India does not see any shortage of crude oil supplies: Hardeep Singh Puri
Despite last week’s crude oil price spiral, the situation seems to be stabilising with analysts expecting the market to cool off in the coming days. Tensions between Israel and Iran led to a 13 per cent spurt in Brent crude prices in the past seven days, with the benchmark crude hitting $79.4 per barrel on October 7, up from $70.2 just a week earlier. The Indian government is confident of shielding the country from any fallout in case of crude oil supplies being hit by an escalation in the tensions. “Today there is more oil available in the world than there is consumption”, said Hardeep Singh Puri, Union Minister for Petroleum and Natural Gas, adding, “If some parties hold back on availability there are new suppliers on the market also, in the short to medium term I do not see any shortage of oil in the world. There is enough oil available and we have enough choices to exercise.” Currently, India imports 88 per cent of its crude oil requirements from 39 countries, leaving it exposed to the vagrancies of the market. According to energy market expert Narendra Taneja, the situation could get hairy for India only if tensions escalate in the Gulf. “If Israel attacks oil installations in Iran, the situation will get out of control”, said Taneja in a conversation with Business Today. He added that Iran in turn could block the Straits of Hormuz and create a “massive disruption in supplies causing prices will go through the roof.” Softening crude prices If the geo-political situation does not worsen in the coming days, crude prices are seen softening with experts of the opinion that Israel and Iran are likely to pull back from the precipice as neither can afford the results of an all-out war. “Benjamin Netanyahu has been very cautious about starting a war with Hezbollah”, says Ian Bremmer, President and Founder, Eurasia Group, because Hezbollah is far better trained and armed than Hamas. He adds the likelihood of an all-out war is low. “So, on one hand they want to get Hezbollah forces away from the Israeli border so that Israelis can come back to their homes and schools, on the other hand the likelihood of an all-out war is pretty low. That’s the reason oil prices haven’t moved since August and markets also do not believe that it is coming”, says Bremmer.
Middle East Unrest To Fuel Oil Inflation
The fight against Hamas by Israel has been intensified recently with recent move by it in target killing and ground advance in Lebanon and Iran joining the fight against the Jewish state by missile attacks. The current situation is tense and it may lead to full-fledged war in Middle East, which may lead to global forces joining the either side in escalation of war. Talking to Bizz Buzz, M Narendra, former Chairman and Managing Director, Indian Overseas Bank (IOB), said: “It is difficult to fully know the consequences of the ongoing disturbance and tension in the Middle East on the global economy. It is to be seen whether oil prices, which were so far in comfortable position, may rise, if so, it will affect the oil importing countries in terms of foreign exchange outflow and its impact on domestic commodity prices.” India in the recent past has widened its sources for importing oil and we are able to get oil from Russia at competitive prices. However, this will be one of the risks in acceleration in oil prices which will affect India, he said. The commodity prices, which were also softer on global markets, may go up temporarily, increasing the cost of imports. There may be impact on supply chains and shipping routes which will increase freight costs which can have impact on international trade. However, India has strong macro-economic fundamentals and highest forex reserves comfortable for more than 11 plus months imports which acts as cushion to absorb the temporary upheaval. These rapidly increasing geopolitical ‘hotspots’ will definitely impact all numbers factored into budgets adversely. MV Hariharan, ex-treasury head, SBI, said: “The sustained instabilities will extract higher costs for India, be it in education abroad, jobs and tourism too. Oil is always an ‘elephant in the room’. Banks can feel the pinch of their education loans coming under stress with students in no man’s land with the uncertainties which will get triggered by the political context in play.”
GAIL India issues LNG tender for November delivery, sources say
GAIL (India) GAIL.NS, the country’s biggest natural gas distributor, issued a tender seeking a cargo of liquefied natural gas for delivery in November, two industry sources said on Monday. It is seeking the cargo on a delivered-ex-ship (DES) basis for Nov. 6-15 delivery to the Dahej terminal. The tender closes on Oct. 7.
India’s Coal Output Surged in H1
India’s coal production from captive and commercial mines surged by 32% over the first half of this financial year, the country’s coal ministry said, with the total reaching 79.7 million tons. Captive and commercial coal production in September alone also rose by 32%, the ministry reported, from 10.4 million tons in September 2023, to 13.74 million tons last month. India’s financial year begins in April. India is the second-largest coal consumer of coal in the world and a sizeable producer as it seeks to satisfy more of its demand for the energy commodity with domestic production as demand keeps growing at a healthy pace. In the 2023-2024 fiscal year ending March 2024, India’s total coal production rose by 11.65% to 997.25 million tons, according to data from the Ministry of Coal. The above figures suggest that this fiscal year will also see considerable production growth despite climate pledges. Earlier this year, Bloomberg reported citing unnamed sources that India aimed to add as much as 15.4 gigawatts of new coal-fired power capacity this year, the most in nearly a decade. Coal is the biggest source of energy on the subcontinent, accounting for some 70% of the energy mix, even as the government works to expand wind and solar capacity. In the first quarter of the year, coal consumption for power generation surged to a record high amid a heatwave and droughts that reduced hydropower generation. As a result of efforts to boost domestic supply, in July the Indian Ministry of Coal said that the country saw a record decline in the share of imported coal in the past decade, noting that “medium and low-grade thermal coal are abundantly available domestically, making it imperative for the country to sufficiently produce to fulfill domestic demand.” Meanwhile, imports also rose earlier in the current fiscal year, following demand patterns. Over the first quarter, coal imports ticked 0.9%, with July imports alone up by 15.9%.
Oil Price Rally Continues Despite U.S. Inventory Build
Crude oil prices were on the climb again today, fueled by expectations of Israel’s retaliation against Iran after the latter showered it with missiles earlier in the week, sparking fears of a broader war in the Middle East. The biggest worry is, of course, Israel targeting Iranian oil infrastructure, which analysts expect it to do. “The next turn in this retaliation spiral may very well involve oil – via the degrading of Iran’s oil capacity or Iran’s proxies attacking oil and gas shipping from the Persian Gulf,” according to Piper Sandler analysts, as quoted by CNBC. Israeli media also reported that attacks on oil infrastructure were likely, citing government officials. However, oil’s gains were moderated by the U.S. Energy Information Administration’s latest weekly inventory report, which showed a build in crude oil. At 3.9 million barrels, the build was considerable enough to make oil traders bearish despite events in the Middle East. “Swelling U.S. inventories added evidence that the market is well supplied and can withstand any disruptions,” ANZ analysts wrote, as quoted by Reuters. That statement may be seen as a little questionable since the disruption of Libyan production drove prices higher earlier this year. Libya produces a third of what Iran does in crude oil. Disruption of Iranian production would quite likely have a palpable impact on international markets. On the other hand, as Energy Aspects’ Amrita Sen pointed out to Reuters. “In theory, if we lost all Iranian production – which is not our base case – OPEC+ has enough spare capacity to make up for the shock,” Sen said. Indeed, analysts have calculated that Saudi Arabia and the UAE alone could more than offset a potential loss of Iran’s total production, which is around 3.2 million barrels daily. Of that, Iran exports about 1.8 million bpd. Yet if Iran moves to block oil transport via the Strait of Hormuz, that would be a different story altogether. According to Rapidan Energy Group’s Bob McNally, a blockade on the chokepoint would send oil prices a lot higher.
IEA: Global Natural Gas Demand Set for New Record Highs
Amid a normalization of natural gas prices, global gas demand is picking up this year at a stronger pace than in the past two years and is set for a record high in 2024 and 2025, the International Energy Agency (IEA) said in a new report on Thursday. After the supply and price shock of 2022 and 2023, which weighed on natural gas demand, consumption is picking up pace this year and is set to rise by over 2.5% in 2024, or by just over 100 billion cubic meters (bcm). As a result, natural gas demand is set to reach a new record-high of 4,200 bcm in 2024, mostly thanks to growth in the Asia Pacific region, the IEA said in its annual Global Gas Security Review. Asia Pacific is expected to account for nearly 45% of incremental global gas demand this year. The primary growth drivers are industry and energy use, contributing more than half of demand growth. Moreover, Europe’s industrial gas demand is recovering as prices normalized and is also contributing to demand growth, even though it remains well below its pre-crisis levels. Next year, we will see another all-time high in global natural gas demand as consumption is expected to rise by another 2.3% (or nearly 100 bcm) in 2025. Similarly to 2024, growth is largely supported by Asia, which alone is expected to account for over half of incremental gas demand. Supply of natural gas remains tight, and geopolitical uncertainties are adding volatility to natural gas markets, according to the IEA. “The growth we’re seeing in global gas demand this year and next reflects the gradual recovery from a global energy crisis that hit markets hard,” said IEA Director of Energy Markets and Security Keisuke Sadamori. “But the balance between demand and supply trends is fragile, with clear risks of future volatility.”
Exclusivity with Reliance has ended but BP to continue with Ambani firm: India head
Global supermajor British Petroleum (BP) Plc’s exclusivity with Reliance Industries Ltd has ended but the energy giant will continue to pursue oil and gas as well as mobility ventures in India with the Mukesh Ambani firm owing to an unwritten strategic partnership, BP’s outgoing India head Sashi Mukundan said. BP in 2011 spent $7.2 billion to acquire 30% interest in 23 oil and gas blocks of Reliance. Eastern offshore KG-D6 block was the cornerstone of the deal that also provided for a 10-year exclusivity period which meant that BP would take up energy projects or investments in India only in partnership with Reliance. The firm has so far invested more than $2 billion across the energy value chain including bringing on stream three new deepwater natural gas projects in KG-D6 that account for one-third of India’s gas production. “We started working with Reliance as early as 2005 when first (the then BP CEO) Lord John Browne visited India,” Mr. Mukundan said. It finally fructified in the 2011 deal. “13 years since we did the upstream deal, not once have we gone back and looked at the contract,” he said, adding the partnership with Reliance is not a contract based but one based on “trust and relationship”. “So anytime we have any issues between the two partners, we just sit face to face. I just have to make a call or (send a) WhatsApp (message) and say I want to come and see you. And you know, between him (Mukesh Ambani, Chairman and Managing Director of Reliance Industries Ltd) and Mr (PMS) Prasad (Executive Director at Reliance), we resolve everything,” he said.
What does Middle East tension, oil price spike mean for India’s macro economy?
Iran’s recent ballistic missile strike on Israel have fuelled fears of a broader regional conflict across the Middle East, sending crude oil prices up by as much as 4 per cent overnight due to concerns over supply disruptions. As oil prices continue to rise, experts warned that India, which is heavily reliant on energy imports, could face significant economic challenges. Sugandha Sachdeva, Founder of SSWealth Street, explained that for every $10 increase in oil prices, India’s inflation rises by about 0.3 per cent, while the current account deficit (CAD) widens by $12.5 billion, equivalent to roughly 43 basis points (bps) of gross domestic product (GDP). “This can diminish consumer purchasing power as higher fuel costs drive up transportation and input expenses, leading to an overall increase in the prices of goods and services,” she said. Jigar Trivedi, Senior Research Analyst for Currencies & Commodities at Reliance Securities, agreed with Sachdeva. He warned that rising oil prices would lead to a higher dollar outflow from India, further weakening the rupee. Iran, a key OPEC (Oragnisation of the Petroleum Exporting Countries) member, exports approximately 1.7 million barrels of oil per day. Beyond its role as a global oil supplier, Iran’s strategic location near the Strait of Hormuz — through which major Persian Gulf energy producers such as Saudi Arabia, Qatar, and the UAE export their oil—heightening the risk of global energy supply disruptions, especially as tensions escalate. Iran’s missile strike followed Israeli military action in Lebanon, including a targeted killing of Hezbollah’s chief Hassan Nasrallah, has heightened concerns of further regional instability.
Oil Plunges Over 2% on Rumor Saudis Ready To Increase Output
Brent crude and the U.S. benchmark shed well over 2% on Thursday on mainstream media rumors that Saudi Arabia is planning to unleash more oil on the market, with the Kingdom willing to give up its $100-per-barrel price target. According to a Financial Times report earlier in the day citing unnamed sources, Saudi Arabia is willing to reduce its $100 price target to pump more oil, and OPEC+ is preparing to increase output collectively in December. At 10:41 a.m. ET on Thursday, Brent crude was trading down 2.10% at $71.92, for a loss of $1.54 on the day. The U.S. benchmark West Texas Intermediate (WTI) was trading down 2.27% at $68.11, for a loss of $1.58 per barrel on the day. Russian Deputy Prime Minister Alexander Novak said earlier on Thursday that OPEC+ was not discussing any proposals for changes to the expanded cartel’s output cuts. OPEC+ was originally expected to begin unwinding part of its 2.2 million bpd of oil output cuts beginning in October this year. That has since been delayed due to the oil price crash in late August and early September. OPEC+ delayed the start of the unwinding of the cuts by two months until December 2024. The cartel’s monthly report for September saw a reduced demand growth outlook, which has put heavy downward pressure on oil prices. The monthly report has turned bulls into bears, with traders now appearing to view the market as its most bearish since 2011. Foregoing its $100-per-barrel price target will mean that Saudi Arabia will have to accept low oil prices in order to regain market share. Saudi Arabia has been pumping some 9 million barrels per day (bpd) of crude for over a year, without veering from its target–a move that has cost it market share not only from non-OPEC+ producers but also from within the cartel itself.
India’s $100 Billion Oil Exploration Opportunity
Two weeks ago, we reported that a long exploration effort has led to the reportedly massive discovery of oil and gas reserves in Pakistan’s territorial waters, a cache so large that it is said it could change the economic trajectory of the beleaguered country. Although Pakistan’s hydrocarbon resources are yet to be quantified, some estimates suggest that this discovery constitutes the fourth-largest oil and gas reserves in the world. However, the oil majors appear unimpressed: in July, the country’s Petroleum Minister, Musadik Malik, told a parliamentary committee that no international companies were interested in offshore oil and gas exploration in Pakistan,and those in the country largely had the exit door in view. It comes down to security, and risk versus reward with Malik explaining to the committee that the cost of security is a major deal-breaker because “in areas where companies search for oil and gas, they have to spend a significant amount to maintain security for their employees and assets.” Thankfully for Pakistan’s neighbor, India has no such baggage. India’s oil Minister Hardeep Singh Puri has called for oil majors to step up oil and gas exploration in the country to help cut India’s reliance on imports and make affordable fuel sustainable. “E&P offers investment opportunities worth USD 100 billion by 2030,” he told a conference at Urja Varta. Currently, only 10% of India’s 3.36 million sq km wide sedimentary basin is under exploration. However, the country is richly endowed with fossil fuels: back in July, S&P Global Commodity Insights revealed that four largely unexplored sedimentary basins in India could hold up to 22 billion barrels of oil. In effect, lesser-known Category II and III basins, namely Mahanadi, Andaman Sea, Bengal, and Kerala-Konkan contain more oil than the Permian Basin, which has already produced 14 billion barrels of its 34 billion recoverable oil reserves. Rahul Chauhan, an upstream analyst at Commodity Insights, has emphasized the potential of India’s unexplored Oil & Gas sector, “ONGC and Oil India hold acreages in the Andaman waters under the Open Acreage Licensing Program (OALP) and have planned a few significant projects. However, India still awaits the entry of an international oil company with deepwater and ultra-deepwater exploration expertise to participate in current and upcoming OALP bidding rounds and explore these frontier regions,” he has declared. Big Oil Kicks Off India Exploration India boasts significant discoveries in the Krishna-Godavari, Barmer, and Assam basins, but exploration in other areas has been slower to develop. Of India’s 3.14 million square kilometers of sedimentary basins, 1.3 million sq km are in deep waters. India had its first foray into deepwater exploration in the Bay of Bengal earlier this year in the Krishna-Godavari Basin, courtesy of India’s state run Oil and Natural Gas Corporation (ONGC). ONGC said it was planning to spend over $10 billion developing multiple deepwater projects in its KG-DWN-98/2 block in that basin. Meanwhile, state-owned upstream company Oil India Ltd is looking to start exploration activities in Nagaland “We have a total of 30 blocks under the OALP. We have already drilled all wells under the awarded OALP blocks, except in Nagaland. We are pursuing the ministry and they have set up a high power committee involving OIL, ONGC, government officials, to discuss the issue with the Government of Nagaland and resume exploration,” the official said. Unlike Pakistan, India is likely to have little trouble attracting the oil and gas majors. Indeed, British energy giant BP Plc (NYSE:BP) is holding a board meeting in India this week, as it hunts for more opportunities in the country. BP has forged a joint venture with Indian multinational conglomerate Reliance Industries to operate 1,900 fuel retail stations across India and produces oil and gas from a deepwater block in the Krishna-Godavari basin. The JV has teamed up with ONGC to bid for exploration rights for an offshore block in India. National oil companies (NOCs) account for 58% of global reserves and 56% of production. However, International Oil Companies (IOCs) also play a major role in the energy sector by contributing to the general economic and social development of the host country. Indeed, IOCs are obliged through Production Sharing Agreement to pay royalty fees to the host country. Analysts have predicted that India is set to become the key driver of global oil demand growth, overtaking China. “China’s role as a global oil demand growth engine is fading fast,” Emma Richards, senior analyst at London-based Fitch Solutions Ltd, told The Times of India. According to the analyst, over the next decade, China’s share of emerging market oil demand growth will decline from nearly 50% to just 15% while India’s share will double to 24%. A rapidly growing population, which has likely surpassed China’s, is expected to be the main driver of consumption trends in India. Meanwhile, the country’s transition from traditional gasoline and diesel-fueled transport is expected to lag other regions, in sharp contrast to China’s skyrocketing adoption of electric vehicles and clean energy in general. “India was always going to exceed China in a matter of time in terms of being the global demand growth driver, mainly due to demographic factors like population growth,” Parsley Ong, the head of Asia energy and chemicals research at JPMorgan Chase & Co. in Hong Kong, has told Bloomberg.