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