Reliance Gains After India Auditor Eases Gas Block Stand

Reliance Industries Ltd. (RIL) rose after India’s federal auditor reversed its view of the oil producer and asked the government to resolve price disputes and allow some exploration cost recoveries.

The shares rose 0.3 percent to 991.60 rupees at the close in Mumbai after surging as much as 2.9 percent. The stock has gained 11 percent this year, lagging behind the benchmark S&P BSE Sensex (SENSEX)’s 36 percent gain, as output from its biggest gas field KG-D6 continues to decline.

The Comptroller & Auditor General of India submitted a report to lawmakers today asking the oil ministry to approve exploration and production budgets on time, which it had failed to do every year from 2008 to 2012. It also said Reliance and its partners should be allowed to recover some of the costs incurred to drill wells in the KG-D6 block, a proposal rejected by the government.

The auditor’s “indication shows Reliance has done things according to its contract,” Dhaval Joshi, a Mumbai-based oil and gas analyst with Emkay Global Financial Services Pvt., said by phone. “A company which has spent so much in that block will have enough evidence to prove it’s right.”

Reliance owns 60 percent of the KG-D6 block, BP Plc 30 percent and Calgary-based Niko Resources Ltd. (NKO) 10 percent.

No Recovery

Reliance has not been allowed to recover $2.38 billion of expenses as of March 31, 2014, Oil Minister Dharmendra Pradhan said in parliament this week. It was penalized because gas output from KG-D6 was less than planned.

In 2011, the auditor had written in a report that the government’s share of profit from the KG-D6 deposit may have been curtailed because Reliance incurred higher operating costs in awarding contracts. It said Reliance placed some orders after getting single bids and revised the scope and specifications of contracts.

“We could not derive assurance as to the reasonableness of costs incurred” on the contracts awarded in the two years ended March 2008, the auditor said in the report submitted in parliament on Sept. 8, 2011.

The payments may have “adverse implications” for the recovery of exploration costs and the government’s share of profit from the field, it said, without quantifying the loss.

Reliance started arbitration against the government’s order in November 2011.

‘National Interest’

Producers in India are allowed to recover investments in their fields from the sale of oil and gas. Reliance and its partners spent $10.44 billion on the block off the nation’s east coast until March 2013 and have recovered $9.29 billion, according to today’s report.

Today’s report also recommended that “keeping in mind the national interest and energy security” Reliance and its partners be allowed to recover some of the $427.03 million they spent to drill 14 other wells in the block. Some of these wells resulted in gas discoveries. Of this amount, $119.99 million shouldn’t be allowed to be recovered, the auditor said.

The federal auditor also wants the oil ministry to resolve disputes on estimates on gas reserves in the block and take steps to raise output. The auditor can only recommend and doesn’t have any power to form policy.

“If the government takes a cue from this and sorts out all contract issues, than it’ll only be good for the companies and the country,” Joshi said.

Falling Output

Gas production from the KG-D6 block has been falling since August 2010 after it started output in April of the previous year and increased it to about 60 million cubic meters a day. Reliance has said output is dropping because the field is more difficult to produce from than it initially estimated. The oil ministry says Reliance has drilled enough wells.

Production from the block fell 57 percent to 40.6 billion cubic feet in the quarter ended Sept. 30 from a year earlier, Reliance said Oct. 13.

India’s Prime Minister Narendra Modi came to power in May, ending 10 years of Congress party rule. He has promised to revive the economy from the slowest pace of growth in almost a decade and create jobs. For this to happen, he needs to ensure fuel supplies, including gas, consumed primarily by power and fertilizer plants and used in homes for cooking.

Source: Bloomberg

India’s crude oil production returns to growth in October 2014

After witnessing a year-on-year fall for seven consecutive months, India’s crude oil production staged a modest recovery in October 2014. According to data released by Ministry of Petroleum & Natural Gas, crude oil production in the country increased by one per cent (y-o-y) in October 2014 to 3.2 million tonnes.

The recovery in oil production was possible due to higher output by Oil & Natural Gas Corporation (ONGC) and private/joint venture companies. ONGC produced 1.9 million tonnes of crude oil during the month. This was 1.6 per cent higher compared to the corresponding month a year ago. Oil production by private/joint venture companies increased by 0.9 per cent to one million tonnes. These companies also managed to exceed their monthly production target by 3.9 per cent.

During April-October 2014, domestic crude oil production fell by 0.9 per cent. The planned production target for this period was 22.7 million tonnes. However, the industry could achieve only 96.2 per cent of this. ONGC and Oil India recorded a fall in oil production during this period. ONGC’s oil production slipped by 0.4 per cent to 13 million tonnes. Closure of oil wells and and other technical issues took a toll on ONGC’s oil production. Crude oil production of Oil India declined by 4.7 per cent to two million tonnes. This can be attributed to bandhs and blockades in Assam. Private/joint venture companies witnessed 0.7 per cent fall in oil production. These companies produced 6.8 million tonnes of crude oil during April-October 2014 as compared to 6.9 million tonnes a year ago.

Natural gas production in India declined by 4.2 per cent in October 2014 to 2.8 billion cubic metres (bcm). Both, public and private sector companies recorded a year-on-year fall in natural gas production in October 2014.

During the first seven months of financial year 2014-15, natural gas production came down to 19.6 bcm from 20.8 bcm in the corresponding period year ago. This translates into 5.6 per cent fall. During this period, gas production by Oil India increased by 2.9 per cent. However, poor performance by ONGC and private/joint venture companies took a toll on overall gas production.

ONGC witnessed a 5.1 per cent fall in gas production during April-October 2014. This was mainly due to lower production from offshore blocks which contribute more than 75 per cent to ONGC’s total gas output. Gas production from these blocks fell by four per cent. Besides, production from onshore blocks also declined by 9.1 per cent. Less offtake by consumers and closure of wells due to burst of GAIL pipeline resulted in this fall. Private/joint venture companies recorded a 9.1 per cent decline in gas production. This can be attributed to lower production from offshore blocks. Private/joint venture companies produced 4.5 bcm of gas from offshore blocks during April-October 2014, which was 13.1 per cent lower compared to a year ago.

Source: Economic Outlook

OPEC needs to 'wake up' to shale revolution

The Organization of Petroleum-Exporting Countries (OPEC) is facing a "shale-tinged" reality and needs a "wake-up call," energy analysts have warned.

Analysts in Citi's commodities research team warn that the shale gas and oil revolution in the U.S. has been ignored for too long by OPEC, the powerful group of 12 global oil producers, and it must agree to cut production when it meets on Thursday or else oil prices "will resume their slide."

"The reality of the shale revolution in the U.S., long scoffed at from within OPEC as high-cost folly, is now hitting the producer group where it hurts, while oil demand growth has underperformed significantly," a group of Citi energy analysts said in a report published late on Monday.

"After years of inaction, the shale revolution [has issued] the producer group with a wake-up call, against a weak demand backdrop," Citi analysts Seth Kleinman, Eric Lee, Christopher Main, Edward Morse and Anthony Yuen, said in their "Energy Weekly" report.

The analysts' comments come ahead of OPEC's meeting in Vienna on Thursday (November 27), a meeting at which the group could decide whether to reduce oil production in the face of a steep decline in the oil price since the summer.

The price of Brent crude for January delivery has fallen around 30 percent from a high of $115 per barrel (pb) in June to currently trade around $80pb amid a global over-supply. On Tuesday, Brent crude futures were trading at $79.43.

Iran, Venezuela and Ecuador have put pressure on fellow OPEC members to reduce oil output to stem falling prices but, so far, OPEC's biggest producer and exporter Saudi Arabia has shown no signs of being ready to cut.

On the contrary, Saudi Arabia has signaled that it is comfortable with lower prices, seen by many as a sign the country was ready to fight the U.S. -- and its shale oil producers -- for market share.

Saudi intentions?

The U.S. energy market has received a massive boost as a result of its domestic shale oil and gas industry, bringing with it a supply not only of cheaper gas but oil onto the market.This has led to greater competition for the likes of traditional producers like Saudi Arabia. Indeed, the entrance of the U.S. into the global oil market added a new twist to OPEC's decision making, one investment strategist told CNBC on Tuesday.

"If you think about this from [a historic point of view] it used to be Saudis keeping OPEC in line and then being under-cut by non-OPEC [producers] which as Russia and the other guys got bigger and bigger became more important, "Sean Corrigan, Chief Investment Strategist at Diapason Commodities Management told CNBC Europe's "Squawk Box" on Tuesday.

"But now we've got the Americans as the other third big producer we have this three-way tie. We now have all these underlying geo-political currents of who's trying to do what to whom."

"If we don't get cuts obviously the danger is that the oil market lurches down very quickly…but they're [Saudi Arabia] not going to be the ones to switch everything off and let everyone else cheat the quotas," he added. Citi's analysts expected there to be "some sort of a cut" decided upon at Thursday's meeting, "or at least a renewed commitment to observe the overall group's 30 million barrels a day (b/d) production ceiling in place since late-2011."

But they said Citi "remains very sceptical" that the members will be able to overcome disagreements and forge a convincing cut on the order of magnitude required to remove the oversupply currently hanging over the market. They also expected increase in that overhang in 2015. "Absent a convincing cut, Citi expects oil prices to resume their slide," they warned.

In the face of competition from the U.S., the global oil market needs clarification on Saudi Arabia's position and intentions, according to oil analysts at UBS, William A. Featherston and Jon Rigby.

"If OPEC does not cut its quota, we expect another slide in oil prices as markets interpret it as Saudi's desire to either defend market share or punish non-OPEC producers (Russia, U.S. shale)," they said in a note on Tuesday. "Although the current over-supply is clear, the OPEC meeting outcome is not."

Source: cnbc.com

Reliance Starts Crude, Fuel Trading in Singapore, Official Says

Reliance Industries Ltd. (RIL), the operator of India’s largest oil refinery, started trading crude and refined products in Singapore this month as it seeks to expand supplies to markets including Indonesia and Australia.

The Mumbai-based company currently trades products including naphtha and fuel oil from the Indian city, according to Mike Omar, the head of Reliance Global Energy Services Ltd. The Singapore unit has joined the trade ministry’s Global Traders Programme, which offers lower tax rates to businesses that set up trading operations in the country, he said.

“Singapore will have its own trading book,” Omar said in response to questions by phone today. “We’re looking to grow the manpower size over time. The increase will be dependent on the growth of the portfolio.”

Reliance will lease storage facilities in Singapore to blend gasoil, or diesel, and gasoline to supply the Southeast Asian and Australian markets, according to Omar. Singapore is Asia’s biggest oil-trading center.

Reliance, which operates the Jamnagar refining complex in western Gujarat state, with a total capacity of 1.24 million barrels a day, also exports gasoline to the U.S. The company will continue to trade crude and fuels from Mumbai, Omar said.

India has shipped 183,000 barrels of the fuel to the U.S. this year, data from the Energy Information Administration in Washington show. That’s down from 518,000 barrels for all of last year and 2.7 million barrels in 2010.

Singapore supports international traders who set up physical trading and corporate functions in the city-state, said International Enterprise, a unit of the Trade and Industry Ministry. It declined to provide details of tax rates offered to Reliance.

Source: Bloomberg

Qatar’s Q-Max tanker to make first delivery to India

India will receive its largest cargo of liquefied natural gas by ship next month as it takes delivery of a cargo from Qatar. The Q-Max vessel, the largest LNG carrier in the world with a capacity of about 260,000 cubic meters (about 5.5 billion cubic feet of gas), is expected to reach Dahej in western Gujarat state in the first week of December, Petronet LNG Chief Executive Officer Ashok Kumar Balyan said.

"India needs to build capabilities to receive bigger vessels," said Ashish Sethia, head of Asia-Pacific gas and power analysis at Bloomberg New Energy Finance. "This is a crucial infrastructure as it builds appetite for more and more LNG from distant markets." In April, Petronet signed a short-term contract with Qatar's Ras Laffan Liquefied Natural Gas Co. to import 800,000 tons of LNG (a little less than 40 billion cubic feet of natural gas) over 12 months to supply Indian Oil's refineries.

In a few more years, state-run GAIL (India) will start taking delivery of LNG from the Cheniere Energy liquefaction and export terminal under construction at Sabine Pass, La. GAIL has agreed to buy 3.5 million tons of LNG a year (about 170 bcf of gas a year) for two decades from the Cheniere terminal. The New Delhi-based company also has booked 2.3 million tons a year capacity at the Cove Point LNG liquefaction and export terminal at Lusby, Md. Those shipments are expected to start in 2017 or 2018.

Source: arcticgas.gov

Oman-India gas pipeline a most promising option

Natural gas, a very highly consumed commodity in India, is at present supplied from two sources: domestic production and imported liquefied natural gas (LNG). Energy demand and supply projections indicate that by 2021-22, due to rising demand, India will also need to start sourcing natural gas from cross-border pipelines to fill the gap between demand and availability. In such a situation, India will have to examine its options carefully to minimise the cost of imports and consider appropriate sources of natural gas to keep the import bills under check.

Importing LNG is a rather costly process, but unavoidable because the sources of gas are far away. This cost can be avoided if gas is imported through pipelines and then transported across the country through existing and future-planned pipelines in India.

India, as on April 1, 2013, had 14,578 km of pipelines, including 1,146 km of offshore pipelines. Further expansion of pipeline is also being planned.

Gas Pipeline options:

There are two options for importing natural gas through pipelines - the land route and/or the sea route. Over the years, several routes for gas pipelines have been proposed, of which the following proposals have been making rounds in the recent past:

Iran-Pakistan-India gas pipeline:

This pipeline was envisaged to link the South Paras Gas field in Iran with India, via Pakistan. The total length of the proposed pipeline is 2,700 km, costing $7.5 billion (current cost may be much higher) to transport 22-110 billion cubic metres per year. The pipeline will be 1,100 km in Iran, 1,000 km in Pakistan and 600 km in India. Initially, this project was planned to link Iran and Pakistan. India later joined as a partner but withdrew, citing security reasons and the pricing of gas.

Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline:

This project was an offshoot of the sanctions imposed by the US and other European countries on Iran. The length of the envisaged pipeline is 1,700 km, at a cost of $7.6 billion (may be higher with present rates). Because this pipeline will pass through Taliban-infested Afghanistan and terror-infested Pakistan, it is unlikely to be favoured by India, even though Turkmenistan may have business interests in this project, and it is favoured by the US.

Oman-India Deep Sea Pipeline:

In the last few years, deep sea gas pipeline technology has matured. Since India has serious security concerns with regard to pipeline projects over land, a deep sea pipeline is probably the most promising option.

The project intends to transport 8 tcft (trillion cubic feet) of natural gas to India over a period of 20 years. The pipeline is planned to be about 1,300 km long, laid at a depth of 3,400 metres below the seabed. It will connect the Middle East Compression Station near Oman with the receiving terminal near Gujarat. The estimated cost of this project is $4-5 billion and can be executed in about five years.

Geographically, the Oman-India Pipeline is comparatively more feasible because India is close to the sources of natural gas in the Middle East and the undersea distance is less than 1,500 km. Another reason in favour of this project is the landed cost, which will be lesser by $1.5 to $2 per million BTU as compared to LNG imports. Furthermore, this pipeline could be linked to other natural gas sources in the Middle East and even to Turkmenistan and Iran if need be.

Considering the fact that known sources of natural gas in India till date is just 1.33 trillion cubic metres, India will need to source a major portion of natural gas supply from outside to meet the rising demand. The government will need to make planned efforts to find a lasting solution to the problem. The sooner the government takes a serious view on the proposal, the better it will be in the interest of the country to ensure its energy security.

Source: ET

India to Receive Its Biggest LNG Cargo Ahead of U.S. Shipments

India will receive its biggest shipment of liquefied natural gas by ship next month as it prepares to import the fuel from North America.

The Q-Max LNG vessel, the largest in its class with a capacity of about 260,000 cubic meters, is expected to reach Dahej in western Gujarat state in the first week of December, Petronet LNG (PLNG) Ltd. Chief Executive Officer Ashok Kumar Balyan said in an interview. “We will receive the LNG cargo at our new jetty and will be supplied to Indian Oil Corp.,” he said.

State-run Gail India Ltd. (GAIL) has agreed to buy 3.5 million tons of LNG a year for two decades from Houston-based Cheniere Energy Inc.’s Sabine Pass terminal in western Cameron Parish, Louisiana. The New Delhi-based company also booked 2.3 million tons a year capacity in the Cove Point LNG liquefaction terminal at Lusby, Maryland. The shipments are expected to start in 2017 or 2018.

“India needs to build capabilities to receive bigger vessels,” said Ashish Sethia, head of Asia-Pacific gas and power analysis at Bloomberg New Energy Finance. “This is a crucial infrastructure as it builds appetite for more and more LNG from distant markets.”

In April, Petronet signed a short-term contract with Qatar’s Ras Laffan Liquefied Natural Gas Co. to import 800,000 tons of LNG over 12 months to supply Indian Oil refineries.

Source: Bloomberg

IEA recognises importance of natural gas in energy mix

The International Energy Agency’s (IEA) recent recognition of natural gas as a growing part of the global energy mix should reinvigorate efforts to grow the industry in Australia, the APPEA reports.

The 2014 World Energy Outlook highlights the role natural gas plays in strengthening the world’s energy mix. The report finds that over the period to 2040, demand for natural gas will grow by more than half, the fastest rate among the fossil fuels, and increasingly flexible global trade in LNG will offer some protection against the risk of supply disruptions.

LNG plants

Australia currently has seven LNG plants under construction with a combined capital cost of more than AU$ 200 billion and these huge projects will soon be shipping Australian natural gas to our trading partners.

However, labour market strains, increased production costs, and increasing competition from North America and East Africa could damage Australia’s potential for future growth.

Global contribution

The APPEA stated: “Australia can continue to make a meaningful global contribution to reducing emissions and enhancing economic prosperity, but only if the LNG sector’s full potential is harnessed via regulatory and labour market reform.”

The US has already recorded some of its lowest carbon emissions in 20 years thanks to the shale gas revolution that has increased use of natural gas for power generation. China, a key market for Australian gas exports, is also moving away from coal-fired electricity generation in favour of natural gas.

LNG production in Australia

For every tonne of CO2-equivalent emitted in LNG production within Australia, up to 9.5 tonnes of emissions from coal-fired generation can be avoided globally.

In 2012-13, Australia shipped 23.9 million tonnes of LNG cargoes, earning AU$ 13.7 billion in export revenue. Australia’s LNG exports are expected to quadruple over the next five years.

Source: lngindustry.com

GSPC seeks higher rates, writes to oil ministry

In first signs of dissent over the new gas pricing, Gujarat government firm GSPC has demanded market price for its output from KG basin fields saying it cannot be forced to sell fuel at a rate which is less than the cost of production.

Days after the October 18 government decision to raise natural gas prices to USD 5.61 per unit from USD 4.2, Gujarat State Petroleum Corp (GSPC) shot off a letter to the Oil Ministry, demanding "market determined price" for its ready-to-produce Deen Dayal West (DDW) fields in Bay of Bengal.

"GSPC cannot be put to irreparable harm by directing it to sell at a gas price which is less than the cost of gas production (which includes exploration, development and production cost) from DDW field," the company wrote.

The firm owned and run by the Gujarat government had last year discovered a market formula that gives a price of about $ 10.5 per million British thermal unit at current oil rate of USD 80 per barrel.

India is not endowed with rich natural resources and most of the reserves are in ultra-deep water, deepsea, and High Pressure-High Temperature (HPHT) areas which requires investment of substantial capital to develop the gas fields irrespective of time of discoveries.

Company, it said, "invested substantial capital in these areas with the assumption of having freedom for marketing the natural gas at market determined price which was the essential and most important feature of NELP contracts". GSPC had won the Block KG-OSN-2001/3 in the third round of auctions under New Exploration Licensing Policy (NELP), which was launched by the BJP-led NDA government, in 2003. DDW field in the block was discovered in 2005-06.

Source: BS

India, 3 other states to build, operate gas pipeline

The four state gas companies of Turkmenistan, Afghanistan, Pakistan, and India have established a company that will build, own and operate the planned 1,800-kilometer Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline. State Concern “Turkmengas”, Afghan Gas Enterprise, Inter State Gas Systems (Private) Limited, and GAIL (India) Limited own equal shares of the company.

“Establishment of the TAPI pipeline company is a key milestone in the development of the pipeline. It is a tangible sign of transformational cooperation among the parties that presages the enhanced energy security, business prospects, and overall peace and stability in the region promised by the pipeline,” said Klaus Gerhaeusser, Director General of ADB’s Central and West Asia Department.
ADB was appointed the transaction advisor for the TAPI gas pipeline project in November 2013. In that role, ADB advised on the establishment of the TAPI pipeline company as an integral part of the larger goal of identifying and selecting a commercial consortium leader to spearhead the construction and operation of the pipeline. When selected, the commercial consortium leader will take a substantial stake in the company.

The TAPI pipeline will export up to 33 billion cubic meters of natural gas a year from Turkmenistan to Afghanistan, Pakistan, and India over 30 years. Turkmenistan has the world’s fourth-largest proven gas reserves, and the pipeline will allow the landlocked country to diversify its gas export markets to the southeast. Turkmen gas in turn will provide a key new source of fuel for southern Afghanistan, Pakistan, and northern India.

Source: http://sirulu.com/

Qatar-India trade reaches $16.7bn

Bilateral trade between Qatar and India grew 2.1% and reached $16.7bn in the 2013-14 financial year, data show.

In 2012-13, the two-way trade between Qatar and India stood at $16.3bn, according to data provided by the Indian Embassy. And in the fiscal 2011-12, the trade totalled $13.7bn.

However, the balance of trade is in Qatar’s favour, data indicate. In 2013-14, Qatar exported goods worth $15.7bn compared with $15.6bn in the 2012-13 fiscal.

Qatari imports from India were worth $989mn in 2013-14 and $687mn in 2012-13.

A report by QNB shows India is currently the third top export destination for Qatar. In September, India, which is Asia’s third largest economy, accounted for 14.5% of total Qatari exports.

Total exports in September stood at QR36.1bn and imports at QR9.8bn, QNB said.

Japan topped the export destination in September, accounting for 22.2% of Qatar’s exports, followed by South Korea (17.5%).

Qatar and India have a strong relationship, particularly in the energy and petrochemicals sector. Trade between the two countries has been steadily growing.

Currently, Qatar is the largest supplier of liquefied natural gas (LNG) to India. Also, there is a large and expanding market for Qatar’s oil and petrochemicals in India.

India’s natural gas consumption is projected to rise by 1.5% a year between 2010 and 2020, while production from local fields will decrease by an average 1.1% every year during that period, according to the US Energy Information Administration.

Many Indian companies such as L&T, Tata Projects, Voltas, and Punj Llyod have active presence in the Qatari market through partnerships.

India’s GDP grew at 5.7% in the first quarter of 2014-15 to exceed expectations. The manufacturing sector posted a 3.5% growth. India’s economic growth stood at 4.7% in 2013-14 and the consumer price index-based inflation rose to 7.96% in July 2014.

India’s current account deficit (CAD) for the fiscal first quarter - April to June - narrowed sharply to 1.7% of gross domestic product from 4.8% of GDP in the corresponding period of 2013-14. Fiscal deficit during the 2013-14 fiscal year was equivalent to 4.5% of GDP and it is targeting 4.1% of GDP in the current fiscal year.

According to a recent HSBC update, the Indian economy appears to have perked up since the election of Narendra Modi as Prime Minister in May, with matters being helped by easing domestic inflation, which has brought an end to the tightening of monetary policy by the Reserve Bank of India.

India’s growth rate is expected to top 6% in 2015, and could well be only a touch shy of China’s, HSBC said.

Source: Gulf times

Japan buyers pay $15.30/MMBtu average for Oct spot LNG, up 16% from Sep

The average price paid by Japanese buyers for spot LNG in October was $15.30/MMBtu, up 15.9% from $13.20/MMBtu in September, the Ministry of Economy, Trade and Industry said Wednesday, November 12.

The Platts Japan Korea Marker averaged $13.890/MMBtu in October. This reflects spot deals concluded in October for delivery in November and December to Japan and South Korea.

Trading in November-delivered cargoes was thin in October as some Japanese buyers were looking for December parcels.

In the first half month of October, the average JKM assessment for cargoes delivered in December was $15.363/MMBtu. By the end of October, however, the average price for December cargoes had dropped significantly, with the December JKM assessed at $12.55/MMBtu on October 31.

METI said the average price of LNG cargoes delivered to Japan in October was $12.40/MMBtu, up 9.7% from $11.30/MMBtu in September.

The Platts JKM for October-delivered cargoes averaged $12.826/MMBtu. Platts assessments between August 18 and September 15 reflect the price of spot cargoes for delivery in October.

The October trading month began with the JKM at $12/MMBtu on August 18 and climbed steadily to end at $13.70/MMBtu on August 15.

METI said that only spot cargoes, or single cargoes, were taken into account, excluding short-, medium- and long-term contract cargoes, as well as those linked to a particular price index.

METI converts all delivery conditions into a DES equivalent basis before taking an average of the prices.

Source: Platts

New Russia-China Deal Could Further Hit Natural-Gas Prices

A preliminary natural-gas deal between Russia and China signed over the weekend paves the way for opening up a second major supply conduit between the two countries—and lowering natural-gas prices in Asia.

The deal comes six months after the two countries signed a landmark $400 billion gas deal and will intensify competition among billion-dollar natural-gas projects aimed at Asian markets.

Alexei Miller , chief executive of Russia’s monopoly exporter OAO Gazprom , and Zhou Jiping , chairman of China National Petroleum Corp., signed a framework agreement in Beijing on Sunday for supplying natural gas through pipelines into western China, Gazprom said.

In May, Moscow agreed to supply Beijing with 38 billion cubic meters of natural gas annually for 30 years through pipelines into eastern China from fields in eastern Russia.

“Given weaker oil prices and rubles, we believe China can extract even better terms on this second deal versus the first,” said Gordon Kwan, head of commodity research at Nomura Holdings .

He estimated the value of the second deal, for the supply of 30 billion cubic meters a year, at $284 billion. “The two Siberian gas deals all together could account for almost 17% of China’s total gas consumption by 2020,” Mr. Kwan said.


China’s hard bargaining will mean suppliers from other parts of the world will have to cut prices to compete. This includes high-cost projects being constructed in Australia, Canada, the U.S. and East Africa to liquefy and transport natural gas to China and other Asian countries by sea.

Russian pipelines would add large volumes to the overall supply in the market, and its plans to boost supplies to China would leave more seaborne liquefied natural gas from elsewhere available for countries such as Japan, South Korea and India.

The spot price of LNG delivered into North Asia had already dropped to a three-year low of around $10.5 per million British thermal units earlier this year, and is expected to remain soft despite the coming winter season.

Chinese First Vice Premier Zhang Gaoli, Russian President Vladimir Putin and Gazprom Chief Executive Alexei Miller attend a ceremony Sept. 1 marking the construction of a gas pipeline connecting Russia and China. ENLARGE
Chinese First Vice Premier Zhang Gaoli, Russian President Vladimir Putin and Gazprom Chief Executive Alexei Miller attend a ceremony Sept. 1 marking the construction of a gas pipeline connecting Russia and China. ASSOCIATED PRESS
Moscow is pushing to accelerate energy exports to Asia due to political resistance in Europe, its traditional market, particularly after recent troubles in Ukraine. Its oil exports to Asia have touched record levels this year.

For China, natural gas is key to achieving its clean-energy goals. But it currently faces supply constraints and is dependent on high-price LNG contracts for imports.

“If the pipeline story realized, it will be a strong competitive edge for gas in China. Gas is not competitive now after oil prices dropped,” Li Li, head of research at ICIS C1 Energy, said.

Global oil prices have dropped around 25% from their peak level this year, with the Brent oil benchmark trading below $85 a barrel.

There is some skepticism around the latest gas deal as high-level meetings between Moscow and Beijing are frequently peppered with so-called framework agreements that lack commercial details and financial commitments.

However, market participants are surprised by how quickly the western gas supply route into China is now being promoted after the deal for the eastern route was completed.

“The last piece of the jigsaw may be falling into place,” consultant Tony Regan at Tri-Zen Consulting said.

Source: WSJ

India hopes for 75% increase in natural gas production

Striking a glimmer midst overall gloom of energy shortage across the country, India’s Petroleum Ministry has forecast an estimated 75% increase in natural gas production over the next five years to between 163- million and 175-million standard cubic meters per day, up from 100-million cubic meters a day at present.

In an internal note circulated among relevant government departments including, power ministry, the Petroleum Ministry said that higher natural gas production would be achieved despite the fall in production in the current year and the fact that about 24 000 MW of natural gas based power projects have been left stranded owing to shortage of fuel.

The note and the production forecast was a background to the governmental exercise to frame a ‘pool pricing’ mechanism to supply natural gas to various user industries averaging the prices of domestic and imported natural gas, an official in the Petroleum Ministry said.

The Indian government last month approved a hike in domestic natural gas price to $5.61 per million metric British thermal unit (mmBtu) up from $4.20/mmBtu with effect from November 1. The prices would be reviewed every six months with next scheduled for April 1.

The country’s natural gas production was down 13% during 2012/13 at 97-million cubic meters a day and expected to marginal rise to 100-million cubic meters a day during the current fiscal.
According to the Petroleum Ministry, the bulk of the increase production would be accounted by the national oil and gas exploration and production (E&P) major ONGC Limited, which was expected to ramp up production from 24-billion cubic meters in the current years to 35-billion cubic meters by 2019 riding on back of development of its new blocks including Daman offshore in western India and commissioning of blocks KG-98/2 in the Krishna Godavari Basin.

The country’s second largest E&P major Oil India Limited was targeting an increase in natural gas prodiction from 2.8-billion cubic meters at present to 4-billion cubic meters by 2019 once production begins from its gas blocks at Baghjan in north eastern Indian province of Assam, next financial year and its assets also at the KG Basin,

Based on the new production forecast, petroleum ministry all incremental gas produced would be used for supplies to the fertilizer industry up to the level of 31.5-million cubic meters a day as per recommendation of a high power government inter-ministerial body while the balance if any would be earmarked for power generation.

Source: miningweekly.com

Gas price hike inadequate to attract investments

The new gas price of $5.61 per unit will not be adequate to attract investment in exploration as most discoveries in deepsea need a higher rate to be economically viable, top research organisations have said.

"We maintain that existing discoveries in deepwater require a $8 per million British thermal unit gas price to be viable.

"Therefore, the current pricing policy, in our view, will not lead to new capex in the development of complex deepwater discoveries," HSBC said in a research note.

While deepwater producers want to produce and sell -- albeit at gas price upwards of $8 -- industrial consumers are willing to pay for these productions, but due to the limit imposed by the current pricing formula, they will have to buy costly imported LNG.

Stating that the 33 per cent increase in gas price from November 1 was negative for new upstream investment, Nomura said the key reason and need behind revising the gas price was to encourage upstream investment by monetising existing discoveries and further encouraging exploration for more gas.

"Given that the revised price is much lower than what upstream companies are demanding, we think the desired investment to monetise the existing discoveries may not take place," it said.

Deutsche Bank said the lack of clarity on gas price for new deepwater discoveries -- which will be higher -- could delay capex and production.

"Another key disappointment compared to consensus expectation was the absence of any annual increase in gas price," it said.

Stating that the gas price hike was disappointing, Barclays said, "It could deter new capex, precluding a rebound in domestic gas output and dimming the long-term outlook for ONGC and Oil India somewhat."

Credit Suisse said $5.6 may work for Reliance Industries' R-Series gas field in the KG-D6 block but the economics for its satellite fields and NEC-25 block are uncertain.

"We think ONGC's ultra-deep water discoveries in KG-D5 and the smaller discoveries in the Mahanadi basin may not be economic at the new gas price, but are also ineligible for the premium price proposed," it said.

Nomura said there is no clarity yet on the likely premium for new discoveries in deepsea and ultra deep waters and so the pace of further exploration will also remain slow.

India's gas deficit is unlikely to improve over the next 5-6 years, implying that reliance on imported LNG is unlikely to abate, CIMB said.

HSBC said while the hike imposes a higher price on the end consumer, it is unlikely to result in investment beyond what the upstream industry would have invested anyway at the old gas price of $4.2 per mmBtu.

Source: BS

Time to turn on the gas

The challenge before the Indian upstream oil and gas industry is to rapidly increase domestic production and wipe out imports. I would venture so far as to say that ONGC, Reliance, Cairn, and GSPC can together more than double India’s gas production in less than five years.

India has what the industry would term “difficult gas”. Our incremental assets primarily lie deep in the ocean (the biggest being the Krishna-Godavari basin in the Bay of Bengal) or in small pockets called “marginal fields”.

India also has some reservoirs of unconventional hydrocarbons such as shale sands, tight sands, and coal bed methane but these, except for the last-named, would be even more expensive than deep sea and marginal gas assets. To double gas production, the fields that will most likely come into play are listed in the table. 

To get to some of the more promising fields in the KG basin, one has to travel more than 60 km into the sea. Here, the water depth is more than 2 km, the ecology is sensitive, and the weather is prone to hurricanes. The installation window is a mere five months and missing a project schedule by a week can push a multi-billion dollar programme by an entire year. In such a location, the drilling crew aims for an area little bigger than the size of a table tennis table from the height of an airplane.

Technological challenge

An analogy to the shale revolution in the US is apt. It has been known for several decades that shale sands can carry hydrocarbons but it is only in the last 10 years that revolutionary breakthroughs in horizontal drilling have made these hydrocarbons extractable. In deepsea as well, the technology is rapidly evolving.

The latest trend is that of putting the entire production infrastructure on the seabed where it is expected to operate for 10-20 years with minimal, and that too robotic, intervention. The cost of a land rig is about ₹12 lakh per day. The corresponding cost of a deepwater drillship is about ₹3.5 crore per day. Depending on the depth and complexity of the well, drilling a single deepwater exploration well can cost ₹500-1,000 crore. Imagine the wherewithal it takes to invest this kind of money in something and have only a partial chance at success.

A typical deep sea well costs 20-30 times that of a land well. Accidents such as what happened in the Gulf of Mexico a few years ago can quickly wipe out tens of billions of dollars from the company’s balance sheet.

Those investing in such risky ventures expect suitable returns as compensation. India’s energy needs are massive and every bit of our considerable, though difficult, resources should be exploited for the nation’s benefit.

India’s policy should encourage national oil companies such as ONGC as well as domestic and international players of suitable stature. Global players, in many cases, also have the knowhow to execute complex projects. The only way to bring costs down in the long run is to build scale. This will benefit Indian manufacturing. Long term viability of the high-end oil industry will encourage equipment manufacturers to set up shop in India, which in turn would be used for exports.

Building opportunities

Many of those who have worked their lives in the oil and gas industry internationally often muse how the industry globally is full of Indians, but ironically how similar opportunities in India are sorely lacking. This could change. India’s downstream industries of fertiliser, power, and transportation are energy hungry. Analysis shows that each molecule of incremental gas, even at higher prices, can be cost effectively utilised by one downstream industry or another. Even at an average price of gas that is higher than $8/mmbtu, the country as a whole stands to gain more than ₹30,000 crore annually due to increased production.

Source: HBL

Pioneer Seeks to Sell Eagle Ford Venture With Reliance

Pioneer Natural Resources Co. (PXD) is seeking a buyer for its Eagle Ford Midstream venture with India’s Reliance Industries Ltd. (RIL) as it focuses on shale oil production.

The two companies will sell their stakes in a joint process, the Dallas-based independent oil and gas producer said in a statement yesterday. Pioneer owns 50.1 percent of the pipeline and crude-processing unit.

The sale “would allow us to strategically redeploy capital to our core, oil-rich Spraberry/Wolfcamp assets in the Permian Basin of West Texas,” Pioneer Chairman and Chief Executive Officer Scott Sheffield said in the statement.

Reliance also was exploring the sale of its 45 percent stake in production assets in the Eagle Ford that it co-owns with Pioneer and Newpek LLC, people familiar with the matter said last month. Pioneer said in its statement yesterday that it has no plans to sell its share of those production assets.

The Midstream system consists of 10 gathering plants and about 460 miles of pipelines. It’s forecast to generate $100 million in cash flow next year, the company said. The joint venture was created in 2010.

Pipeline and processing assets generally trade at 9 to 12 times cash flow, Morningstar Inc. (MORN) analyst Jason Stevens said, declining to offer a valuation on Pioneer’s stake. That would value Pioneer’s interest at as much as $1.2 billion, based on the cash-flow estimate for 2015.

Interest in so-called midstream assets has increased amid the boom in U.S. shale production. Last month, Shell Midstream Partners LP (SHLX), the pipeline partnership backed by Royal Dutch Shell Plc, raised $920 million in an initial public offering.

Separately, Pioneer said third-quarter net income rose to $374 million, or $2.58 a share, from $91 million, or $0.65, a year earlier.

Source: Bloomberg

GAIL set to hike domestic price of LNG

In an attempt to force local consumers such as power projects and fertilizer plants to finalize their purchase plans, state-owned gas supplier GAIL (India) Ltd is set to increase the domestic price of liquefied natural gas (LNG) by 10 cents per unit. Of the total 5.8 million tonnes (mt) of LNG it contracted with US suppliers, GAIL has found Indian buyers for only 2.5 mt. Major domestic consumers have refused to buy the rest 3.3 mt at current prices, which they perceive to be high. GAIL plans to sell at around $12-13 per million metric British thermal unit (mmBtu) in the domestic market. The planned ultimatum by GAIL, India’s largest gas transmission and marketing company, stems from the fact that its LNG deals are take-or-pay contracts, which means it has to pay the supplier even if it doesn’t take the supply. Natural gas is shipped in its liquid form and reconverted to gas at LNG terminals. India imported 13.43 mt of LNG in 2012-13, compared with 13.39 mt in the previous year.

“While all contracts are getting signed, for the ones remaining, we plan to increase the gas price by 10 cents per mmBtu. The earlier plan was to increase the price by October end. We now plan to do it by middle of November or latest by 1 December. We want to tell the market that this is the cheapest price available and if one doesn’t buy by then, one stands to lose,” said a senior GAIL executive requesting anonymity. GAIL’s move comes in the backdrop of the National Democratic Alliance government revising the current price of natural gas to $5.6 per mmBtu from $4.2 mmBtu. The prices will be revised every six months. GAIL stands to gain better margins by selling overseas. “To sell in the Indian market is our first choice. While we have been trying, we also have a take-or-pay situation. We have reached a conclusion. While we get a premium of around 20 cent per mmBtu in the domestic market, overseas customers are willing to pay us a premium of around $1.5-2 per mmBtu,” added the GAIL executive.

Queries emailed to a GAIL spokesperson on Thursday evening remained unanswered at press time. Mint reported on 17 June about GAIL’s inability to find domestic buyers and its ultimatum to domestic consumers to finalize their purchases by June-end, failing which it would sign deals with global buyers willing to pay a premium. “India may lose sizeable volumes of potential gas supply from RIL’s (Reliance Industries Ltd) KG-D6 and ONGC’s (Oil and Natural Gas Corp. Ltd) KG-DWN-98/2 blocks in case the companies find the resultant IRRs (internal rate of return) unattractive. This will result in higher LNG imports at global prices, about 2X the price set for domestic companies initially. India would be better off offering a higher price to its ‘own’ companies rather than to overseas companies for gas imports,” said a 22 October Kotak Institutional Equities report. India has also revived a plan for pooling of gas prices to bail out power projects starved of the cleaner fuel as compared to coal. Gas-fuelled power projects with an aggregate capacity of around 16,000 megawatts (MW) are operating at a low PLF (plant load factor). Also, around 7,815MW under construction or ready for commissioning have been stranded in the absence of gas allocation. “An innovative gas pooling mechanism would be good for stranded gas power projects, particularly in the (natural gas) deficit southern region. With increased gas price, hopefully, domestic gas production will increase, and this can be leveraged with imported R-LNG to achieve a 40-50% utilisation of power plants,” said Debasish Mishra, senior director, consulting, at Deloitte Touche Tohmatsu India Pvt. Ltd. “However, the catch will be to keep the blended gas price landed at the power plant around $10/mmbtu. If implemented, it will be positive for GAIL, both in terms of supplying contracted LNG and improvement in pipeline utilization,” added Mishra.

 Meanwhile, GAIL’s net profit for the second quarter rose 42%. The state-owned firm posted a net profit of Rs.1,303 crore for the quarter ended 30 September, compared with Rs.916 crore a year earlier. Domestic gas sales have been sliding for GAIL. “During the second quarter of the current financial year, natural gas sales were 68.95 mmscmd (million metric standard cubic metres a day) against 78.58 mscmd during the corresponding period of previous year,” GAIL said. GAIL has entered a 20-year gas sales and purchase agreement with Sabine Pass Liquefaction Llc, a unit of Cheniere Energy Partners in the US, for 3.5 million tonnes per annum (mtpa) of LNG. It also has a terminal service agreement for 2.3 mtpa LNG liquefaction capacity with Dominion Cove Point LNG in the US. In addition, it has a 20-year LNG supply contract for 2.5 mtpa with Gazprom Marketing and Trading Ltd. In another development, GAIL on Monday announced signing a memorandum of understanding with state oil company of Republic of Azerbaijan (SOCAR) to jointly pursue LNG opportunities.

Source: Livemint

Oil India, ONGC top bets in oil and gas sector: Gaurav Mehta

Gaurav Mehta: Six to nine months ago, we were very constructive on OMCs. After the recent up move, most of these positives are already priced in. It may be because of the FPO overhang or for other reasons that the upstream oil companies have not really moved. There is a lot of delta in terms of these reforms picking up versus the valuations catching up. That delta still stays with upstream oil companies. Added to it, a small risk for these oil marketing PSUs would be because of the entire deregulation and other reforms.

You might see a bit of incremental competition coming from private players. We think that risks are to the downside. The valuation nowhere is much higher in upstream oil companies, Oil India and ONGC in particular.

Source: ET