Indian Oil Corp may take Odisha govt to court on Paradip refinery tax sops
State-owned Indian Oil Corp (IOC) may drag the Odisha government to court for reneging on its promise to give tax concessions to its Rs 34,555 crore Paradip refinery in the state. Less than two months after serving the first show-cause notice, the Odisha government on February 22 wrote to its single-biggest investor saying it is withdrawing the promised 11-year deferment on payment of sales tax on Paradip refinery products sold in the state. “We are trying to explain to them that we came to Odisha only based on their commitment to give certain tax incentives. Now, they cannot go back on them. If we don’t succeed the only option left for such will be to take it up legally,” a top company official said. The Odisha government is basing the withdrawal on two grounds – that the project was delayed by six years and the size of the refinery has been changed to 15 million tonnes a year from the previously agreed 9 million tonnes. “They do not have a case on both the counts. For one, we had way back in 2006 informed them in writing about the decision of doing a larger size refinery together with petrochemical plant,” he said. As regards delay, the official said the state government should have conveyed its decision of not giving the tax incentives way back in 2009 when the investment decision was taken and conveyed to them. “This clearly is an after-thought. They had in 2004 given us a set of eight tax incentives. While the VAT exemption was to kick in when the refinery started commercial production, the state government allowed the others including construction time incentives to be availed between 2009 and 2015. We had taken a benefit of Rs 550 crore on these count,” he said. The withdrawal of VAT exemption will cost Rs 2,000 crore to IOC this year and will progressively increase every year as more petrol and diesel as well as petrochemicals are sold within the state. Odisha had originally offered the tax incentives to IOC and its then partner Kuwait Petroleum Corp (KPC) in December 1998 to invest in setting up a refinery in the state. These investments were withdrawn in February 2000, leading to the company shelving the project. It restored the incentives and signed an MoU with IOC on February 16, 2004, for providing a set of eight sops. The state government withdrew the tax incentives in “public interest”, citing 6-year delay in commissioning of the project that was larger in capacity than originally planned. IOC, however, is quick to point out that the February 16, 2004, MoU clearly allowed change in design, capacity and configuration of the project. The official said the Odisha government was informed about the change in capacity and the delay in construction caused by cyclone, land acquisition and law and order problems. If the MoU was sacrosanct, the state government should have withdrawn the concessions in 2009 itself, allowing IOC to reassess its investment plans, he said, adding the size of the refinery should not matter as VAT deferment is limited to 2 million tonnes of products sold in the state. Amari Cooper Womens Jersey
Floating Liquefied Natural Gas production bows out as U.S. exports roil market
Once considered the future of gas production, floating liquefied natural gas (FLNG) projects have been firmly relegated to the backburner as global gas producers seek cheaper ways to compete with a surge in U.S. shale supplies and slumping prices. FLNG projects – mega tankers fitted with gas extraction and liquefaction facilities – allow producers to tap offshore gas wells and ship LNG without having to build costly pipelines to onshore plants. Owners can move the vessels to new fields when production at an old one ends, slashing asset end-of-life costs. The projects were popular with producers in the early-2010s when gas demand and prices were rising, and before the shale revolution unlocked U.S. oil and gas reserves that crushed global energy prices. But a combination of the massive costs of outfitting a tanker with the necessary equipment – into spaces a fraction of the size of land-based installations – and a collapse in benchmark gas prices has halted interest in adding to the two current projects – Royal Dutch Shell’s long-delayed $12.6 billion Prelude project off northwest Australia, due to come online in 2018, and Petronas’ PFLNG Satu project in Malaysia. Shell has been a major proponent of FLNG, but spot prices have halved since the major reached its final investment decision (FID) on Prelude in May 2011. “There was maybe an expectation when Prelude was being conceived that this was the future and every LNG project would look like that,” said Shell’s executive vice president Steve Hill at a media briefing in Singapore last month. “I think that got kind of superseded by the U.S. being the primary source of new LNG supply … Maybe it was the switch from Australia to the U.S. that meant floating (production) didn’t kind of take off in the way that was expected.” Woodside Petroleum shelved plans to build the $30 billion Browse FLNG project off western Australia last March because of global oversupply. Partners in the project include Shell, BP, PetroChina, Mitsui & Co and Mitsubishi Corp. While FLNG remains the project’s preferred option, Woodside is pushing to make the case to its partners that bringing gas from Browse and the southeastern Scarborough field into existing or expanded facilities onshore would be a cheaper option. “It’s about infrastructure sharing and it’s about taking a sensible approach … and making sure capital is used efficiently,” Woodside CEO Peter Coleman told reporters following the group’s annual results last month. GDF Suez and Australia’s Santos also scrapped a proposed FLNG project for the Bonaparte LNG field off northern Australia in June 2014. Meanwhile, monthly U.S. LNG exports have risen above 1 million tonnes since the start of this year, hitting a record 1.05 million tonnes in February, Thomson Reuters Eikon trade flow data shows. Another 8.6 billion cubic feet per day of U.S. gas production (68.3 million tonnes per annum of LNG) is currently under construction and scheduled to come on stream by 2020. “With the market headed for oversupply until the early-2020s, it would be difficult to find a bankable new FLNG project in the near term,” said Edmund Siau, a gas analyst at energy advisory FGE. Otis Sistrunk Jersey
U.S. shale producers renew their challenge to OPEC: Kemp
U.S. crude oil production appears to be rising strongly thanks to increased shale drilling as well as rising offshore output from the Gulf of Mexico. Production averaged almost 9 million barrels per day (bpd) in the four weeks to Feb. 24, according to the latest weekly estimates published by the Energy Information Administration. Production has been on an upward trend since hitting a cyclical low of 8.5 million bpd in September (“Weekly Petroleum Status Report”, EIA, March 1). Weekly production numbers are estimates based on a combination of hard data and modelling so there is some uncertainty around them (“Weekly Petroleum Status Report: Explanatory Notes and Details Methods”, EIA). But the weekly estimates normally provide an accurate indicator for trends in the more comprehensive monthly data (http://tmsnrt.rs/2mcZphb). The most recent monthly statistics show output declining by 91,000 bpd in December, mostly due to exceptionally cold weather in North Dakota. Even with this weather-driven decline, which is expected to be temporary, production was still 216,000 bpd above the cyclical low reported in September. And the most recently weekly estimates suggest production increased significantly again during January and February. The rise in production is consistent with the substantial increase in the number of rigs drilling for oil since May 2016. Rising output also helps explain the big increase in U.S. crude exports and the continued high level of domestic crude stocks. U.S. crude exports have averaged almost 900,000 bpd during the last four weeks, up from about 500,000 bpd in September. U.S. crude prices have roughly doubled over the last year which has supported a sharp expansion in domestic drilling activity. Production cuts agreed by OPEC and non-OPEC countries in November and December 2016 have also helped sustain the drilling increase by supporting oil prices above $50 per barrel. Most exploration and production companies report shale breakeven prices below $50 per barrel and will continue to add rigs provided prices remain between $50 and $60 per barrel. The resurgence of shale production poses a direct challenge to OPEC’s attempt to rebalance the global oil market while protecting its market share. In the short term, OPEC will downplay the renewed growth in shale output and emphasise its own compliance with announced production cuts. In the end, however, OPEC will be faced with a familiar dilemma: sacrifice market share to protect prices or defend market share and allow prices to find their own level. Between the middle of 2014 and the middle of 2016, OPEC focused on defending its market share and allowed prices to fall to the market-clearing level. Since the end of 2016, OPEC has switched tack and has been willing to sacrifice market share to push prices up. Saudi Arabia has resumed its periodic role as swing producer in the oil market, shouldering the largest share of output cuts. So long as the shale revival remains small-scale, the benefit from higher prices outweighs the costs from lower OPEC production and market share, and the strategy remains feasible. But if U.S. output continues to increase at the current rate, OPEC will eventually be forced to reassess its production cuts and start protecting its market share again. Andre Reed Womens Jersey
GAIL signs time-swap deal with Swiss trader Gunvor to sell US LNG
State-run gas company GAILBSE 1.71 % (India) Ltd has signed a time-swap deal with Swiss trader Gunvor to sell some of its U.S. liquefied natural gas (LNG), sources said, as the Indian firm tries to ease the burden of its costly foreign LNG supplies. It is the first time-swap agreement by GAIL, which is trying to juggle its LNG portfolio to cut costs for price-sensitive Indian customers after a sharp fall in Asian spot prices made its U.S. gas unattractive. The deal equates to around 5 percent of India’s 2015/16 LNG imports and will support a government push to promote the use of the cleaner fuel in fertiliser and the power sector, even as India’s local gas production is falling. Under the agreement, Gunvor will supply 15 cargoes or about 0.8 million tonnes of LNG to GAIL on India’s west coast between April and December this year in oil-linked prices on a delivered basis in India, two sources with knowledge of the deal said. In return GAIL will sell 10 cargoes or about 0.6 million tonnes next year from Sabine Pass on the U.S. Gulf coast in 2018 at a premium to its pricing formula on a free-on-board (FOB) basis, they said. The deal, priced at about a 12 percent slope to Brent, means GAIL could get gas from Gunvor at $6.50-$7.00 per million British thermal units (mBtu), the sources said, competitive with Asian spot prices and much cheaper than the cost of shipping its own U.S. gas to India. “We are seeing spot deals (in India) for April deliveries getting finalised at slightly more than $6.50 (mBtu) so GAIL’s deal with Gunvor is at very competitive rates,” said an Asian LNG trader. GAIL is saddled with long-term contracts to take expensive U.S. gas after embarking on a buying spree between 2011 and 2013 when the fuel was scarce and prices kept rising. LNG booked by GAIL under a long-term deal with Cheniere Energy, which owns the Sabine Pass Liquefaction terminal, will cost 115 percent of Henry Hub prices plus a fixed cost of $3 per mBtu. At current prices, this equates to a cost of about $8.50 per mBtu on a delivered basis to India. GAIL was not immediately available for comment. Gunvor declined to comment. The Indian firm has a deal to buy 3.5 million tonnes per annum (mtpa) of LNG for 20 years from Cheniere Energy and has also booked capacity for another 2.3 mtpa at Dominion Energy’s Cove Point liquefaction plant. It has so far sold about 0.5 million tonnes of its LNG from the U.S. projects to Royal Dutch Shell but has not been able to attract Indian customers despite repeated attempts. “GAIL is in talks with more players to sell LNG from its U.S. portfolio,” said one of the sources. New Delhi wants to lift the share of cleaner-burning gas in its energy mix to 15 percent in the next three years from about 6.5 percent at present. GAIL is also in talks with Russia’s Gazprom to delay and renegotiate a 20-year gas purchase deal undercut by low spot prices. Deatrich Wise Jr Authentic Jersey
Gas distributors earn far more than explorers
ity gas distribution companies in India have significantly higher profitability than explorers, according to a February 2017 report from Kotak Institutional Equities. The report notes that both Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) have “quite high profitability and returns in their city gas distribution businesses. Their profitability has gone up over the past few quarters as they have been able to retain the benefits of the decline in price of domestic gas.” On the other hand, explorers such as ONGC have low profitability and returns in their gas production businesses. The report notes that it is indeed “quite strange” that the net realisation (after royalty) on gas for upstream companies is lower than the gross contribution margin earned by IGL and MGL. According to the report, the realisation per unit for IGL in fiscal 2015-2016 stood at ?25.2/scm (standard cubic metres); correspondingly, ONGC’s realisation was at ?10.6/scm. The report also notes that India needs to encourage more competition in the CGD business. Need for competition It notes that the Petroleum and Natural Gas Regulatory Board (PNGRB) had issued draft guidelines in February 2016 to facilitate more competition. The Kotak report also bats for further liberalising the upstream gas-pricing policy. It argues that it will be logical to link the domestic price of gas with the landed cost of gas (LNG imports), as is the case with just about any other global commodity. Anthony Chickillo Womens Jersey
ONGC said to see spending plans curtailed by potential merger
India’s plan to push its top oil producer to fund a takeover of a state refining company may threaten some near-term investments. These include a plan to revive a long-delayed development project aimed at cutting the nation’s energy imports, according to company officials with knowledge of its finances. Oil & Natural Gas Corp.’s capital expenditure plans, including a $4.5 billion investment in its oil and gas blocks during the year starting in April 1, would be imperiled by the government’s proposal, said the officials, who asked not to be named because the information isn’t public. The administration of Prime Minister Narendra Modi is seeking to push ONGC to purchase the government’s stake in either Hindustan Petroleum, worth $4 billion, or Bharat Petroleum, at $7.7 billion, people with knowledge of the plan said. India is planning to create a state-owned oil giant that could compare with international companies and withstand volatility in oil prices. ONGC hasn’t been approached by the government yet, the company officials said. “For ONGC it will be difficult since exploration and production companies require a lot of cash,” according to Vaibhav Chowdhry, a senior analyst at K.R. Choksey Shares & Securities. “If they buy the full stake in HPCL their cash levels will go down. So funding future exploration will be very difficult.” ONGC has surplus cash of about $1.5 billion USD, according to the officials. Spokesmen for ONGC, HPCL, BPCL and the oil ministry declined to comment Thursday. “HPCL is relatively small and we do not expect that the merger will involve ONGC paying for the government stake in cash,” according to Vikas Halan, vice president for corporate finance group at Moody’s Investors Service. Crucial Plan ONGC, which dominates India’s upstream production, intends to spend 11 trillion rupees by 2030 to raise output. That spending plan is crucial for achieving Modi’s goal of cutting imports by 10% over the next five years. India imports about 80% of its crude oil. ONGC, which was India’s most profitable company in the year ended March 2015, has seen its earnings erode along with the slump in crude oil prices and is headed for its lowest profit in nine years. That hasn’t stopped ONGC from investing in projects. The company will spend $1.2 billion to acquire Gujarat State Petroleum’s stake in a block on India’s east coast. Last year it embarked on a $5 billion development plan, its biggest investment in a single project, in the Krishna-Godavari Basin off India’s east coast. A significant portion of next fiscal year’s capital-expenditure was earmarked for the project. ONGC expects to start gas output from the block in the Bay of Bengal by mid-2019, Chairman Dinesh Kumar Sarraf said in June. It had initially planned to start producing gas from the area in 2013. “It’ll be a daunting task going ahead for ONGC,” according to Dhaval Joshi, an analyst at Emkay Global Financial Services Ltd. “They may have to rely on debt for future investments and curtail dividend payouts. That will be negative.” Andrew Shaw Authentic Jersey
Work on TAPI pipeline to begin in Pakistan tomorrow: Official
The work on the long-awaited 1,680 km Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline, which will help ease energy deficiency in South Asia, will start in Pakistan tomorrow, a senior Pakistani official said today. Leaders of Turkmenistan, Afghanistan, Pakistan and India performed the ground-breaking of the project in December 2015. “Officials from Turkmenistan have reached along with a high-level delegation and an inaugural ceremony will be held on Friday to start work on route survey and detailed engineering in Pakistan,” Inter State Gas Systems Managing Director Mobin Saulat was quoted as saying by The Express Tribune. The daily reported that the route survey, detailed engineering and feasibility study, which will be conducted by a consultant are required to be undertaken before building the gas pipeline. The project management consultant will first undertake the survey and study in Pakistan and then extend its scope to Afghanistan. TAPI Company, established with the task of running the transnational gas pipeline, has awarded project management contract to German firm ILF. “Building of the pipeline and development of gas field has begun in Turkmenistan and we appreciate its efforts to step up activities in an attempt to complete the project according to the schedule,” Saulat said. He said that efforts aimed at achieving financial close of the project were also continuing and the pipeline would be commissioned as per schedule. Turkmenistan, Afghanistan, Pakistan and India have already signed a USD 10-billion investment agreement for the TAPI pipeline in a bid to kick off activities, update feasibility study and finalise pipeline route in war-torn Afghanistan. With the title of peace pipeline, the project is expected to bring peace and stability in the region because of cooperation among regional countries and reliance on each other for meeting energy needs. According to the agreement, Turkmenistan will invest around USD 25 billion to deliver 3.2 billion cubic feet of gas per day (bcfd) to energy-hungry Afghanistan, Pakistan and India. Of the total, USD 15 billion will be invested in developing the gas field whereas USD 10 billion will be poured into laying the pipeline over 1,680 km connecting Afghanistan, Pakistan and India with Turkmenistan. The pipeline will connect South and Central Asia. Turkmenistan will invest 85 per cent of the project’s cost. An official said a consortium of Japanese companies had fast-tracked development of the gas field in Turkmenistan. A gas sale and purchase agreement has already been signed in 2013 to establish the pricing mechanism under which gas price at Turkmenistan’s border will be around 20 per cent cheaper than the price of Brent crude oil. Pakistan and India will each receive 1.325 billion cubic feet of gas per day (bcfd) while Afghanistan will receive 500 mmcfd. Yohann Auvitu Jersey
Eni looks to strong project pipeline to boost growth
Italy’s Eni reported its first quarterly profit in 18 months and said it expects oil and gas production to rise 3 percent per year over the next four years after a string of high profile discoveries. Eni, the biggest foreign oil major in Africa which accounts for more than 50 percent of its output, has made major gas finds in Mozambique and Egypt, and said on Wednesday it was looking to add up to 3 billion barrels of new resources out to 2020 even as it cut investments by 13 percent. Earlier Eni beat expectations with fourth quarter adjusted net profit of 459 million euros ($484 million) helped by lower spending and higher oil prices. “We’ve never had such a strong set of projects in our history,” Chief Executive Claudio Descalzi said during a conference call with analysts on the group’s 2017-2020 plan. State-owned Eni said its organic reserve replacement ratio — a measure of its ability to find hydrocarbons — stood at 193 percent in 2016 compared to a 35 percent peer average. Exxon Mobil Corp, the world’s largest publicly traded oil producer, failed to replace 100 percent of its oil and gas reserves with new projects last year while ConocoPhillips Corp revised down proved reserves. Eni, which will reap the benefit of a ramp-up at Kazakhstan’s giant Kashagan field, expects output this year to jump by 5 percent as key projects in Angola, Ghana, Indonesia and Egypt come on stream ahead of schedule. To deal with the gas finds, the company said it aimed to develop its liquefied natural gas (LNG) business. “We can create a strong portfolio… the aim is to reach 10 million tonnes of LNG per year by 2025,” Descalzi said. Since taking over as CEO in 2014, Descalzi has refocused the group on the upstream (E&P) business of finding oil and gas. The veteran oilman, previously head of Eni’s E&P unit, has won plaudits from investors for steering Eni through the oil market slump by discovering prize acreage, cutting costs and selling assets. But his mandate comes up for renewal in the coming weeks and there is some concern his position could be undermined by a corruption probe over a Nigerian oilfield. “Upstream growth at Eni is well supported by significant organic resource access and while transformation is still in progress there’s lots of value still to unlock,” said Santander analyst Jason Kenney. Eni said it would pay a dividend of 0.8 euros per share in 2017, the same as the previous year. Under its so-called “dual exploration” strategy, Eni aims to sell down stakes in oil and gas fields it operates to raise cash to fund future development and support dividends. The company, which will generate cash flow of 47 billion euros from operations over the next 4 years, said it was targeting asset sales of 5-7 billion euros to 2020. “Around 60 percent of that will be in 2017-2018 and some 3-4 billion euros will come from diluting our stakes in fields we operate,” CFO Massimo Mondazzi said. Eni last year sold an overall stake of 40 percent in its giant Zohr field in Egypt to Rosneft and BP for around $2.1 billion. Sources have said Exxon Mobil has clinched a deal to buy a stake in the group’s Area 4 concession in Mozambique but that an announcement would not be made for some time. Descalzi said a deal to sell a stake in the Mozambique field was “not far” away, adding Eni would remain operator of a part of the field. Jake Bean Jersey
Gas price hike in April likely to be flat
Come April 1 your piped cooking gas bill or public transport fares could see a slight variation, as the Centre announces the revised rates for domestically produced natural gas. Indications are that the revised rates will hover close to the existing rates of $ 2.5 a unit (gas is measured in million British thermal units). This rate will be effective for the first six months of FY18. Effectively, the price could range between $2.25/mmBtu and $2.7/mmBtu, nearer to the existing $2.5/mmBtu at gross calorific value (GCV). GCV is a measure of the amount of energy gas can produce. When calculated on GCV, it is always advantageous for the gas producer, as the end consumers bear the higher price since they are charged at the net calorific value. NCV includes transportation margins and other charges; experts say it is close to a dollar. Difficult terrains The revision will also be effective for gas produced from High Pressure-High Temperature (HP-HT) discoveries, or difficult terrains. The current ceiling price produced from HP-HT discoveries stands at $5.30/mmBtu. This could cruise up or down by 30-45 cents. Locally produced gas price in India has been always controversial. After much deliberation the government had based the price calculations on a formula taking the weighted average or rates prevalent in gas price benchmarks — Henry Hub of US, National Balancing Point of UK, rates in Alberta (Canada) and Russia with a lag of one quarter. Currently, imported gas price (LNG) is at $6/mmBtu, NBP at $5.5/mmBtu, and Henry Hub at $2.7/mmBtu. However, if the revised price is close to the prevailing rate or about 40-45 cents higher, the explorer will be far from happy. According to ONGC, gas below $3/mmBtu is not viable for the producers. Local gas price in India has gone done from $5.6/mmBtu in 2014 to $2.5/mmBtu today. But, if the government pays heed to the demands of consumers like city gas distribution and fertiliser sectors, the cheap gas is what they want. K Ravichandran, Senior Vice-President at ICRA, said that for the fertiliser sector, the actual burden will fall on the government as it is a regulated commodity. “The only impact will be the need for more working capital to offset higher feedstock costs in the near term,” he said, adding: “Power anyway is deprived of domestic gas at present and has to depend on imports.” The city gas companies are protected as the variation in pricing is borne by the consumers. Beneficial for explorers Sumit Pokharna, Oil and Gas Analyst and Deputy Vice-President – Research, Kotak Securities, said: “Even though the net impact is marginal, an expected 8 per cent hike in the price of gas would be beneficial for explorers. “It should also be noted that the rupee has depreciated by around 2.5 per cent from last year, and there is room for up to 4 per cent depreciation in the coming year. The rupee depreciation and rise in crude oil prices will come to the aid of explorers.” Matt Carpenter Authentic Jersey
OIL to hunt for oil & gas under Brahmaputra bed
Oil India Ltd (OIL) is once again gearing up to explore oil and natural gas reserves under the Brahmaputra, one of the most turbulent rivers in the world. OIL, the Upper Assam based exploration giant, recently wrote to the Director General of Hydrocarbons (DGH) seeking permission to carry out seismic survey in Brahmaputra riverbed to search for oil and gas. Utpal Bora, Chairman-cum-Managing Director of OIL, told The Sentinel on Tuesday that back in 2005 the company had taken up a project to explore oil and gas under the mighty river, but had to put that plan on hold following protests from several organizations. In 2005, several organizations as well as militant outfit ULFA had opposed and tried to mobilize public resistance against the OIL’s bid to carry out seismic surveys in Brahmaputra riverbed. Bora, speaking to this correspondent on the sidelines of a function of the OIL here this afternoon, said that many of those who once protested against such exploration in the Brahmaputra, are now favoring the same. “OIL has once again decided to embark upon a tough journey to hunt for oil and gas in the middle of the Brahmaputra. We have written to the DGH in this regard seeking permission to carry out seismic survey. We are hopeful of a positive response and begin survey work at the earliest,” he said. Expressing grave concern over fall in production of crude oil in the last few years, Bora said the OIL has initiated all-out efforts to arrest the slide and to raise production. He said crude production by the OIL came down from 3.8 million metric tonnes (MMT) in 2010-11 to 3.2 MMT in the last financial year, which is a major area of concern. “Decline in crude oil production is a challenge for us and we are ready to face it boldly,” he said. OIL wants to increase production to meet the target of 3.48 MMT in the current financial year. Dustin Brown Womens Jersey