Fears of U.S. Economic Hard Landing Erase Gains from Libya Oil Shutdown
Oil markets have failed to build any kind of sustained momentum over the past couple of weeks, with persistent fears of a hard landing for the U.S. economy outweighing supply disruptions. Crude oil futures surged more than 3% on Monday after Libya’s rival eastern government said it is shutting down oil production and exports, adding to gains made the previous week when Fed chair Jerome Powell indicated a start to interest rate cuts in September. Unfortunately, oil prices have pulled back, with Brent crude for October delivery trading at $79.23/barrel in Wednesday’s session down from its weekly peak at $81.47 on Monday while WTI was quoted at $75.15/barrel after hitting $77.54 on Monday. Further, Brent spreads have widened significantly; October-November backwardation has increased by $0.51/bbl w/w to $1.07/bbl at settlement on 26 August, November-December backwardation has increased by $0.43/bbl to $0.85/bbl who;e December 2024-December 2025 backwardation has increased by $1.08/bbl to USD 4.13/bbl. Oil Crisis in Libya Oil prices surged on Monday after Libya’s eastern government called a force majeure on all oil production and exports, which could remove up to 1 million bpd of crude from the markets. Oil was already trading higher after Israel sent more than 100 warplanes to take out thousands of Hezbollah missile launchers on Sunday. However, the Libya development is much more significant to oil markets because it represents “real barrels lost, effectively tightening the physical market for as long as the Libya crisis lasts, UBS analyst Giovanni Staunovo has told Bloomberg. In 2022, a deal between Tripoli-based Prime Minister al-Dbeibah and the Benghazi-based warlord Khalifa Haftar reunified the central bank and put it (loosely) under Tripoli’s control, while a Haftar loyalist took control of the state oil company. The eastern and western factions have been competing over access to state revenues, with eastern factions recently shutting down oil flows in response to the Tripoli-based Presidency Council’s bid to oust CBL governor Sadiq al-Kabir. Periodic instability in Libya’s oil output has been a recurring feature since 2011’s First Libyan Civil War, with commodity analysts at Standard Chartered estimating that it has led to a loss of just over 4 billion barrels of output and cost the North African country $320 billion in lost revenue. The past month has seen some sharp oil price swings but no sustained momentum, raising questions over the quality of price discovery involved in the cycles. According to StanChart, both price cycles over the past month have been primarily due to spillovers from interest rates markets and a seasonal dominance of algorithmic trading. However, other than the Libya oil shutdown, there have not been major changes to market fundamentals to justify the large oil price fluctuations. According to the experts, negative positioning on oil relative to neutral positioning on copper reflects heightened fears of a hard landing in the U.S economy, as well as a bearish outlook for 2025. The bearishness is hard to justify considering that the cumulative fall in U.S. crude oil inventories over the past eight weeks clocked in at 34.7 million barrels, an average of 620 thousand barrels per day (kb/d). Mixed Bag for Natural Gas Prices Natural gas markets have been mixed, with European gas markets bullish while U.S. markets have continued to lag. European natural gas futures have managed to hold steady close to €40 per megawatt-hour due to supply concerns related to Norway’s annual maintenance and the Ukraine-Russia conflict. Maintenance activity lowered Norwegian gas nominations by 10 million cubic meters per day, affecting major pipelines such as Franpipe, Emden, and Dornum. Nevertheless, Russian gas continues to flow to Europe, and regional storage is at around 92% capacity, exceeding the EU’s November target by over two months. In contrast, U.S natural gas prices have weakened again, with front-month Henry Hub (September) falling below $2 per million British thermal units (mmBtu) for the first time in three to trade at $1.93/MMBtu in Wednesday’s session. However, the Henry Hub forward curve is in a steep contango, with the December 2024 to February 2025 contracts all settling above $3.00/MMBtu, with inventories remaining relatively flush. U.S. gas prices were further depressed over the past week by weather forecasts that imply a decline in cooling demand in key consuming regions over the next two weeks, coupled with a lack of significant hurricane activity near the offshore Texas gas fields.
Oil and gas PSUs carry out a third of annual capex in April-July
Public-sector oil and gas companies have spent over Rs 380.419 BILLION as capex in the first four months of the current financial year 2024-25, nearly 32.4% of the annual capex target of Rs 1200 billion, provisional data from the Petroleum Planning and Analysis Cell showed. The capital expenditure during the period was driven by Oil and Natural Gas Corp, Indian Oil Corp, and Hindustan Petroleum Corp. While ONGC incurred a capex of Rs 117.10 billion constituting 38% of its annual capex target of Rs 308 billion, Indian Oil spent Rs 114.83 billion of its annual target of Rs 309.09 billion during Apr-July. The robust capex pace maintained by these firms is at a time overall capital expenditure by the central public sector enterprises fell by 16% on year in April-July due to the disruptions caused by general elections. The decline in the CPSEs capex in the first four months of the fiscal was more prominent for the top two investors –Railways Board and the National Highways Authority of India (NHAI), where state-run companies have improved upon last year’s performance. ONGC, in its earnings call earlier, has guided to a capex of Rs 320-330 billion each for FY25 and FY26. The company is expected to invest a major portion of its capex towards increasing its oil and gas production particularly from KG 98/2 basin. The field currently produces 12,000 barrels per day of oil (from 4 wells) and ~0.4 mmscmd of gas. The company expects to start additional wells in the second and third quarter of the fiscal, which should help it reach oil production of 30,000 bbl/d in Q4 and 45,000 bbl/d in subsequent quarters, it had said. Analysts believe that the major expansion projects announced by the oil marketing companies in the next two years, and robust volume growth for the city gas distribution companies are expected to lead to substantial growth for the Indian energy sector companies. HPCL and Bharat Petroleum Corpspent Rs 35.21 billion and Rs 30.88 billion respectively in April to July. The country’s state-owned downstream companies intend to boost their refining capacity and strengthen their marketing infrastructure going ahead.
GAIL (India) Ltd. Eyes Expansion with New Ethane Cracker, LNG Deals, and Net Zero Target
GAIL (India) Ltd. hosted its 40th Annual General Meeting (AGM) for the fiscal year 2023-24, where Chairman Sandeep Kumar Gupta revealed plans to explore the feasibility of setting up a world-scale greenfield ethane cracker. This move reflects GAIL’s confidence in the growth of its petrochemical sector and its ambition to solidify its position as a key player in India’s petrochemical industry with a diverse range of products. Gupta highlighted ongoing projects including the 500 KTA PDHPP Project at Usar, a 60 KTA Poly-propylene plant at Pata, a 1,250 KTA PTA plant at GMPL, Mangaluru, and a 50 KTA Isopropyl Alcohol Project at Usar. These projects are set to diversify and expand GAIL’s petrochemical portfolio. Further, GAIL continues to maintain its leadership in the natural gas sector, operating a network of 16,271 km of natural gas pipelines and actively working on approximately 3,400 km of new pipelines to complete the National Gas Grid (NGG). On the supply front, Gupta announced the signing of two 10-year LNG supply agreements starting in 2026, with 1 MMTPA from Vitol Asia Pte Ltd, Singapore, and 0.5 MMTPA from ADNOC Gas, UAE. Additionally, GAIL’s volume of 4.5 MMTPA has been renewed under a new LNG SPA with Qatar Energy LNG, set to begin in 2028. The company also chartered a long-term LNG vessel, GAIL Urja, under a 14-year Time Charter Party agreement starting in early 2025, with a fleet of five LNG carriers to ensure secure LNG transport. Gupta stated that GAIL’s joint venture company, Mahanagar Gas Limited, has expanded by acquiring new geographical areas in Maharashtra and Karnataka, positioning GAIL as the largest City Gas Distribution operator in India. As of this year, GAIL and its group companies have added over 1.1 million PNG connections and 422 CNG stations, totaling approximately 8.34 million PNG customers and 2,770 CNG stations nationwide. Gupta also emphasized GAIL’s advancement in achieving its Net Zero target, which has been moved forward by five years to 2035. The company’s commitment includes reducing Scope 1 & Scope 2 emissions by 100%. To further their environmental goals, GAIL installed India’s first MW scale Green Hydrogen electrolyzer in Vijaipur, Madhya Pradesh, with a 10 MW capacity capable of producing 4.3 TPD of Hydrogen using renewable energy.
Global LNG markets heading towards supply glut
After two volatile years in terms of natural gas supplies and pricing in CY2022 and CY2023, the global liquified natural gas (LNG) markets are now moving towards significant supply glut with large capacity additions planned from CY2024 to CY2028, stated a report by ICRA. It further added that about 193 MMT of the LNG production and liquefaction capacity is expected to be added globally over the next four years. Significant capacity addition amid expectation of modest demand growth in the global natural gas consumption will keep the LNG prices under check and this will ultimately benefit India. Girishkumar Kadam, Senior Vice President and Group Head, Corporate Ratings, ICRA Ltd, said, “Global natural gas consumption is expected to witness modest growth, given the focus of the major natural gas consumers in regions of European Union, Japan & Korea towards other sources of energy. Amidst these demand headwinds, the LNG capacity addition over the next four years, which is equivalent to ~41 per cent of the current global LNG production capacity, is expected to result in a downward pressure on the global LNG prices. India thus stands to benefit in terms of availability of LNG at reasonable prices over the medium term, notwithstanding the near-term volatility amid geo-political tensions in West Asia.” After witnessing headwinds in FY2023 owing to the elevated LNG prices, India’s gas consumption recovered sharply to 187.9 mmscmd in FY2024 (~17 per cent increase YoY) with easing of LNG prices. Further, the report added that consumption in India is expected to grow by 6-8 per cent YoY in FY2025 on softer LNG prices and an uptick in the domestic gas production. This growth, per ICRA report, is supported by the City Gas distribution (CGD) sector, followed by the refineries’ offtake. The demand from the CGD sector is underpinned by the CNG segment, which remains robust owing to the strong economic advantage over alternate fuels, following the strong uptick in CNG vehicle sales in the last couple of years. “The increasing adoption of electric vehicles in the passenger vehicle and bus segments will remain key threats for the CNG offtake. Additionally, ability of the CGD entities to ensure availability of CNG at competitive prices going forward will remain a key challenge, given the falling share of the APM gas in the overall gas mix. The fertiliser segment will remain the largest off-taker of natural gas, albeit the demand from here on is not expected to grow, given there are no further capacity expansions in the urea segment,” ICRA stated in the report.
GSPC seeks LNG cargo for Oct-Nov delivery, sources say
India’s Gujarat State Petroleum Corp (GSPC) is seeking a liquefied natural gas (LNG) cargo for delivery between Oct. 23 and Nov. 5 to the Dahej terminal, two industry sources said on Tuesday. The tender closes on Aug. 27.
India’s crude oil production falls 2.9% in July 2024; petroleum product output sees 7.1% growth
India’s crude oil and condensate production declined by 2.9% in July 2024, registering a total output of 2.4 million metric tonnes (MMT), according to data released by the Petroleum Planning and Analysis Cell (PPAC). The decline is in comparison to July 2023, where production figures were higher. State-owned Oil and Natural Gas Corporation(ONGC) led the production figures with 1.6 MMT, followed by Oil India Limited (OIL) at 0.3 MMT, and Production Sharing Contracts/Revenue Sharing Contracts (PSC/RSC) contributing 0.5 MMT. In contrast, the total crude oil processed in the country saw a 3.2% rise in July 2024, reaching 22.6 MMT compared to the same period last year. Public sector undertakings (PSUs) and joint venture (JV) refiners processed 15.3 MMT, while private refiners accounted for 7.3 MMT. Of the total processed crude, 2.1 MMT was indigenous, with the remaining 20.5 MMT being imported. The production of petroleum products saw a significant increase, rising by 7.1% to 24.4 MMT in July 2024 compared to July 2023. Refinery production accounted for 24.1 MMT, while fractionators contributed 0.3 MMT. High-speed diesel (HSD) constituted 42.4% of the total production, followed by motor spirit (15.7%), naphtha (7.3%), aviation turbine fuel (6.1%), and petcoke (5.3%).
Exxon says oil and gas will still be the dominant sources of energy by 2050
Contrary to forecasts for oil demand to peak in the coming years, Exxon Mobil says oil and gas will remain the dominant sources of energy until the middle of this century. The oil major said in an outlook published this month that global oil demand will remain above 100 million barrels a day through 2050, even as the share of renewable powers grows. Broken down by source, it sees oil and gas accounting for 54% of the global energy mix by 2050, coal at 13%, nuclear energy at 6%, bioenergy at 10%, and renewables like wind, solar, and hydroelectric at 15%. That forecast stands in contrast to predictions from the International Energy Agency, which predicts that oil and gas demand will peak and plateau at 105.6 million barrels per day by 2029. Exxon, the leading oil and gas company in the US, pointed to a rise in the global population to 10 billion in 2050, up from 8 billion today. With half of the world’s population currently living below Exxon’s “modern energy minimum”—having enough energy for housing, infrastructure, jobs, and mobility—the company projects a 15% increase in global energy use is necessary for reliable energy worldwide by 2050. That rise in energy use will be predominantly driven by a 25% increase among developing countries, whose current energy problems put inhabitants at risk from harmful cooking fuels, limited electricity, and poverty, the report says. Developed countries, on the other hand, will decrease energy use by 10% due to improved efficiency. The report says that even greater adoption of electric vehicles won’t make a dent in oil and gas usage. “What many don’t realize is that making gasoline is but one relatively small use for oil,” Exxon said in its report, adding that the majority of the world’s oil is used for industrial processes like manufacturing, and for transportation like shipping, trucking, and air travel.
Independent natural gas transport system operator likely soon
The oil ministry may soon float a cabinet note on setting up an independent transport system operator (TSO) to manage the common carrier capacity of natural gas pipelines to give all gas marketers a level playing field in the country, according to people with knowledge of the matter. The common carrier capacity of a gas pipeline, which averages about a quarter of the full capacity, is managed by the company that laid the pipeline and now operates it. In most cases, these pipeline operators such as GAIL and GSPC also have gas marketing businesses. In this dual role, the operator also becomes a competitor for its pipeline customer in the gas marketing business. To remove this perceived conflict of interest, and allow fair, transparent and non-discriminatory access to the gas grid to all gas marketers, the government is planning to set up the TSO, the people cited above said. The common carrier capacity of a gas pipeline, which averages about a quarter of the full capacity, is managed by the company that laid the pipeline and now operates it. In most cases, these pipeline operators such as GAIL and GSPC also have gas marketing businesses. In this dual role, the operator also becomes a competitor for its pipeline customer in the gas marketing business. To remove this perceived conflict of interest, and allow fair, transparent and non-discriminatory access to the gas grid to all gas marketers, the government is planning to set up the TSO, the people cited above said.
Gas demand uptick driven by power sector bumps up India’s LNG imports in April-July
Growth in domestic demand for natural gas amid reasonable prices and ample availability of liquefied natural gas (LNG), or super-chilled gas, in the international market led to a double-digit growth in India’s LNG imports in the first four months of the current financial year (FY25). Notably, the uptick in imports came amid a growth in domestic gas production as well. The consumption growth was primarily driven by the power sector, given that the government’s thrust on raising power production to meet high summer demand led to higher-than-usual electricity generation by gas-based units. The country’s LNG imports rose 13.1 per cent year-on-year in April-July to 11,423 million standard cubic metres (mscm), while natural gas consumption was higher by 8.6 per cent at 23,364 mscm, per latest provisional data available with the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry. Net domestic natural gas production for the four-month period was 11,941 mscm, up 4.6 per cent year-on-year. For the April-June quarter (Q1)—the peak summer quarter in most parts of India—power generation by gas-based plants jumped 62.5 per cent year-on-year to 13.49 billion units (1 unit is 1 kilowatt hour), per data from the Central Electricity Authority (CEA). The overall plant load factor (PLF)—capacity utilisation of power generation units—for gas-based plants in Q1 was almost 25 per cent, up from 15.3 per cent in the year-ago quarter. PLF for gas-based power plants in June this year was 25.8 per cent, up from 17 per cent in June 2023. Festive offer For April-July, the PLF for gas-based power plants was 22.2 per cent, against 15 per cent a year ago. Power generation from these units in April-July jumped to 16.17 billion units from 10.54 billion units in the corresponding four months of last year.
Asia’s Top Refiner is Struggling With Weak Fuel Demand in China
The first-half earnings report of the largest refiner in Asia, China Petroleum and Chemical Corporation, confirmed market concerns about a weak fuel demand in China. China Petroleum and Chemical Corporation, commonly known as Sinopec, reported this weekend a first-half net profit that rose 1.7% year-over-year to $5 billion (35.7 billion Chinese yuan). The higher earnings were due to increased domestic crude oil and natural gas production and rising international oil prices. But the refining metrics of the largest refiner in Asia by capacity all deteriorated compared to the first half of last year, reflecting weak Chinese demand—especially for diesel—that has been spooking the markets this year. While domestic demand for natural gas saw apparent consumption rising by 10% year on year, domestic consumption of refined oil products fell by 0.5% due to declining diesel demand, Sinopec said in its first-half earnings report. The corporation was hit harder by the weaker demand than other Chinese state-held energy giants because of its more refining-weighted portfolio of assets. Sinopec’s domestic production for oil and gas equivalents hit a record high, with oil and gas output at 257.66 million barrels of oil equivalent, up by 3.1% year-on-year. Domestic crude oil production totaled 126.49 million barrels, up by 1.5%, and natural gas production reached 700.57 billion cubic feet, up by 6.0%. However, weak earnings and sales at the refining and chemicals divisions partly offset the good upstream results. Sinopec flagged “severe challenges brought by the weak market demand and narrowing margin of certain products” in the first half of the year. The corporation had already warned in July that its refining throughput barely inched up by 0.1% in the first half of 2024 due to higher crude prices and lackluster domestic fuel demand. Gasoline production rose by 6.6% year-on-year and jet fuel output jumped by 15.2%, but diesel production at Sinopec slumped by 8.8%, this weekend’s full first-half report showed. Light chemical feedstock production also fell, by 7.4%, reflecting weaker demand amid the ongoing property crisis and weaker-than-expected Chinese economic growth. Sinopec’s domestic sales of refined oil products fell by 2.5%, with retail oil product sales down by 4.7%. Overall, refineries in China produced 6.1% less fuel in July this year than a year earlier, logging the fourth consecutive monthly decline in output and signaling that the period of weak Chinese demand isn’t over yet. Sinopec said on Sunday that it “actively addressed the challenges of weak diesel demand and rapid growth of electric vehicles,” while expanding battery charging and LNG fueling network “with charging volume and vehicle LNG operating volume both going up significantly.” China’s weak diesel demand is not only the result of the property crisis and lackluster economy. It’s also due to a structural change in transportation as an ongoing shift to LNG-powered trucks limits diesel use for transportation, slowing overall oil demand growth. Jet fuel remains the only bright spot of Chinese oil product demand, logging in double-digit growth this year. But jet fuel consumption alone cannot offset weaker demand for road transportation fuels. A rebound in China’s airline traffic this year has boosted jet fuel demand in the only bright spot in transportation fuel consumption in the world’s top crude oil importer. But as a share of China’s total fuel consumption, jet fuel is much smaller than the shares of gasoline and diesel. Faltering overall oil demand and lower crude imports in China result from weaker economic growth and lackluster fuel demand below expectations. The apparent weaker demand and the slowing imports in China have been the biggest drags on oil prices in recent months, often overshadowing tensions in the Middle East.