Fear of High Gasoline Prices May Deter Biden From Toughening Sanctions on Iran
The Biden Administration is unlikely to attempt to dramatically curtail Iranian oil exports after Iran’s attack on Israel, due to concerns about higher oil and gasoline prices in an election year and an unwillingness to further harm U.S.-China relations as Beijing is Iran’s key remaining oil customer, analysts have told Reuters. The U.S. toughening the sanctions enforcement against Iranian oil exports was expected by analysts after Iran launched drones on Israel this weekend. Most investment banks and analysts do not see a major escalation in the Middle East that would directly hamper oil production and exports. But some expect tougher U.S. sanction enforcement against Iran’s oil exports. On Monday, the U.S. House of Representatives passed the Iran-China Energy Sanctions Act by a vote of 383-11. The bill expands sanctions to cover Chinese financial institutions that buy petroleum products from Iran. The bill proposes to “impose restrictions on correspondent and payable-through accounts in the United States with respect to Chinese financial institutions that conduct transactions involving the purchase of petroleum or petroleum products from Iran.” However, considering that most of Iran’s oil goes to China and that removing further barrels from the market would lead to higher oil prices, the Biden Administration could opt not to ramp up enforcement of the sanctions, analysts say. “I would not expect the administration to tighten enforcement in response to Iran’s missile and drone attacks against Israel over the weekend, mainly for concerns (that) could lead to increases in oil prices,” Kimberly Donovan, a sanctions and anti-money laundering expert at the Atlantic Council, told Reuters. Another anxiety about a clampdown on Iranian oil sales could be concerns about encroaching on China’s oil imports. China has been a major buyer of Iranian crude as it has brushed off all Western sanctions on Iranian, Russian, or Venezuelan oil exports so far. The Chinese teapots, the independent refiners, are estimated to be buying 80% of all Iranian crude oil exports. “I’d expect to see a gesture in the direction of (imposing) economic consequences on Iran, but I don’t expect the White House — or any future White House — to be able to completely turn off the spigot of Iranian oil,” Jon Alterman, a Middle East analyst at the Center for Strategic and International Studies, told Reuters.
India indicates readiness to release more oil reserves
India will take “appropriate” steps to calm the rise in oil prices, triggered by Russia’s invasion of Ukraine, the junior oil minister said on Monday, indicating the country could release more oil from national stocks if required. India, the world’s third biggest oil consumer and importer, imports about 85% of its oil needs. “Government of India is ready to take all appropriate action, as deemed fit, for mitigating market volatility and calming the rise in crude oil prices,” Rameswar Teli said in a written reply to lawmakers. Last month India said it was prepared to release additional crude from its national stocks in support of efforts by other major oil importers to mitigate surging global prices. Teli said in November the federal government had joined other major consumers to release 5 million barrels of oil from its strategic petroleum reserves to contain inflationary pressures. On Monday, Teli said India is “closely monitoring global energy markets as well as potential energy supply disruptions as a fallout of the evolving geopolitical situation”. India buys only a fraction of its oil from Russia but has been hit hard by a spike in global oil prices due to Western sanctions against Moscow, the world’s second largest crude exporter.
Oil on boil as Iran launches attack on Israel; What would be the impact on petrol prices?
Crude oil prices are again seen to be moving towards $100 per barrel as Iran launched attacks against Israel on April 13, putting strain on import-dependent India. India—a net importer of crude oil—is highly sensitive to international oil prices as it receives over 85 percent of its requirements from other nations. This directly links the retail prices of petrol and diesel sold in the country to prices in the international market. Brent crude futures on April 12 settled at $90.45 per barrel, around 1 percent higher on account of tensions building up between Iran and Israel. India’s oil secretary Pankaj Sharma on April 2 had pointed out that rising crude oil prices are a cause of concern. The remarks by the oil ministry official had come after Indian oil marketing companies (OMCs) had slashed prices of petrol and diesel by Rs 2 per litre on March 14 after crude oil prices were trading around $80 per barrel for quite some time.
Govt set to take measures through Gas-based Power Plants
To meet the high electricity demand in the country during the summer season, the Government of India has decided to operationalize gas-based power plants. To ensure maximum power generation from Gas-Based Generating Stations. The government has issued directions to all Gas-Based Generating Stations under Section 11 of the Electricity Act, 2003 (under which the appropriate government may specify that a generating company shall, in extraordinary circumstances operate and maintain any generating station in accordance with the directions of that Government). As per the arrangement, Grid-India will inform the Gas-based Generating Stations in advance, of the number of days for which Gas-based power is required. Gas-Based Generating Stations holding Power Purchase Agreements (PPAs) with Distribution Licensees shall first offer their power to PPA holders. If the power offered is not utilised by any PPA holder, then it shall be offered in the power market. Gas-Based Generating Stations not tied to PPAs must offer their generation in the power market. A high-level committee headed by Chairperson of, CEA[ Central Electricity Authority] has been constituted to facilitate the implementation of this direction.
Brent crude may hit $100/barrel this year if OPEC+ continues output cut
The crude price in the international market could hit $100 a barrel this year if OPEC+ (the Organization of Petroleum Exporting Countries) continues with its production cut, said Russell Hardy, chief executive of the world’s largest energy trader, Vitol. Russell, speaking at the FT Commodities Global Summit in Switzerland’s Lausanne, also mentioned that Vitol is expecting global growth of 1.9 million barrels a day this year, similar to 2023, with China, India, and jet fuel from increased air travel continuing to underpin growth. “It’s really a supply-constrained market, but we’ve averaged about $83/b so far this year, so $80 to $100/b feels like a sensible range for the market given OPEC’s control of inventories around the world,” said Hardy. Due to various geopolitical issues, the Brent crude price is touching a new high, and today it is trading at $89.93 a barrel at 19.05 PM IST. It went above $91 per barrel on April 8, 2024, for the first time since October 2023, an increase of almost 20% since the start of the year. The ongoing tensions between Israel and Iran over the OPEC producer’s support for Hamas and recent attacks by Ukraine on Russian oil property can further increase the crude price in the international market. The voluntary production cut of 5 million barrels per day of crude announced by OPEC+ will further aggravate the situation. “Predictions that oil prices will hit $100/b this year have been growing of late, fueled by escalating tensions between Israel and Iran over the OPEC producer’s support for Hamas in Gaza and stronger-than-expected demand data,” said at S&P Global in a report. The situation is further aggravated by OPEC+’s voluntary production cut of 5 million barrels per day, announced in October 2022. Analysts at S&P Global believe the recent extension of these cuts, particularly by the “OPEC+ Six” (Iraq, the United Arab Emirates, Kuwait, Algeria, Kazakhstan, and Oman), combined with potential damage from Ukrainian attacks, increases the risk of even higher oil prices.
Europe becomes top spot for India’s exports of petroleum products
Europe became the top destination for India’s export of petroleum products such as petrol and diesel, supplying $18.4 billion worth of these products this fiscal, from April to January 2024. According to the commerce ministry data, India exported refined petroleum product the most, $10.9 billion, to the Netherlands, followed by $5.7 billion to Singapore, $5.4 billion to the UAE, $5 billion to the USA, $3.5 billion to Australia, and $3.2 billion to South Africa for the same period. Overall, India exported petroleum products worth $70.13 billion. In terms of crude oil imports, India received the largest quantity from Russia, followed by Iraq, Saudi Arabia, the UAE, and the USA from April to January 2024. The country imported crude worth $38.9 billion from Russia, with Iraq as the second-largest supplier at $23.4 billion. From Saudi Arabia, India imported crude worth $17.7 billion, and from the USA, it imported $4.7 billion worth of crude. Despite decreasing discounts on oil and sanctions from G7 nations due to its actions in Ukraine, Russia remained dominant supplier of oil to India in 2023-24. Initially, Russian crude was sold at a discount of $30/barrel to the international benchmark Brent, but now the discount has narrowed to $2-3 per barrel. As per the commerce ministry data, India’s imports from Venezuela also began. India imported $0.179 billion worth of crude from the South American country in January. India’s imports from Venezuela also began. India imported $0.179 billion worth of crude from the South American country in January. India, which resumed importing Venezuelan crude oil in December 2023 after a hiatus of more than three years, emerged as the largest buyer in January 2024 for the South American nation that has the world’s largest proven oil reserves. India exports petroleum products of $70 billion Overall, India exported petroleum products of $70 bn. In terms of crude oil imports, India received largest quantity from Russia, followed by Iraq, Saudi Arabia, the UAE, and the USA from Apr 2023 to Jan 2024.
Natural Gas should be subject to GST, says GAIL Chairman
The government would need to undertake major policy changes if the country is to meet its objective of more than doubling natural gas’s share in the energy mix to 15% by 2030, according to GAIL chairman Sandeep Kumar Gupta. Sanjeev Choudhary, the former finance chief of Indian Oil Corporation who will take over as CEO of India’s largest gas marketer and transporter in 2022, said in an interview that the government should mandate the use of natural gas in refineries and steel production, as well as make emissions a factor in the merit order for electricity dispatch, to help gas-based power compete with coal-based supply. He also stated that natural gas should be subject to the GST regime, the production-linked incentive (PLI) should be extended to LNG-powered vehicles, and the GST on CNG-powered vehicles should be reduced from 28% to 5%, on par with electric vehicles (EVs). The global gas market is well supplied, and there are no concerns regarding LNG prices. The arbitrary production limits imposed by OPEC+ have an impact on LNG prices, which are related to crude oil. The situation can be corrected if the production group reconsiders its judgment and takes proper action. Global LNG export capacity is expected to grow dramatically over the next few years, putting pressure on pricing. Is domestic gas demand rising? There is no significant increase, particularly in the power or fertiliser sectors. However, there has been an increase in city gas prices. Domestic demand would not increase significantly unless refineries, steel, and power plants made significant shifts to gas. What can be done to increase gas consumption? Some policy changes would be required if we are to attain our target of 15% gas in the domestic energy mix by 2030. Gas must be subject to GST, which will solve the issue of stranded input credit claims. The lack of input credit makes gas more expensive than competing liquid fuels. The gas should attract no more than 5% GST. The 14% central excise duty on compression should be removed because it is not a manufacturing activity. If we get tax relief, we can lower CNG pricing or offer incentives to drivers who switch to CNG. Approximately 80% of our gas-based power facilities are inactive because they cannot make it to the merit order. When a government has established a goal to increase the amount of gas in its energy mix and there is a climate challenge, the merit order should consider not just the cost of production but also the emissions. When emissions are taken into account, gas-based power will begin to displace other sources. To protect the environment, the government will need to compel the use of natural gas in refineries, steel plants, and other businesses. It should be mandatory for industries to adopt lower-emitting natural gas for a portion of their fuel needs. Refiners have a great capability to use natural gas, but their fuel decisions are now dictated solely by economic considerations. Are you concerned that EVs will grab part of your markets? The Centre is strongly supportive of electric vehicles. States are likewise at full throttle. This will reduce the need for CNG in such locations. LNG and CNG vehicles should be eligible for incentives similar to those provided to EVs. PLI for LNG cars should be provided. GST on CNG vehicles is currently 28%, but GST on EVs is only 5%. India’s energy grid is essentially grey today, hence gas should be supported as a transition fuel. What are your wider goals for GAIL? Our objective is to transform GAIL into a fully integrated gas value chain corporation with worldwide significance. We are seeking additional approval for pipes to complete the national gas grid. We also intend to add large gas or ethane-based petrochemical operations. Petrochemicals have enormous potential in India because we import a lot of them. However, the margins are not there. As a result, we would want tariff protection and budgetary incentives from the governments to invest in new facilities.
Gas Glut? Not for Long.
Natural gas prices are falling all over the world. There is abundant supply, and demand has been lukewarm this northern hemisphere winter, which was relatively mild. Indeed, the global gas market is in oversupply. This prompted Morgan Stanley to recently forecast a gas glut that we have not seen in decades. It was going to materialize as a result of strong growth in LNG production capacity, the bank’s commodity analysts said. They cited numbers showing that there was 400 million tons in such capacity to date, but another 150 million tons were under construction—“a record wave of expansion”. It appears the forecast was based on an assumption of not very strong demand growth—but it may be the wrong assumption. Because natural gas demand is set to grow, and grow quite robustly. At the same time, some producers, notably in the United States are already starting to withhold production, because of the low price of the commodity. Asia imported record volumes of liquefied natural gas last month, data from Kpler showed recently. The biggest buyers were China, India, and Thailand, with India’s LNG purchases up by 30% from a year earlier and China’s 22% higher than in March 2023. That record would not have been possible had prices not fallen—and prices had fallen because Europe was buying less LNG. The reason Europe was buying less LNG were its full gas storage sites. Winter was once again mild in Europe and it never got to exhaust the gas it had purchased in anticipation of the heating season. In fact, Europe saw record gas in storage as of the end of this heating season, and that contributed to the weakness of natural gas prices—along with the depressed industrial activity on the continent. The fact that demand for LNG immediately rebounded as prices fell suggests that the longer they stay low, the stronger demand will get, especially among countries that have been trying to reduce their consumption of coal in favor of gas. There are a lot of these, under pressure from transition-focused governments that, though no fans of any hydrocarbons, acknowledge that natural gas has a lower emissions footprint than coal. Two years ago, Europe priced these countries out of the market. Now, with prices so low, they may well consider returning to it, driving higher demand. Supply, on the other hand, may not grow as much as Morgan Stanley expects. The bank’s analysts point to U.S. gas exporters that are planning a lot of new LNG capacity. But whether all of this capacity would end up getting built is another question. Tellurian’s Driftwood LNG project is one example. The facility has been in the works for years, but it has kept failing to secure the necessary long-term buyer commitments to proceed. The future of Venture Global’s second LNG plant is also uncertain—as is the future of all new LNG plants as the federal government paused new capacity approvals. Demand, meanwhile, may be set for even stronger growth, thanks to artificial intelligence. Data centers, which already consume substantial amounts of electricity, are about to become an even bigger drain on the grid as AI gets incorporated in more services. This will automatically mean stronger demand for natural gas for generation—because wind and solar will not be able to handle the surge. “Gas is the only cost-efficient energy generation capable of providing the type of 24/7 reliable power required by the big technology companies to power the AI boom,” the founder of Energy Capital Partners, an investor in both alternative and hydrocarbon sources of energy, told the Financial Times recently. Doug Kimmelman added that gas will be critical for the power supply of data centers in the AI era. Demand for electricity from data centers, according to the International Energy Agency, is set to swell twofold from 2022 by 2026, potentially topping 1,000 TWh. This is a lot of electricity consumption and for all the pledges that Big Tech has made for using low-carbon energy to power its data centers, most of its actual energy comes from hydrocarbons, simply because there is no low-carbon energy that is available around the clock without interruption—and carbon credits can and are bought separately from the electricity they are tied to. All this means that the outlook for natural gas demand in the coming years is quite bullish. Low prices invariably stimulate stronger demand and in this case the ambition for lower emissions helps gas demand specifically grow even more strongly. Then there is the question of supply. It may look abundant now, but in a few months, U.S. drillers’ move to curb supply by drilling but not completing new wells will begin to be felt. Besides, no one can say how the next winter in the northern hemisphere will turn out. It may be mild, but it may be harsh. It is a little bit ironic that if the milder winters of the last two years were driven by climate change, Europe has climate change to thank for its lower use of hydrocarbons.
Work On Brahmapuram CBG Plant To Begin Soon
The work on compressed biogas (CBG) plant proposed at Brahmapuram will soon be started. The private firm which was awarded the work has started bringing the machineries to the site. Kochi corporation officials said that preliminary works like preparation of ground is expected to start by next week. As per schedule, the work will be completed within a year. The civic body will facilitate various requirements like power and water for the CBG plant. Around 100 million litre per day (MLD) of water will have to be provided to the BPCL Kochi Refinery for the trial run of the plant. Corporation has suggested the BPCL Kochi Refinery to draw water from Kadambrayar which flows by the solid waste treatment plant premises at Brahmapuram. At the same time, shortage of water in Kadambrayar is an issue. The BPCL Kochi Refinery had approached the city corporation authorities for setting up a CBG plant at Brahmapuram a couple of years ago. At that time, the local body authorities turned down the offer citing that a waste to energy plant was to come up at Brahmapuram. In the aftermath of the fire outbreak at the solid waste treatment plant premises on March 2, 2023, corporation and state govt were forced to cancel the proposal for waste to energy plant. It was then that the BPCL Kochi Refinery again approached the govt with the CBG plant project. The city corporation has to hand over ten acres of land at the solid waste treatment plant premises to the BPCL Kochi Refinery for setting up the CBG plant. The plant will have a capacity to treat 150 tonne of biodegradable waste every day.
OPEC+ Faces Fork in the Road
OPEC+ once again extended its oil production cuts this month. The decision was anything but unexpected and, unlike previous production policy announcements, it had the desired effect on prices. However, it could only work for so long. Soon, OPEC will need to make a decision. Last year, oil traders were almost exclusively focused on demand and threats thereof, especially in China. This year, they are beginning to understand that withholding 2.2 million barrels of oil daily while global demand actually rises will, at some point, start eating into supply. Oil prices are on the rise. True, some OPEC+ members have been producing more than their assigned quota, and they have been asked to take steps to compensate, which normally means temporary deeper cuts. But it seems that overproduction—and the rising output of quota-exempt Iran, Venezuela, and Libya—has not interfered with the purpose of the cuts. Only they cannot continue forever. Some analysts have noted in the past few months that OPEC+ will have to start unwinding the cuts at some point, especially if Brent crude tops $100 per barrel. The argument made by these analysts is that at that point, prices will start destroying demand as they usually do. Yet OPEC+ may decide to stick with the cuts until oil is well above $100, according to the CEO of Dubai-based consultancy Qamar Energy, Robin Mills. In a recent opinion piece for The National, Mills suggested sticking with the cuts is one of the two roads ahead of OPEC, with all foreseeable consequences, such as higher inflation and higher U.S. production. The other road Mills describes as OPEC believing its own strong demand forecasts and unwinding the cuts. This is definitely one way of framing the road ahead. In the same vein, however, one could argue that sticking to the cuts is also a sign of belief in OPEC’s strong demand expectations: if demand is so resilient and prone to expand, it will expand even in a higher-price environment. This is precisely what happened in 2022 when the start of the Russia/Ukraine conflict pushed oil above $100 per barrel and held it there long enough for the annual average to come in at close to $95 per barrel. Demand during that year of high oil prices rose by over 2.5 million barrels daily. And that was before China came roaring back from the pandemic lockdowns, which only ended in late 2022. So, while it would make sense to expect OPEC+ to start thinking about putting an end to its production cuts, it might make more sense to keep them in place—not least because an unwinding of the cuts would have about the same effect on prices as the news that U.S. shale output grew by over 1 million bpd last year. OPEC expects oil demand this year to grow by 2.2 million bpd. With the cuts in place, this rate of demand growth is certain to push the global market into a deficit. Estimates of the size of this deficit vary, with the IEA seeing a “slight” deficit as a result of the OPEC+ cuts and stronger demand prompted by the Red Sea situation. Qamar Energy’s Mills, however, sees a deficit of as much as 4 million barrels daily developing later in the year. Should this happen, there would be nothing easier for OPEC than announcing an end to the cuts, or at least a tweak, to avoid a price slump. And a deficit environment would be the best time to make these tweaks—with prices high and demand resilient, the effect of such an announcement on prices would be mitigated by the fundamentals. Because the cuts can’t go on forever, not when some OPEC members are already grumbling against the quotas.