India to invest Rs 1.75 trillion for biogas plants in five years, says Dharmendra Pradhan
* India will invest 1.75 trillion rupees ($24.03 billion) for setting up compressed biogas plant in five years, Oil Minister Dharmendra Pradhan said on Monday * India aims to produce 15 million tonnes of biogas by 2023, Pradhan added.
GAIL, GSPL Shares Jump On Pipeline Tariff Hike
Shares of GAIL (India) Ltd. and Gujarat State Petronet Ltd. jumped after the regulator Petroleum & Natural Gas Regulatory Board increased tariffs for some pipelines The tariffs were hiked in the range of 27 percent to 691 percent for nearly six pipelines in India, according to a notification on the regulator’s website. The new prices will be applicable from April 1, 2018. Brokerages said the hike will boost earnings per share of GAIL and Gujarat State Petronet by 6-19 percent. Shares of GAIL rose as much as 4 percent — the most in over a month — GSPL jumped up to 7.6 percent, the most in three months. This increase in pipeline tariffs is expected to boost Gujarat State Petronet’s net profit by Rs 180-200 crore, T Natrajan, the managing director of the company, said in an interview to BloombergQuint. While it would increase the cost of gas for consumers, he expects the demand to remain unaffected.
How the world’s oil refiners plan to grapple with their fuel oil output after 2020
High-sulphur fuel oil (HSFO), essentially the leftovers of an oil refiner’s output, will still flow from refineries around the world even after new rules start up in 2020 curtailing its use in the global shipping fleet, a Reuters survey showed. Sixty per cent of the 33 refineries contacted by Reuters in a global survey will still produce HSFO in 2020 although the supply will tighten as 70 per cent of these refiners plan to reduce their output. Starting that year, ships will have to use marine fuel, which primarily consists of residual fuel oil, with a maximum sulphur content of 0.5 per cent under International Maritime Organization (IMO) rules to reduce air pollution. Currently, the global shipping fleet, which includes oil and chemical tankers as well as container ships, uses as much as 3.3 million barrels per day of HSFO with a maximum of 3.5 per cent sulphur. Refiners will have little incentive to produce HSFO after the regulations though some demand will remain as a small but growing number of vessels are fitted with smokestack scrubbers that remove the sulphur from the exhaust fumes and power plants will continue to consume the fuel. “Although HSFO demand for ships is expected to decline substantially in 2020, the oil’s demand for power generation and general users will remain,” Japan’s second-largest refiner Idemitsu Kosan told Reuters in the survey. “In future, demand for scrubber-equipped ships is projected to recover, so we expect HSFO output to continue.” UPGRADES When asked how they plan to reduce HSFO output, just over half of the refiners said they will upgrade their plants to further process their fuel oil to produce more higher value products such as gasoline and diesel. Two-thirds of the 16 refiners who responded to a question about how much investment they plan to pump into their plants to produce more ultra-low and low-sulphur fuel oil, said they plan to spend less than $100 million. Five of them are investing between $500 million and more than $1 billion in such projects. Polish refiner Grupa LOTOS will spend more than $600 million to convert its heavy residue to middle distillates and coke by the end of 2019 while Kuwait has a $6.25 billion clean fuels project. Fuel oil, or residue fuel, is the remaining product from crude oil processed through crude distillation units at a refinery. To extract more value from residue, it is further processed at secondary refining units such as residue fluid catalytic crackers, hydrocrackers and cokers to produce gasoline and diesel. However, secondary units are costly and require years to build while expansion projects in some countries have to overcome tough environment regulations. “We will need (the Environment Protection Agency’s) approval if we want to expand the coker and that is tough in Taiwan now,” Formosa Petrochemical Corp spokesman KY Lin said. Formosa has adjusted its coker unit, which uses heat and pressure to break down the residue fuel into other products, to run at 95 per cent utilization from 90 per cent to reduce its HSFO output, Lin said. FUEL OIL LOSSES TO WIDEN Refiners will want to cut their HSFO output as much as possible to offset the expected drop in value. By January 2020, 380-centistoke HSFO in Singapore will be worth $16.70 a barrel less than Middle East benchmark Dubai crude, down from a discount of $5 for October 2018, according to swap values. Besides upgrading, a handful of refiners said they would also process more lower sulphur crude oil to reduce the sulphur content in their products output. Refiners may also cut their overall CDU runs to reduce their residue output if low fuel oil margins drag down overall profits, according to the survey. “Forward prices are scary,” Formosa’s Lin said. Other refiners will look at alternative markets for their HSFO. “If fuel oil demand falls, we will switch our configuration to produce bitumen which is in high demand in India due to its road-building programme,” said an official from Indian Oil Corp . BEYOND 2020 Some refiners prefer to stay flexible by being able to switch their output between low- and high-sulphur fuel oil according to market demand. India’s Bharat Petroleum Corp Ltd said it will be able to produce either fuel oil or switch to other products depending on demand after 2022. “We will not reduce fuel oil output to zero completely as we need our refineries to be flexible,” a BPCL official said. The official declined to be named as they are not authorized to speak to the media. Italy’s Eni said it “will produce the minimum amount of HSFO just to satisfy the market demand of the ships that will have installed the scrubbers.” An official from India’s Hindustan Petroleum Corp Ltd said the company will be producing some fuel oil but the output will be “very, very low beyond 2022”. A third of the respondents said they are either already not producing any HSFO or will stop producing in 2020. Polish refiner PKN Orlen said it will produce fuel oil with 1 per cent sulphur content from 2020 while a spokeswoman from Italy’s SARAS refinery said, “We are already ready to face IMO-2020 and we already produce basically no HSFO.” Canada’s Husky Energy Spokesman Mel Duvall said the company expects to benefit from the new IMO rule since it will boost diesel demand. “It is expected that there will be an increase in global demand for diesel fuel as ship operators switch from high-sulphur fuel oil,” he said.
Assam PSU to launch pilot project to use methanol for cooking
The Assam Petrochemicals Limited (APL) will start a pilot project on October 5 on the use of methanol as an alternative to cooking gas. APL Chairman Jagadish Bhuyan told the media here on Friday that the use of methanol or methyl alcohol as an alternative to liquified petroleum gas (LPG) will help reduce cost of cooking. “We will launch the pilot project at our APL township on October 5. If it is a success, we will launch it commercially,” said Bhuyan. “Methanol is a green and clean fuel that is safer as well as cheaper by 30 per cent compared with LPG,” he said. APL is one of the few profit-making public sector undertakings of the Assam government. APL was established in Namrup in 1971 with a production capacity of 21 tonnes of methanol per day. The company could so far increase its production capacity to 100 tonnes of methanol per day. Bhuyan said that NITI Aayog has been urging all states to promote methanol economy. “If we launch it commercially, we will use a technology imported from Sweden for distribution,” he said. APL Managing Director Ratul Mahanta said that countries like China, Iran and others have been using methanol to run buses and trains for a long time. He said that the APL is likely to produce 600 tonnes of methanol daily by September next year. “We are also working to convert gases produced in our refineries into methanol,” he said. Although there is not many buyers of methanol in Assam, the APL sells its products to north and northeast Indian states, besides Nepal, Bhutan, Myanmar and Bangladesh.
Dharmendra Pradhan in Nepal to discuss pipeline projects
India’s Petroleum and Natural Gas Minister Dharmendra Pradhan is in Nepal to hold talks on the modality of construction of a petroleum pipeline from Amlekhgunj to Chitwan and the import of petrol and gas to the land-locked Himalayan nation. Nepal is seeking extension of three pipelines – natural gas, liquefied petroleum gas and oil (petrol, diesel and kerosene)- up to Chitwan, the Kathmandu Post reported. The Indian petroleum minister and his team will hold discussions on the under-construction petroleum and gas pipelines, Nepal Oil Corporation (NOC) spokesperson Birendra Goit was quoted as saying by the daily. Pradhan, who arrived here on Friday, will hold discussions with various authorities involved in the construction of the pipeline. The meetings will discuss issues regarding the modality of construction of petroleum pipeline from Amlekhgunj to Chitwan and the import of petrol and gas, the daily said. In 2015, the two governments had signed an agreement to lay a 69-km oil pipeline from Motihari in India to Amlekhganj. Nepal is now seeking extension of the natural gas and LPG pipelines along the same route. India is currently building the oil pipeline between Motihari and Amlekhgunj. So far, a 17 km stretch of the 36.2-km section of the pipeline, which lies on the Nepal side, has been over, according to the NOC. Nepal’s fuel imports have rocketed in recent years. Last fiscal year, the demand for cooking gas surged 18 per cent to 370,560 tonnes, according to the NOC. The gas pipeline will result in savings of around Rs2 billion annually for Nepal by eliminating tanker trucks. Diesel and cooking gas accounted for 80 percent of the total fuel import bill of Rs 170 billion last fiscal, the daily said. During the recent visit by Nepal Commerce Minister Matrika Prasad Yadav, India agreed to build a gas pipeline to Nepal. The two countries had agreed to discuss the modality of construction at the joint working group meeting.
Haryana government inks pact with Indian Oil Corporation to set up bio-CNG plants
The Haryana government Thursday signed a memorandum of understanding with Indian Oil Corporation (IOCL) for setting up bio-CNG plants based on paddy straw and other agri-waste in the state. The first such compressed biogas plant (CBP) is likely to be set up in Kurukshetra. The MoU, which was signed in the presence of Chief Minister Manohar Lal Khattar here, will open opportunities for setting up of 200 CBPs in the state by 2023, with total capacity of about 1,000 tonnes per day of compressed biogas, an official statement said. This will result in annual production of about four lakh tonnes of compressed biogas per annum, it said. Chairman, Haryana Renewable Energy Development Agency (HAREDA) Shailendra Shukla signed the MoU on behalf of the state government, while Executive Director Subodh Kumar signed on behalf of IOCL. Subodh Kumar also requested the chief minister to lay foundation stone of the first compressed biogas plant in Kurukshetra in November this year. He said that with the signing of MOU, the IOCL would start work on the setting up of this plant. The chief minister said that the government intends to promote agriculture waste based biomass or waste to compressed biogas or Bio CNG plants in the state to tackle the issue of crop residue burning and scientific disposal of agriculture waste. This, Khattar said, will not only increase farmers’ income by sale of crop residue but also create rural employment opportunities. Additional Chief Secretary, New and Renewable Energy P K Mahapatra said that the production of compressed biogas on a commercial scale will have several benefits, including reducing pollution due to crop burning and providing an economic alternative to crop residue, providing additional sources of revenue to farmers, rural employment and value creation in the rural economy. He said that the compressed biogas is similar to the commercially available CNG in its composition and energy potential and hence it could be utilised as a green automotive fuel. Kumar said that a 100 tonnes per day agro residue feed stock capacity biogas plant could produce about 10 TPD compressed biogas and 30 TPD dry manure. The cost of such a plant is about Rs 35 crore and requires six to ten acres of land, he added. He further said that they intend to promote compressed biogas with about 96 per cent methane content which would be better than CNG (about 86 per cent methane) and would have better combustion qualities.
Russia, Pakistan sign MoU on gas pipeline from Iran
Moscow, Russia and Pakistan signed a memorandum of understanding (MoU) on implementing a project to build an underwater gas pipeline from Iran to Pakistan and India, the Russian Energy Ministry said in a statement on Thursday. “The memorandum provides for the identification of authorized organisations through which the project will be supported, including during the development of a feasibility study, identification of the resource base, configuration and route of the gas pipeline,” the statement said, Xinhua reported. Russian Deputy Energy Minister Anatoly Yanovsky and Pakistan’s Ministry of Energy Additional Secretary Sher Afgan Khan signed the document in Moscow. Now Russia will have to inform Iran and India about the signing, after which it expects to sign a similar document with India, Yanovsky said in the statement. The project was frozen in 2013 due to the imposition of sanctions against Iran, but its revival started in 2017. In November 2017, Russia and Iran signed a memorandum that envisaged Russian support for gas supplies from Iran to India. In March, a Russian-Iranian working group on the implementation of the project had its first meeting. According to Yanovsky, Russia and Pakistan were holding consultations on another project of building the 1,100 kilometer North-South Gas Pipeline (NSGP) between Pakistan’s Karachi and Lahore to transport 12.3 billion cubic meters of gas per year. The implementation of an agreement signed in October last year between Russia and Pakistan on Russian liquefied natural gas (LNG) supplies “can become a promising direction of cooperation,” he said. The governments of the two countries were also considering signing an agreement on Russian oil products supplies to Pakistan, Yanovsky said. In addition, Russian electric power industry has shown interest in the Pakistani market, he said.
Bangladesh shelves mini-FSRU projects as LNG imports ramp-up
Dhaka — Bangladesh has shelved plans for three small-scale floating storage and re-gasification units following objections from the country’s main port authority, and as LNG imports at its first full-sized FSRU ramp up. The cancellation comes as a disappointment for the commodity traders and shipping companies who were in talks with state-run national oil company Petrobangla for building the small-scale LNG projects or supplying gas to them. The relatively high cost of small-scale LNG projects, the cost of gas supplies from these terminals and delays from interested sponsors, contributed to the shelving of the project by the energy ministry, according to industry executives. “We are not considering these small FSRUs now as the previously planned floating LNG terminal has already been commissioned, and is supplying re-gasified LNG to consumers,” Petrobangla’s chairman Abul Mansur Md Faizullah told S&P Global Platts Tuesday. Faizullah said commodity traders Trafigura, Gunvor and Vitol, as well as Belgium-based shipping company Exmar NV were in final talks with Petrobangla and its subsidiary, Rupantarita Prakritik Gas Company Ltd, to build the mini FSRUs and sell the gas to Petrobangla. RPGCL is in charge of monitoring LNG imports and its facilities in Bangladesh. In December last year, Petrobangla had inked preliminary agreements with Trafigura and Gunvor for the supply of around 200,000 Mcf/day of regasified-LNG each for over 10 years. In early May, Petrobangla abandoned the preliminary deal with Trafigura due to delays in agreeing to the terms of the SPA, including the LNG specification and the location for any potential dispute settlement, Platts reported previously. A preliminary deal with Gunvor also did not progress further. “We don’t have any binding agreement with any of these firms to award contracts to build small FSRUs and supply re-gasified LNG to us,” Faizullah clarified. The small-scale FSRUs were meant to supply gas ahead of the commissioning of Excelerate Energy’s Moheshkhali FSRU in the Bay of Bengal, and the end-users of natural gas from both projects are the same in the port city of Chattogram, according to Petrobangla. PORT CONSTRAINTS The Chittagong Port Authority has warned that the navigability of the adjacent River Karnaphuli might be badly affected if the small FSRUs were docked there, a senior official at the country’s energy ministry said this week. The official added that Bangladesh’s energy ministry was planning to build mini FSRUs with a capacity of around 150-200 MMcf/d of natural gas each, adjacent to an existing platform and jetties on the River Karnaphuli. “We sent our observations over building of the FSRUs to the concerned authorities,” Chittagong Port Authority’s member for administration and planning Md Zafor Alam said Monday. Chittagong Port is Bangladesh’s largest sea port that handles 90% of the country’s trade and is also used by India, Nepal and Bhutan for transshipment, according to CPA statistics. It ranked as the 71st busiest port in the world in 2017, according Lloyd’s List of London. State-run Petrobangla started LNG imports from Qatar’s RasGas from September 9 via Excelerate Energy’s FSRU Excellence, which is Bangladesh’s first LNG import facility, located at Moheshkhali Island in the Bay of Bengal.