Lydia Powell and Akhilesh Sati, Observer Research Foundation

In the early 2000s the dominant view in the Indian energy policy community was that natural gas would emerge from the role of an unwanted step sister of oil to Princess Cinderella who would put India on the bridge to a low carbon future. The optimism was based partly on the exuberant projections for domestic gas production and partly on the expectation that natural gas with the lowest emission of CO₂ (carbon dioxide) among fossil fuels will succeed in displacing coal in power generation and oil in transportation. Two decades later these expectations have not materialized to the extent expected.

The optimism over prospects for gas discoveries in India was triggered by large finds in the deep waters of the east coast of India in 2002 which were the world’s largest for that year and India’s largest since 1970.[1] Based on projections of reserves that could be tapped, some technical experts even believed that India could potentially become a natural gas surplus country. The DGH (Directorate of Hydrocarbons) of the Government of India projected GIIP (gas initially in place) accretion of 7.35 tcf (trillion cubic feet) in 2002-2003 and 9.37 tcf in 2006-07.[2] Assuming a reserve accretion rate of 1 percent per year, production in 2019-20 was estimated to be about 145 mmscmd (metric million standard cubic meters per day) which if realized would have met most of India’s natural gas demand today (2019-20).[3] Under a 5 percent per year reserve accretion rate, production was estimated to exceed 1000 mmscmd that would have generated exportable surplus of natural gas at current levels of gas consumption.[4]

The exuberance over natural gas discoveries in India was not completely irrational. Less than 20 percent of the 3.14 million km² (square kilometres) of the sedimentary basins in India were fully explored and there was optimism that discovery rates would improve with investment in exploratory drilling. The NELP (New Exploration and Licensing Policy) had opened up the sector in India and 49 companies were operating in 10 producing basins. This was a substantial increase compared to 2 public sector companies operating in 3 producing basins in the 1990s. Deepwater drilling technology was booming around the world in the 2000s especially in the US Gulf of Mexico endorsing prospects for deep-water discoveries of hydrocarbons. Globally the dominant narrative was that of an impending scarcity of natural gas which pushed up the price of imported and domestic natural gas. Imported LNG (liquid natural gas) was trading at an average of $12.55/mmBtu (metric million British thermal units) in Japan in 2008 and US domestic gas was trading at an average of $8.85/mmBtu.[5] Countries endowed with large reserves of natural gas such as Russia were preparing to become energy superpowers. The 2010 issue of the world energy outlook brought out by the IEA (International Energy Agency) optimistically asked if the world was entering a “golden age of gas?” Reality did not play out as expected, especially in India.

In 2010 the share of natural gas in India’s primary commercial energy basket (not including non-commercial energy sources) was 9.4 percent which fell to 6.2 percent by 2018.[6] In 2012 natural gas accounted for roughly 10 percent of gross electricity generation but in 2018 natural gas accounted for less than 4 percent of gross generation.[7] In 2018-19 India produced just over 87 mmscmd of natural gas while it consumed 166 mmscmd of gas which means that about 78 mmscmd (just over 47 percent of consumption) of gas consumption was imported.[8]

Domestic Production of Natural Gas 2003-2019

Source: PPAC, MOPNG, Planning Commission

Natural gas production by the private sector briefly exceeded production by the public sector in 2010-11 but it fell dramatically after that (chart). Overall domestic production of natural gas fell by an annual average of over 5 percent between 2010-11 and 2018-19. This obviously meant a dramatic reduction in the availability of cheap domestic gas for the power and fertilizer segments traditionally seen as the anchor customers for gas. Consumption of gas by the power sector fell by over 8 percent from 62 mmscm in 2011-12 to about 33 mmscm in 2018-19. Even industrial consumption fell by over 7 percent from 34 mmscm to 20 mmscm in the same period. Overall natural gas consumption growth fell by over 5 percent from 2010-11 to 2014-15.[9]

Since 2014 demand for natural has picked up primarily because of targeted policies to increase the use of PNG (piped natural gas) as fuel for cooking and CNG (compressed natural gas) as fuel for urban transport through city gas distribution (CGD) networks. In the period 2014-15 and 2018-19 consumption of natural gas through CGD networks increased by 13.6 percent. Gas use by the refineries in India also increased in the same period by over 9 percent driven primarily by the ban on pet-coke use. Most of this growth was met with imported LNG which has grown by over 11 percent since 2014.[10]

For natural gas to increase its share to 15 percent in India’s energy basket the average growth rate of natural gas consumption has to double from 6.3 percent in 2008-09 to 2018-19 to 12.4 percent in 2018-19 to 2029-30. Double digit growth rates in natural gas consumption can be sustained only by an economy expanding at close to double digit growth rates. But double digit economic growth rates alone may not accelerate demand for gas if well targeted policies and incentives are not put in place.

In the next ten years the CGD sector can add about 250 mmscmd to consumption and make the biggest contribution (about 60 percent) to increasing the share of gas.[11] There is optimism in the industry after bidding rounds have been completed for 228 geographic areas (GAs) comprising of 402 districts covering 27 states in which 70 percent of the population of the country live. Currently Delhi, Mumbai and the state of Gujarat (which has a large number of industrial consumers) account for over 80 percent of CGD gas consumption. Growth in CGD outside these consumption centres is likely to be slow. The population density (population per square km) of Mumbai is about 20,500 and that of Delhi is about 11,250. Most of the licenses issued for new CGD connections are for cities and regions that have population densities that are lower by an order of magnitude. Low population density is significant economic barrier in increasing the number of PNG consumers from the current 5 million but continued policy push with the right incentives can overcome the barrier.

In the power sector, the PLF (plant load factor) of existing gas based power generation capacity of 25 GW has fallen to 24 percent on account of shortage of domestic gas since 2011-12.[12] In 2017-18 domestic gas allocated to the power sector was 87.12 mmcsmd but average domestic gas supplied was 25.71 mmscmd. If policy aims to increase the PLF of existing gas based power generation capacity to 85 percent, the normative gas requirement of about 102 mmscmd must be made available to the plants. Since most of this gas is likely to be imported, policies to ensure offtake of gas based power which is not likely to be competitive compared to coal based power in the long term must be put in place. This may have to take the form of obligations on distribution companies (discoms) to purchase gas based power (“gas purchase obligations”) similar to renewable purchase obligations (RPOs). Given the poor financial health of discoms, imposing additional obligations on them will be difficult but as in the case of renewables (and now hydro) it is not impossible.

To increase gas consumption in the industry and other segments that could potentially add about 68 mmscmd to consumption, pipeline connectivity must increase substantially in the next decade and incentives to consume gas against cheaper alternatives such as coal must be put in place. LNG transported by trucks could potentially substitute for pipelines but that would make gas less competitive. Overall prospects for increasing the share of gas in India’s energy basket are limited by lack of infrastructure (access) and also by affordability especially in sectors where substitutes such as coal are more competitive. In sectors where gas competes with oil, tax arbitrage favours gas but gas can leverage this advantage only in regions where gas is accessible. Access can be improved with investment in infrastructure.

With domestic coal prices below $50/tonne, imported or domestic gas prices have to be way below $4/mmBtu to compete with coal. Current Asian LNG spot prices are below $3/mmBtu with month ahead prices for March below $2.92/mmBtu on account of low demand made worse by the impact of corona virus.[13] These prices are below the long run marginal cost of delivering gas for domestic gas suppliers and also for international suppliers. Market linkages between gas and oil are gradually loosening at least when it comes to pricing arrangements.  However there are upstream ties between oil & gas that are more difficult to undo. This is evident in India where domestic producers of natural gas continue to emphasise the need to raise gas prices to support further upstream development of more complex non-associated gas projects.  Supplying high cost domestic gas to sectors reliant on low cost gas supply will be difficult without additional policy support in the form of carbon price or mandatory purchase obligations.

In the context of emissions it is well established that gas scores over coal and oil.  Coal to gas switching is generally seen as the means to rapid reduction in CO₂ emissions. Typically natural gas emits 50-60 percent less CO₂ when combusted in an efficient power plant compared to emissions from a typical coal plant.[14] Considering only tail-pipe emissions, natural gas used as fuel for transportation emits 15-20 percent less emissions than petrol when burned in a modern vehicle.

But there is the environmentalist argument that gas is not necessarily carbon free and investment in gas supply chains would lock in emissions and create new path dependencies that would only extend the life of fossil fuels. The conclusion is that facilitating natural gas use is inconsistent with the goal of decarbonisation and it would potentially create stranded assets. The fact that LNG supply chains produce more emissions per unit gas than pipeline gas because of the additional energy required for liquefaction is used to strengthen the case against gas.[15]

The global carbon project (GCP) has pointed out that in 2019, though gas contributed to a 1.7 percent fall in global emissions on account of coal to gas switching, emissions from gas exceeded emissions from coal in the USA and in Europe.[16] In the USA, coal to gas switching was driven by the price competitiveness of gas over coal and in Europe coal to gas switching was driven by high carbon prices. US CO₂ emissions from gas reached 1.7 GT (giga tonnes) in 2019 which was a 3.5 percent increase over emissions in 2018 while emissions from coal decreased by 10.5 percent to 1.1 GT. In Europe emissions from gas increased by 3 percent to 1 GT while emissions from coal decreased by 10 percent to 0.8 GT. Even in China emissions from gas increased by 6 percent to 0.6 GT in 2019 but Chinese emissions from coal are orders of magnitude higher than that from gas.  While increase in CO₂ emissions from gas use is real it is not rational to eliminate the option of gas as a fuel that can replace oil and coal while also lowering relative emissions.

The reason why emissions from natural gas is going up in USA, Europe and China is because gas is meeting growing demand for energy in these regions. If this demand was met by coal or oil emissions would have been higher. Renewable energy has not been able to meet this demand because of its inherent challenges that increase transaction costs (system level) in harnessing electricity generated with renewable sources.

If India decides to meet growing demand for energy with solar or wind energy massive investment in storage and transmission capacity must be made.  If the US electricity system relies entirely on renewable energy, electricity supply with 99.97 percent reliability will require 12 hours of storage (estimated to cost about $2.5 trillion) and at least twice the amount of renewable energy generating capacity.[17] India’s electricity system that is roughly a quarter of the size of US system would have to invest quarter of its GDP in storage alone. Costs may decline and technologies may improve for renewable energy but until then natural gas is a realistic option.

Natural gas can provide ‘always-on’ power and in addition provide quick ramp up and down to meet fluctuating demand at a fraction of the cost. During the recent pan India ‘switch-off’ of lighting load on 5 April 2020, it was the quick ramping capability of natural gas power (along with a much larger share of hydro power) that maintained grid stability when 31 GW of load was lost and regained within 10 minutes.[18] Natural gas (along with coal) has the capacity to become carbon free if new technologies for carbon capture prove to be commercially successful. The Allam cycle in power generation that can in theory capture all the CO₂ that is produced without significantly increasing the cost is one such promising technology.[19] Investment in gas pipelines is unlikely to become stranded assets as they can transport of hydrogen, a zero carbon energy carrier that can become the fuel of the future. Yes, natural gas is not too hot in affordability nor cold enough in emissions but like Goldilocks’ porridge, it is just right for India which has to meet the competing needs of rapidly increasing the supply of energy and simultaneously reduce emissions.

Views are those of the authors

Contact: indiaenergyinsights@gmail.com

Courtesy: Observer Research Foundation | Expert Speak

[1] Bechtel. 2008. KG-D6 Natural Gas Development, https://www.bechtel.com/projects/kg-d6-natural-gas-development/

[2] ORF-IEF, 2007. Presentation of DGH, 6^th Petroindia 29 November 2007 at Le Meridian New Delhi

[3] Ibid.

[4] Ibid.

[5] British Petroleum. 2019. BP Statistical Review of World Energy,  https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html

BP statistical review of world energy 2019

[6] Ibid.

[7] Central Electricity Authority. 2018. Growth of the Electricity Sector in India 1947-2018, Government of India, Ministry of Power

[8] PPAC, 2019. Production of Natural Gas, Petroleum Planning & Analysis Cell, Ministry of Petroleum & Natural Gas, Government of India, https://www.ppac.gov.in/content/151_1_ProductionNaturalGas.aspx

[9] India Energy Forum, 2019. Roadmap to a Gas Based Economy, Task Force Report

[10] Ibid.

[11] Ibid.

[12] Ministry of Power, 2019. Stressed / Non-Performing Assets in Gas Based Power Plants, Standing Committee on Energy (2018-19), Sixteenth Lok Sabha, Forty Second Report, Lok Sabha Secretariat, New Delhi, January

[13] Fulwood, Mike, 2020, $2 Gas in Europe is Here: Who Will Blink First?, Oxford Energy Comment, Oxford Institute of World Energy, March 2020

[14] IEA, 2019. World Energy Outlook, International Energy Agency, Paris

[15] Ibid.

[16] Global Carbon Project, 2019.  https://www.globalcarbonproject.org/carbonbudget/19/files/Norway_CICERO_GCB2019.pdf

[17] Shaner, Matthew R, Steven J. Davis, Nathan S. Lewis & Ken Caldeira, 2018. Geophysical Constraints on the Reliability of Solar and Wind Power in the United States, Energy & Environmental Science, Issue 4

[18] POSOCO, 2020. Preliminary Report on Pan India Lights Switch Off Event on 5th April 2020, National Load Dispatch Centre (NLDC)

[19] Fernandes, Dan, Song Wang, Qiang Xu, Russel Buss & Daniel Chen, 2019. Process and Carbon Footprint Analyses of the Allam Cycle Power Plant Integrated with an Air Separation Unit, Clean Technologies, MDPI (1): 325–340

Monthly Gas News Commentary: April 2020

India

Domestic Production

The Covid-19 pandemic has dented the demand of petroleum products in India and also reduced the demand for natural gas, forcing E&P companies to scale down production in March 2020. India’s production of natural gas in March declined 14 percent to 2,411 mmscm as compared to the corresponding month a year ago. According to a report by the oil ministry, natural gas production by Indian E&P players had been impacted in March on account of decreased production in response to less off take by gas power plants, fertilizer plants, industrial customers as well as operational issues faced by E&P companies. The country’s natural gas production during 2019-2020 declined 5 percent to 31,180 mmscm, the lowest recorded output in at least 18 years. The record low production of natural gas comes at a time the country’s crude oil production is also at a multi-year low. Production by ONGC the country’s largest E&P company, in March declined 11 percent to 1,906 mmscm, as compared to the corresponding month a year ago. Also, cumulative production during financial year 2019-2020 declined 4 percent to 23,746 mmscm, as compared to the year ago period. Other reasons included less gas production from Vasistha wells, non-realization of gas production planned from WO-16 cluster and less than planned gas production from Bassein field, Daman Tapti Block and marginal fields. Oil India Ltd, India’s second government-owned oil and producer, posted a 10 percent decline in gas production at 212 mmscm in March 2020, as compared to the corresponding month a year ago. Cumulative natural gas production during financial year 2019-2020 declined 2 percent to 2,668 mmscm, as compared to the year ago period. According to the ministry, lower production during the month was attributed to decline in production potential of gas wells consequent to shut-in during protest and bandhs, controlled production because of low market demand from the tea sector during lockdown due to Covid-19, shut-down of Brahmaputra Valley Fertilizer Corp, low off-take from Numaligarh Refinery besides other reasons. Natural gas production from fields operated by private players and joint ventures declined 34 percent to 294 mmscm in March 2020, as compared to the corresponding month a year ago.

ONGC has been forced to cut natural gas production by over 15 percent as factories shut down following the unprecedented nationwide lockdown have refused to take supplies. ONGC which produced 64.3 mmscmd prior to the lockdown imposed on 25 March, has reduced the flow to 53.4 mmscmd. Gas sales are down to 40 mmscmd against 50 mmscmd previously. The difference between production and sales is due to the fact that some of the gas is also used by ONGC for internal consumption purposes such as power generation and re-injection into wells. The company received requests from customers for a reduction in gas supplies while some supply reduction requests have been lodged with the gas transporter GAIL (India) Ltd. The customers refusing gas supplies are mostly small companies whose business has been completely shut because of the lockdown, and city gas distributors who have seen volumes vanish after CNG vehicles went off the road. The demand for gas has also been hit as all vehicles, barring the ones used by law enforcement agencies and those used in maintaining essential supplies, have gone off the road. This meant vehicles run on CNG too have gone off the road in cities ranging from Delhi to Mumbai to Ahmedabad. IGL, the company that retails CNG to automobiles and piped cooking gas to households in the national capital and adjoining cities, has already shut two-thirds of its CNG dispensing pumps in view of the demand constraints.

Gas production from RIL-BP’s new fields in the KG basin may not begin in May, as was widely expected, because of the pandemic that has brought in lockdown and triggered an oil price collapse, which can reduce deep-sea gas price to less than $2/mmBtu. In November, the joint venture of RIL and BP had auctioned its planned output of 5 mmscmd of gas from R-cluster field in its KG-D6 block. Customers were told that supply would begin between 15 May and 10 November. By 1 April, the supplier was supposed to give buyers a 45-day window in which output would start. No such notice was given to customers.

The government has extended the last date to bid for 11 oil and gas blocks to 10 June as it extended till 3 May a lockdown of the country to contain the coronavirus. The fifth bid round under OALP opened in January and it was to first close on 18 March. However, the bid date was first extended to 16 April and then late last month, it was extended again but no closing deadline was given. In view of the nationwide lockdown, the OALP bid Round-V last date for bid submission will be extended according to the DGH. The revised date was to be notified later. Under OALP, companies are allowed to carve out areas they want to explore oil and gas in. Companies can put in an expression of interest for any area throughout the year but such interests are accumulated thrice in a year. The last bid round, OALP-IV, saw just eight bids coming in for seven blocks on offer. ONGC walked away with all the seven oil and gas blocks on offer. Of the 94 blocks awarded in the first four rounds of OALP, Vedanta has won the maximum at 51. Oil India Ltd has got 21 blocks and ONGC another 17.

Infrastructure and Retail Sector (CNG/PNG)

In a move that may help at least 41 companies, which were part of the ninth and tenth rounds of CGD bids, the PNGRB is likely to extend the deadline for completing the committed works by at least three months. This comes after several companies had approached the downstream regulator to invoke the force majeure clause. A total of 136 geographical areas (GAs) were on offer in the ninth and tenth rounds of CGD bids. Companies had committed around 42.3 mn piped natural gas connections, 8,181 CNG and 174,000 km of steel pipeline network by 2029 under the two rounds.  The deadlines are likely to be extended for those companies, which were part of the seventh and the eighth rounds. Other reliefs for the industry will be based on policy initiatives taken by the government. With the completion of the tenth round, the CGD network will be available in 228 GAs, comprising 402 districts spread over 27 states and Union Territories covering approximately 70 percent of India’s population and 53 percent of its geographical area. The regulator was also in the process of coming up with bids for the eleventh round, covering 44 GAs with the majority coming under Tamil Nadu (eight), Maharashtra (seven), and Madhya Pradesh (six). With the extension of the lockdown, the eleventh round of CGD bidding is expected to get delayed. Companies, which fail to meet the deadline, are supposed to pay a penalty. At present, India has 5.63 mn domestic, commercial and industrial PNG connections, 1,758 CNG stations and 50,216 km of steel pipeline infrastructure. Of the total consumption of natural gas in India, around 30 percent is consumed by the fertiliser sector; 19 percent comes under the CGD. Other major consumers include power firms (18 percent), refineries (15 percent), and petrochemical companies (6 percent).

IGL, the city gas distributor in Delhi and NCR announced a cut of ₹3.20 per kg in the consumer prices of CNG in Delhi and ₹3.60 cut per kg in Noida, Greater Noida and Ghaziabad. It also announced a cut in PNG prices with effect from 1 April 2020. The consumer price of PNG in Delhi has been cut by ₹1.55/scm from ₹30.10/scm to ₹28.55/scm, while the price of domestic PNG in Noida, Greater Noida and Ghaziabad would be ₹28.45/scm, which has been reduced by ₹1.65/scm from ₹30.10/scm. In Rewari, the applicable price of domestic PNG would now be ₹28.60/scm, which has been decreased by ₹1.55/scm. IGL supplies PNG to over 900,000 households in Delhi and over 450,000 households in Noida, Greater Noida, Ghaziabad and Rewari. With the revised price, CNG would offer over 56 percent savings towards the running cost when compared to petrol driven vehicles at the current level of prices. When compared to diesel driven vehicles, the economics in favour of CNG at revised price would be over 32 percent.

Domestic Demand

GAIL, whose natural gas sales have dropped 30 percent since the lockdown began, expects demand for the fuel to pick up soon as fertiliser plants increase production ahead of the sowing season and electricity generation expands to meet increasing air-conditioning needs with rising temperature. GAIL and its customers are also seeking to cautiously manage their cash flows to avoid any future financial turbulence due to economic uncertainties induced by the lockdown. For GAIL, the biggest demand hit came from city gas companies that mainly supply to small industries and CNG vehicles. CNG vehicles receive cheap domestic gas supply and as they went off the roads during lockdown, domestic production of gas too had to be reduced. Domestic and imported natural gas are currently available at record-low rates, an inducement for gas-based power plants to increase utilisation.

LNG

India’s LNG imports jumped 68 percent to 3,453 mmscm in February this year compared to the corresponding month a year ago, as gas-based power plants, oil refineries and gas marketing companies take advantage of low spot LNG prices, according to the oil ministry data. The overall increase in LNG imports during FY20 has not come at the cost of inflating the country’s trade deficit, data showed. The value of India’s LNG imports during the April-February period last financial year decreased 7.36 percent to $8.8 bn, as compared to $9.5 bn recorded in the corresponding period a year ago. India’s LNG imports during the April-February period of financial year 2019-2020 increased 17 percent to 30,812 mmscm, as compared to the corresponding period a year ago. Gas marketing companies and LNG terminal operators would have procured bulk LNG cargoes as spot LNG prices fell substantially, adding that the demand for natural gas had been robust in 2019-2020 prompting companies to lock-in more shipments in anticipation of healthy demand. According to the sector-wise imported LNG consumption published by the oil ministry, India’s power sector witnessed the highest growth in 2019-20. Imported LNG consumed by the power sector jumped 32 percent to 3,446 mmscm in the April-February period last financial year, as compared the corresponding period a year ago. According to analysts, the decline in domestic natural gas production in the last couple of quarters may have pushed gas-based power plants to increase buying of spot LNG cargoes.

GAIL has sold an LNG cargo for loading from the Cove Point terminal in Maryland in the US in May. It sold the cargo on FOB basis at around $1.50 to $2/mmBtu. The Indian importer has 20-year deals to buy 5.8 mtpa of US LNG, split between Dominion Energy’s Cove Point plant and Cheniere Energy’s Sabine Pass site in Louisiana.

Pricing

ONGC will lose about ₹40 bn in revenue and start making cash losses after the government slashed the natural gas prices by a steep 26 percent by benchmarking it against rates prevalent in gas-surplus nations. Prices of natural gas, which is used to produce fertilizer, generate electricity and gets converted into CNG for use in automobiles and piped natural gas for household cooking, was from 1 April cut to ₹2.39/mmBtu, a rate about 37 percent lower than the cost of production. The government had in October 2014 evolved a new pricing formula using rates prevalent in gas surplus nations like the US, Canada, and Russia to determine the price in a net importing country. Prices using this formula are calculated semi-annually. The cost of production of natural gas in the prolific Krishna Godavari basin is between $4.99 -7.30/mmBtu. The same for other basins is in the range of $3.80-6.59/mmBtu. For ONGC, which produces most of its 64 mmscmd of gas from western offshore, the breakeven is around $3.8/mmBtu. On 1 April, the gas price was reduced from $3.23/mmBtu to $2.39 – an 84 cent reduction which translates into annual ₹40 bn of revenue loss. The price of gas produced from difficult fields such as deepsea too has been cut to $5.61 from $8.43/mmBtu. This would just about breakeven ONGC’s new production from KG basin.

Rest of the World

Gas Prices

While the coronavirus-led plunge in crude oil prices has grabbed the bulk of the headlines, the collapse in spot LNG prices in Asia has been just as dramatic, and just as likely to have lasting consequences. Spot LNG prices for delivery to North Asia LNG-AS slipped to $1.95/mmBtu, the lowest on record and also the first time they have closed below the $2 mark. That means a slump of 71.3 percent since their pre-winter peak of $6.80/mmBtu in October last year, worse than the 70.1 percent fall in Brent crude oil futures from their 8 January peak this year – $71.75/bbl – to the 24 April close of $21.44. One of the almost bizarre consequences of the decline in Asian spot LNG prices is that they are now almost as low as natural gas futures in the US. This may to some extent be comparing apples with oranges, but it does serve to underline that the first casualty of the weakness in LNG will be US exports to Asia. US natural gas closed at $1.75/mmBtu, above recent lows around $1.50 but also well below the $2.91 peak reached just ahead of the northern hemisphere winter on 5 November. The US price is for delivery to the Henry Hub pipeline in the state of Louisiana, and thus is quite different to spot Asian LNG prices. The most obvious difference is US natural gas excludes to cost of transport to a liquefaction plant, the process of liquefaction and the shipping from the US Gulf coast to Asia.

Britain has become the world’s cheapest natural gas market as the front-month contract fell below its US counterpart in a rare event caused by falling energy demand owing to the coronavirus outbreak. The US Henry Hub gas price is usually considered the floor for European gas prices. The drop in UK gas below the US price has made it not only the cheapest in Europe but globally. The May contract on the UK’s NBP hub closed at $1.72/mmBtu $0.20 below US Henry Hub May futures, Refinitiv price data showed.

Middle East and Africa

Qatar Petroleum will postpone the start of production from its new gas facilities to 2025 due to a delay in the bidding process, but is not downsizing the world’s largest LNG project despite concerns of a mounting glut. The company is not scaling back a plan to build six new LNG production facilities, known as trains, needed for an ambitious domestic scale-up, though commercial bids from contractors and the start of output will be delayed. QP had wanted to lift its output to around 110 mtpa by 2024 from 77 mtpa, as the first phase of its expansion. The company had been expecting to receive final bids from contractors for the first phase – the North Field East project, which will involve the construction of four trains – this month. However, that was delayed as firms asked for more time to submit bids due to the global lockdown linked to coronavirus. The second phase, known as the North Field South project, will boost Qatar’s LNG production capacity to 126 mtpa by 2027 through the construction of two more trains. Global LNG demand has crumbled due to the coronavirus pandemic that has disrupted Daily gas production at Iran’s South Pars field reached more than 700 mcm/day in the last Iranian calendar year. South Pars, which Qatar calls North Field, is the world’s largest gas field and is shared between Iran and Qatar.

Washington granted Iraq a 30-day extension to a waiver allowing it to import Iranian gas for its dilapidated power grids despite American sanctions. Iraq relies on gas and electricity imports from its neighbour Tehran to supply about a third of its power grid, crippled by years of conflict and poor maintenance. The US blacklisted the Iranian energy sector in late 2018 and has granted Baghdad a series of waivers, usually for 45, 90 or 120 days. The US has pressured Iraq to use the waivers to become independent from Iranian energy, but progress has been slow.

China

GCL Oil & Natural Gas Co Ltd a private company in China has signed a framework agreement with Royal Dutch Shell to explore setting up a JV based in eastern China to market and trade LNG. The proposed JV would secure LNG supplies from Shell and market the fuel to a receiving terminal which GCL is planning in Jiangsu province, GCL said. GCL, a subsidiary of private energy and power firm GCL (Group) Holding, is one of over a dozen Chinese gas terminal developers outside state giants China National Offshore Oil Company, PetroChina and Sinopec Corp that have so far dominated the LNG sector. China is the world’s No.2 LNG importer. GCL is planning three receiving terminals along China’s east coast – Yantai in Shandong province, Rudong in Jiangsu and Maoming in Guangdong – with a total annual handling capacity of 14.5 mt. Among them, the 5 mtpa Yantai project was first to have won state regulatory approval, in January, and GCL aims to start constructing the facility this year. The Yantai terminal, at an estimated cost of $1.1 bn, would start up in 2023.

Europe and UK

Pipeline gas flows from Norway to Britain fell 44 percent from the start of the week as the summer gas season starts and coronavirus lockdowns continue to hit demand, according to data from Norway’s gas system operator Gassco. Pipeline gas flows to Britain fell to 49.7 mcm/day, down from 88.6 mcm, according to data. Deliveries to continental Europe remained broadly steady at over 240 mcm/day. Gas traders said UK demand was partly reduced by temperatures rising to above normal levels over the weekend and most of the following week, and the beginning of April also marks the end of the heating season when importers adjust volumes. But the market is expecting production reductions due to the unprecedented slump in energy demand in Europe and stoppages in most power-intensive manufacturing due to lockdowns in several European countries.

Golar LNG Ltd said that it received a force majeure notice from a BP Plc unit seeking to delay taking delivery of a floating liquefied natural gas facility by a year. The notice is the latest force majeure claim issued in the LNG sector that is struggling with a seasonal plunge in demand as well as the spread of the coronavirus outbreak, which has further hammered the consumption of the super-chilled fuel globally. BP is expecting a one-year delay due to the pandemic and currently sees no possibility in reducing the duration of the new timing, according to Golar’s unit Gimi MS Corp. The plant is designed to produce an average of about 2.5 mtpa. The construction of the floating facility was expected to cost about $1.3 bn, excluding financing costs.

Asia-Pacific

The Australian unit of Royal Dutch Shell and joint venture partners have decided to delay an FID on the Crux gas project in offshore Australia that was initially planned for 2020. The Crux project is one of several globally that have been delayed in recent months following the collapse in energy prices. LNG demand had been hitting record highs until recently thanks to appetite from China and India as they diversify away from dirtier coal power generation, but the crash in oil and gas prices has caused major LNG exporters to put off gigantic new facilities or expansions of existing projects. Crux, owned by Shell, Osaka Gas and a unit of Seven Group Holdings, is one of several gas fields that have been awaiting development off northwestern Australia. The project will be developed to supply backfill gas to the Prelude floating LNG facility off northwest Australia. Cargo liftings from Shell’s Prelude facility, which is the world’s largest floating LNG facility, has been suspended since February following an electrical trip.

FY: Financial Year, mn: million, bn: billion, E&P: Exploration and Production, mmscm: million metric standard cubic meter, ONGC: Oil and Natural Gas Corp, mmscmd: million metric standard cubic meter per day, CNG: compressed natural gas, RIL: Reliance Industries Ltd, KG: Krishna-Godavari, mmBtu: million metric British thermal units, OALP: Open Acreage Licensing Policy, DGH: Directorate General of Hydrocarbons, PNG: piped natural gas, CGD: city gas distribution, PNGRB: Petroleum and Natural Gas Regulatory Board, GAs: geographical areas, km: kilometre, IGL: Indraprastha Gas Ltd, kg: kilogram, scm: standard cubic meter, LNG: liquefied natural gas, US: United States, FOB: free-on-board, bbl: barrel, UK: United Kingdom, mtpa: million tonnes per annum, mcm: million cubic meters, JV: joint venture

Courtesy: Energy News Monitor | Volume XVI; Issue 48

Monthly Oil News Commentary: March – April 2020

India

Demand

Oil demand in India, the world’s third-biggest consumer has collapsed by as much as 70 percent as India endures the planet’s largest national lockdown. The estimate for the current demand loss is a stark reminder of the challenge facing oil producers as they haggle over a deal to cut supply and prop up the global energy industry. Consumption for the entire month could average about 50 percent below last year’s levels but that is based on India’s three-week lockdown ending 15 April as planned. India consumed 4.48 mn barrels a day of oil in April 2019, including about 690,000 barrels a day of gasoline and 1.8 mn barrels of diesel, according to government data.

India’s annual fuel demand grew 0.2 percent in 2019/20, its worst growth rate in over two decades, dragged down by a hefty 17.8 percent decline in local consumption in March as steps taken to prevent the spread of Covid-19 dented transport fuel sales. Consumption of refined fuels, a proxy for oil demand, totalled 16.08 mt in March according to PPAC. Falling refined fuels sales in March points to sluggish industrial activity which according to some analysts is forecast to grow at 1.5-2 percent in 2020/21, its lowest in decades. Consumption of diesel, which normally accounts for two-fifths of overall refined fuel consumption, declined 24.2 percent in March from a year earlier, its deepest decline since April 1998. PPAC does not provide monthly growth numbers for before April 1998. Sales of gasoline, or petrol, used by automobiles fell by 16.4 percent from a year earlier, its worst slide since March 1999, the data showed. Jet fuel consumption declined by 32.4 percent as the lockdown has hit air travel. LPG sales rose about 1.9 percent to 2.31 mt and naphtha sales rose 15.7 percent to 1.39 mt. With flights grounded since mid-March, ATF consumption fell 32.4 percent to 484,000 tonnes.

Petrol and diesel consumption, which saw its biggest ever decline in the aftermath of a nationwide lockdown, is likely to pick up in the second half of the month as the government has allowed trucks to ply as well as farmers and industries in rural areas to resume operations after 20 April. Petrol and diesel sales had fallen by over 66 percent and ATF consumption collapsed by 90 percent as the unprecedented nationwide lockdown shut factories, stopped road and rail transportation and suspended flights. Due to lower demand of liquid fuels, refinery run-rates have been lowered by 25-30 percent – meaning they would produce up to 30 percent less of all fuel petrol, diesel, ATF, naphtha and LPG.

India, the world’s third largest energy consumer, has enough petrol, diesel and cooking gas or LPG in stocks to last way beyond the three-week nationwide lockdown as all plants and supply locations are fully operational.

Production

India’s oil production fell 6.4 percent in February as a decline in output from fields operated by private firms negated a rise in production from ONGC fields. Crude oil production at 2.39 mt in February was 6.41 percent lower than 2.56 mt output in the same month a year back, according to the oil ministry data. ONGC reported a 4.64 percent rise in production at 1.67 mt as output from its offshore fields saw a pick-up. However, fields operated by the private sector firms reported a 32.6 percent drop with those in Rajasthan seeing a sharp 32.3 percent lower production.

Domestic oil and gas operators have approached the government seeking a reduction and deferment of royalty, cess and profit petroleum paid by companies to the government, with the Covid-19 pandemic hitting demand and pushing international crude prices to new lows. In addition, companies batted for a higher gas price compared to the existing $2.39/mmBtu, effective from April to September this year. In a letter to the finance ministry, the Association of Oil and Gas Operators said oil and gas operations are now unviable owing to the higher share of government taxes. The industry body’s move comes after a decline in oil prices by around 60 percent since 1 January, leading to a 97 percent decline in operator revenue.

Fitch Ratings said it has downgraded ratings of Vedanta Group firm CIHL’s rating as a drop in oil prices will hurt earnings of the company. Fitch expected the EBITDA contribution from oil and gas business to drop by about 45 percent in FY21 and 20 percent in FY22 due to falling oil prices and volume growth. CIHL also expects further cost cuts, as contractor prices are typically negotiated lower in case of a persistent low oil-price environment, it said. Vedanta has the ability to defer capex for some of its oil and gas and other mineral projects to mitigate a drop in cash flow from the low-price environment.

Vedanta has cut oil production at its prolific Rajasthan block by a tenth as refiners, faced with deep demand destruction due to nationwide lockdown, have reduced intake, India’s largest private sector oil producer has said. The production has fallen to 160,000 boepd from 180-190,000 barrels. IOC, Nayara Energy and a couple of other refiners are Vedanta’s key oil customers. With taxes and government profit share eating away more than three-fourth of revenue, India’s biggest private oil producer Cairn Oil and Gas has sought a review of taxation system during low oil price regime, saying funding exploration will be difficult in the present scenario. According to Vedanta the government levies 20 percent cess on oil price realised and an equivalent amount has to be paid to the state government in royalty. The outbreak of Covid-19 has cost the company 50,000 barrels of oil and oil equivalent gas in production. The company was producing 180,000 boepd from its flagship Barmer oil and gas fields in Rajasthan before it took a maintenance shutdown in February. The shutdown was meant to hook up a new project that could have helped ramp up production further but it could achieve only 160,000 boepd.

Imports

Despite efforts by the government to increase crude oil production and reduce the country’s oil import bill, India’s domestic crude oil output fell to 32,173 tmt in 2019-2020, the lowest level of production in at least 18 years for which data is publicly available. The last fiscal year’s production was down 6 percent as compared to 34,203 tmt of oil produced in 2018-19. In March, domestic oil production declined 5.36 percent to 2,701 tmt. The declining trend in production had pushed the country’s crude oil import dependence to an all-time high of 86.7 percent in the April-February period of 2019-2020. The oil ministry is yet to publish data on crude oil import dependence for the full financial year 2019-2020 and March 2020. The government had in March 2015 set a target for the government to decrease oil import dependence by 10 percent by 2022. India’s oil import dependence stood at 78.6 percent in 2014-2015. The government had recently indicated there may be a need to revisit the existing strategy if the goal to cut oil imports had to be met.

LPG

Though the outbreak of Covid-19 has hit the demand for petrol, diesel, fuel oil, bitumen, ATF and other petroleum products, the requirement for LPG has gone up, according to BPCL. The crude oil processing has been reduced now to around 60 percent in view of the lower product demand. To meet the rising demand for LPG, BPCL had taken steps to improve LPG production in its refineries by appropriately modifying operations.

According to the government over 15 mn free LPG cylinders have been distributed as part of the government’s stimulus aimed at helping poor tide over hardships of lockdown. Under the Pradhan Mantri Garib Kalyan Yojana, several relief measures have been announced by the central government for the welfare of poor, one of them being providing three LPG cylinders (14.2 kg) free to over 80 mn beneficiaries of PMUY between April and June. For the seamless implementation of the scheme, the OMCs have been transferring an advance equal to the retail selling price of cylinder to the accounts of beneficiaries. The beneficiaries can potentially use this money to buy LPG refill. Marketing guidelines have not been provided post the announcement and it is still not clear whether consumers will be able to lift more than one LPG cylinder in a month.

The OMCs are distributing 5 to 6 mn cylinders per day, which includes about 1.8 mn free cylinders. The demand for LPG by PMUY consumers increased in the country after the centre announced free LPG cylinder refills for them. IOC’s Mathura refinery has enhanced the production of LPG owing to a sudden spurt in demand for the cooking fuel amid the nationwide lockdown to contain the spread of coronavirus. All precautions are being taken to protect our employees amid the coronavirus outbreak, however, the “round the clock” production of fuel has not been affected.

IOC has assured residents of Chhattisgarh that there was no shortage of petrol and diesel or LPG cylinders across the state and there is no need for any panic buying. Consequent to lockdown, initially there was a spike in the LPG cylinder refill booking by around 30 percent during 24 to 26 March which got tapered down to normal levels, now. All of IOCs LPG bottling plants in the state are functioning at more than 120 percent of their rated capacity and are following due precautions adhering to health protocols. Also, all of IOCs LPG distributorships are fully operational.

With demand for cooking gas increasing amid the lockdown, some parts of the city saw long queues outside LPG dealer outlets as staff shortage affected home delivery of cylinders. The supply of LPG from oil marketing firms and the delivery of gas cylinders to dealers across Mumbai is normal. In some areas, people complained that they had to pay a ‘premium’ for a gas cylinder refill. In other parts of Mumbai region, LPG cylinder delivery was on, though the waiting list was 2-3 days.

Expecting a 70 percent hike in LPG demand in Assam in April due to the government’s policy to give three free cylinders to PMUY beneficiaries over a three- month period, IOC has introduced night shift in two of its major bottling plants to “handle the additional load”. While the rise in demand has been estimated at 57 percent across the country for the current month compared to March, it is pegged at 70 percent for Assam and 45 percent for the north-eastern region.

IOC aims at ramping up capacity at its Kandla LPG import terminal from 600,000 tonnes per year to 2.5 mtpa at a cost of ₹5.88 bn. The capacity is being increased to feed LPG into the proposed 2,757 km long Kandla-Gorakhpur LPG pipeline, billed as the longest LPG pipeline in the world. To be laid at a total cost of ₹100.88 bn, the 8.25 mtpa capacity pipeline would connect four big ports including Kandla, Mundra and Pipavav on Gujarat coast, four refineries and 22 LPG bottling plants in Gujarat, Madhya Pradesh and Uttar Pradesh. The Kandla-Gorakhpur pipeline will be a joint venture of three oil marketing companies. The pipeline will connect the two refineries including IOC’s 13.7 mtpa Koyali refinery and the 6 mtpa Bina refinery in Madhya Pradesh.

IOC, BPCL and HPCL announced an ex-gratia of ₹500,000 in case of coronavirus-related death of any LPG delivery boy or other personnel involved in the supply chain. While the entire country has been locked down with most confining themselves to homes, LPG supplies have continued uninterrupted with all the distributors and hundreds of delivery boys providing cylinders to 275 mn users on demand. Though the LPG distributor agencies and their staff, including delivery boys, are not part of oil company staff, they have been provided with protective gear by the three firms. But, the risk to the delivery boys and other staff remained as the Covid-19 infection spreads. Recognising the threat, IOC, BPCL and HPCL announced the ex-gratia. LPG being an essential commodity has been exempted from the lockdown, and the personnel are required to attend duty during this crisis period to maintain uninterrupted LPG cylinder supplies across the country to all customers.

Amid the nationwide coronavirus lockdown, LPG cylinder prices were cut by up to ₹65 per cylinder. The price cut follows the huge fall in global crude prices over the past few weeks. As per IOC’s revised rate list that was made public, the 14.2 cylinder will cost ₹744 in Delhi, down ₹61.5 from the last list (₹805.5 per cylinder). For Kolkata the new rate is ₹774.5 (earlier price 839.5), for Mumbai ₹714.5 (earlier price ₹776.5), and for Chennai 761.5 (earlier price ₹826). Rate revision is the second consecutive fall in cylinder prices in the past two months.

Strategic Reserves

India in a concerted effort to step up its energy security and taking advantage of prevailing very low crude oil prices in the international market is playing an active role through coastal Karnataka based MRPL in filling ISPRL underground crude oil caverns in Mangaluru and Padur. The other strategic reserve of ISPRL is located at Vishakapatnam. The oil ministry has mandated ISPRL to work closely with public sector oil companies including MRPL to achieve the target of filling up Mangaluru and Padur caverns. Series of crude oil cargos of varying volumes from 1 to 2 mn barrels that MRPL, IOC and BPCL have sourced, will be unloaded in the single point mooring of MRPL under jurisdiction of New Mangalore Port Trust during April and May before onset of monsoon in the region. According to MRPL the first consignment of 2 mn barrels by MRPL and second consignment of 1 mn barrel by IOC has already been successfully unloaded into the caverns.

India is capitalizing on low global oil prices to fill its underground strategic oil reserves, with the first shipload of 1 mn barrels of crude oil from the UAE arriving at Mangalore as part of efforts to shore up supplies to meet any supply or price disruption. While the 5.33 mt of emergency storage, enough to meet its oil needs for 9.5 days, was built in underground rock caverns in Mangalore and Padur in Karnataka and Visakhapatnam in Andhra Pradesh by the government, state-owned oil firms have been asked to buy oil at cheaper rates from the market and fill them up. The storages at Mangalore and Padur are half-empty and there was some space available in Vizag storage as well. These will now be filled by buying oil from Saudi Arabia, the UAE and Iraq. The Strategic Petroleum Reserve entity of India built the underground storages as insurance against supply and price disruptions. It allowed foreign oil companies to store oil in the storages on condition that the stockpile can be used by New Delhi in case of an emergency.

Refining

Two Indian refiners declared force majeure on crude purchases from the Middle East after fuel demand plummeted due to a nationwide lockdown to stem the spread of coronavirus and the companies’ tanks are full. IOC the country’s top refiner, has reduced its crude processing by 30 percent to 40 percent and shut its naphtha cracker plant in northern India because of falling demand and “to avoid tank top-up situation”. IOC, which owns about a third of the country’s 5 mn bpd refining capacity, has sent a force majeure notice to most Middle Eastern suppliers. The company is yet to decide whether to reduce its crude supplies or cancel lifting of oil cargoes altogether in April. IOC has declared force majeure on crude purchases from four of its biggest suppliers – Saudi Arabia, Iraq, UAE and Kuwait – as refinery run rates have been cut down in view of plummeting fuel demand following a nationwide lockdown. IOC has asked the four suppliers to defer some of the volumes they were to deliver in April. The company has reduced processing at its refineries by at least one-fourth as shutting down of businesses, suspension of flights and most vehicles staying off road due to the 21-day nationwide lockdown has led to drastic fall in demand. Petrol sales fell 8 percent in March compared to February, while diesel demand was down 16 percent.

Southern India-based MRPL has already shut a third of its 300,000 bpd refining capacity and is preparing to shut the remainder as demand slumped. MRPL, Karnataka’s only oil refinery has declared ‘force majeure’ to contracted crude oil supplies. With its tanks full and OMCs not lifting petroleum products, MRPL will shed 0.5 mt of crude up to first week of May. Supplying fuel to entire Karnataka and even neighbouring Kerala and other Southern states, this ‘force majeure’ move by MRPL will in no way disrupt fuel availability. Consequently, MPRL with an annual refining capacity of 15 mt has shut down its phase one operations completely. With downstream processing of crude, a common part of functioning of all three-phases, every product – petrol, diesel, LPG, distillates – is produced when the refinery operates.

Retailing

Consortium of Indian Petroleum Dealers, which represents the interests of the dealers of around 60,000 retail outlets across the country, has sought a ‘stimulus financial package’ from oil marketing corporations – BPCL, IOC and HPCL. The package, to be offered for 120 days, is to compensate for the expenditures being incurred by the outlets, which are functioning round-the-clock to meet emergencies, during the lockdown. The retail outlet dealerships have remained open during the ongoing crisis, to meet the needs of the police, ambulances, municipal corporations, gram panchayats, district collectors, state governments and emergency of citizens, even postponing leave and holidays of staff. The oil marketing corporations want recompense by way of reimbursement, as ‘stimulus financial package’ as dealer margins based on government-approved charges. Dealer margins work on ‘litre sales’, whose original volume has been curtailed below 10 percent during this crisis, while cost and expenditures remains constant.

Digital payments platform Paytm has announced that it has entered into a partnership with IOC to enable digital transactions across its fuelling stations as well as LPG cylinder delivery ecosystem in the country. With this, IOC customers will now be able to book and pay for LPG cylinders on the Paytm app. IOC’s delivery executives will also carry the Paytm All-in-One Android POS device and All-in-One QR code to facilitate digital transactions at the time of delivery. IOC’s brand Indane Gas has now started accepting digital payments through Paytm All-in-One Android POS and All-in-One QR for home delivery of gas cylinders. It has been working with Paytm and promoting cashless payments to help stop the spread of coronavirus. Paytm’s POS machine will be integrated with Indane delivery application to enable digital recording and updating of cylinder delivery. It will generate an e-invoice or physical copy of the bill as well. IOC retail outlets will also carry Paytm’s All-in-One payment services for unlimited acceptance of Paytm Wallet, UPI from all apps and Rupay cards. Along with this, every customer paying at petrol pumps using Paytm will automatically get credited with points under Indian Oil ‘XtraRewards’ Loyalty Program. These points can be redeemed on the Paytm app for purchasing free fuel from IOC outlets. Paytm users can order their IOC cylinder refills by tapping on ‘Book a Cylinder’ icon in the ‘Other Services’ section of the app. The entire process requires minimal details and does not require them to re-enter details on every purchase. They only need to provide their consumer number or the linked mobile number along with the name of the gas agency. Humsafar, an online diesel delivery startup has announced that it will provide the service to the emergency services like healthcare sector, during the ongoing lockdown that has been imposed for 21 days till 14 April, by the Indian government, in a bid to contain the spread of the Covid-19 virus. The startup caters to the bulk diesel buyers like housing societies, hotels, hospitals, malls, construction sites, industries, banquets at their doorstep. The service can be booked using their mobile app called Fuel Humsafar, as claimed by the company.

Environmental Regulation

The Union government had set a deadline for rolling out BS-VI compliant fuel by 1 April 2020, however, Mathura refinery achieved the target on 1 February 2020 despite being shut for in December 2019 and January 2020 for revamping its units.  India joined a select league of nations having the world’s cleanest petrol and diesel as oil companies rolled out Euro-VI emission compliant fuels without either disruption or a price increase. Leapfrogging from BS-IV grade fuel straight to BS-VI grade, equivalent to Euro-VI fuel, petrol and diesel would have resulted in an up to ₹1/litre increase in cost but oil companies decided against passing this on to consumers and instead adjusted it against the reduction warranted from international oil prices plummeting to a 17-year low. Oil companies have not changed petrol and diesel price for over a fortnight now as they first adjusted the reduction warranted against the ₹3/litre increase in excise duty and now are setting off the increased cost of BS-VI fuel. Petrol and diesel rates were last revised on 16 March. A litre of petrol in Delhi comes for ₹69.59 and diesel is priced at ₹62.29. IOC said the switch over from BS-IV to BS-VI was achieved in just three years, a feat not seen in any of the large economies around the globe. India will join the select League of Nations using petrol and diesel containing just 10 ppm of sulphur as it looks to cut vehicular emissions that are said to be one of the reasons for the choking pollution in major cities.

Rest of the World

OPEC and OPEC+

Oil markets have been particularly hard hit because of a battle for market share between Saudi Arabia and Russia that has increased supply while demand has been destroyed by lockdowns to try to prevent the spread of the new coronavirus. Refiners have been cutting back activity as storage fills and profit margins shrink, which could eventually boost prices of some refined products such as LPG. OPEC and allies led by Russia agreed to a record cut in output to prop up oil prices amid the coronavirus pandemic in an unprecedented deal with fellow oil nations, including the US that could curb global oil supply by 20 percent. Measures to slow the spread of the coronavirus have destroyed demand for fuel and driven down oil prices, straining budgets of oil producers and hammering the US shale industry, which is more vulnerable to low prices due to its higher costs. The group, known as OPEC+ had agreed to reduce output by 9.7 mn bpd for May and June, after four days of talks and following pressure from the US to arrest the price decline. OPEC+ expected total global oil cuts to amount to more than 20 mn bpd, or 20 percent of global supply, effective 1 May. OPEC had the same figure in its draft statement but removed it from the final version. The biggest oil cut ever is more than four times deeper than the previous record cut in 2008. Producers will slowly relax curbs after June.

Behind a Saudi-Russian truce to stabilise oil markets with a record output cut, market players are seeing the two production heavyweights still trading blows in the physical market. Russia has relied on Asian markets as a destination for its oil output since launching the 1.6 mn bpd ESPO pipeline. This connects Russian fields to Asian markets through the port of Kozmino, the country’s main eastern export outlet, and also via a pipeline spur with China, the biggest Asian consumer. Saudi sales to Europe are poised to surpass 29 mn barrels in April, slightly less than the record of August 2016, shipping data showed. Supplies of Aramco’s Arab crude oil including Arab Light, the closest grade to Russian flagship in terms of quality, will rise to Italy, Turkey, Greece, France and Poland in April. All of these countries are regular buyers of Russian oil. Polish refineries will import a record 560,000 tonnes of Arab Light crude via Gdansk in April, the data shows. Poland will not import any sea-borne Russia’s Urals crude, for the first time in a long period, while Arab Light oil supplies to Poland will be steady in May. Russian domestic oil prices for April delivery fell by more than 75 percent from a month ago to 5,272 roubles ($67.2) per tonne, or $9.2/barrel, at a Rosneft tender following the collapse on global oil markets. It was the lowest domestic price in Russia’s Volga River region since Reuters began tracking it in 2009. The prices are indicative for the domestic market and have not been approved yet by Rosneft, which sets up the domestic tenders via a joint venture with China’s Sinopec, Udmurtneft.

The US said it could slap “very substantial tariffs” on oil imports if prices stay low, but does not expect it will need to, since neither Russia nor Saudi Arabia, which are locked in an oil price war, would benefit from continued low prices. US had previously said that it expects the two countries to arrive at a deal to cut output by as much as 15 mn bpd. Neither country has confirmed his comments, but the US expects that tariffs can be avoided. The US in recent years has become the world’s biggest oil producer, at times putting its exports in competition with Russia and members of the OPEC. As oil prices drop, many heavily leveraged US energy companies face bankruptcies and workers are at risk of layoffs. The American Petroleum Institute and other energy interests have told the US government they oppose tariffs, fearing the measures would add costs to importing crude and materials for refineries.

The US would help Mexico contribute to global oil output reductions, in a surprise move that could break an impasse among the world’s major oil producers over cutbacks aimed at stabilizing crude prices. The US reductions will amount to 250,000 bpd. The cuts would depend on the approval of other oil-producing nations. Oil prices have cratered under the pressure of a price war and the devastating economic impact of the coronavirus global pandemic. US had previously warned Saudi Arabia that it could face sanctions and tariffs if it did not reduce production enough to help the US oil industry. US said it had not made assurances to Saudi Arabia that the US would not bail out US oil producers. Mexico was pressed to make cuts of 400,000 bpd, or 23 percent of current output, before the group lowered the target to 350,000 bpd. US offered to help before Mexico announced it would cut output by only 100,000 bpd.

The coronavirus pandemic and resulting plunge in crude prices will result in a leaner, stronger oil industry but raise the risk of shortages further down the line according to Goldman Sachs. Crude prices suffered another sharp fall as the pandemic worsened and the Saudi Arabia-Russia price war showed no signs of abating. This would in turn cause an oil shortage, pushing prices above the Wall Street bank’s $55/barrel target for 2021. This will likely be a game changer for the industry according to the bank.

USA

Crude oil futures fell, with US futures touching levels not seen since 1999, extending weakness on the back of sliding demand and concerns that US storage facilities will soon fill to the brim amid the coronavirus pandemic. The oil market has been under pressure due to a spate of reports on weak fuel consumption and grim forecasts from the OPEC and the IEA. The volume of oil held in US storage, especially at Cushing, Oklahoma, the delivery point for the US West Texas Intermediate contract, is rising as refiners throttle back activity due to slumping demand. Production cuts from OPEC and its allies such as Russia will also kick from May. The group has agreed to reduce output by 9.7 mn bpd to stem a growing supply glut after stay-at-home orders and business furloughs to curb the Covid-19 pandemic.

As a standoff over oil shipments emerged between Texas pipeline operators and shale producers, a state energy regulator has renewed a controversial call for mandated cuts to address a growing crude glut. Oil prices have fallen more than 60 percent this year as the coronavirus pandemic has destroyed fuel demand and Saudi Arabia and Russia kicked off a price war in a battle for market share. Oil in Midland, Texas, home of the biggest US shale field, traded for under $10/barrel, far below the cost of production. In the latest sign of a growing oil glut in the state, crude oil purchasers across Texas have warned producers that storage will be limited in May and output must be cut.  A US court ruled against the US Army Corps of Engineers’ use of a permit that allows new energy pipelines to cross water bodies, in the latest setback to TC Energy Corp’s plans to build the Keystone XL oil pipeline. Keystone XL, which would carry 830,000 bpd of crude from Alberta to the US Midwest, has been delayed for more than a decade by opposition from landowners, environmental groups and tribes, but construction was finally supposed to start this spring. Alberta in March said it would invest $1.1 bn in Keystone XL and back TC Energy’s $4.2 bn credit facility to get the project built.

US shale oil output is expected to drop by 194,000 bpd in April, most on record, to about 8.7 mn bpd, according to the US EIA as producers slash drilling activity after oil prices plunged. Shale production has been sliding for several months, but the declines are expected to accelerate as demand has fallen by roughly 30 percent worldwide due to the coronavirus pandemic. Numerous producers, including US majors Exxon Mobil Corp and Chevron Corp, have announced plans to rein in spending and are forecasting reduced output in coming months. April’s decline is forecast to be followed by fall in May by 183,000 bpd to 8.53 mn bpd, which would be the lowest since June 2019, and a sixth straight month of declines, according to the EIA. Crude oil prices dropped by more than 65 percent in the first quarter as demand plummeted due to the coronavirus pandemic and supply ballooned due to a price war between Saudi Arabia and Russia. Output at every shale formation is expected to fall in May, with the biggest drop forecast in the Permian, the biggest US basin according to the EIA.

Major Oil Producers

Saudi Aramco has allocated around 4 mn bpd of crude oil to its Asian customers, which is lower than its full contractual volumes to Asia by about 2 mn bpd. Aramco said that it would supply its customers inside the kingdom and abroad with around 8.5 mn bpd of crude, in line with a supply cut pact agreed by OPEC and other leading oil producers. Saudi Aramco, the world’s largest oil producer, is weighing the sale of a stake in its pipeline unit to raise money amid a slump in crude prices. Aramco may need to raise cash this year as it confronts a historic rout in oil prices and a burgeoning list of spending obligations. Aramco is ramping up oil supply at a time demand is falling off a cliff as travel restrictions are placed on people all around the world to stop the spread of coronavirus. The emirate of Abu Dhabi said it had sold $7 bn of bonds in the third major sale this month by Gulf sovereigns seeking to counter slumping oil prices. The richest of seven sheikhdoms that make up the United Arab Emirates, Abu Dhabi sits on the bulk of the federation’s oil wealth. The six GCC member states, which also include Bahrain and Oman, depend heavily on oil income for between 65 percent and 90 percent of public revenues. Iraq has sent a proposal to all international oil companies asking them to reduce the budgets of developing oilfields by 30 percent as the slump in oil prices has hit government revenues, but said the proposed cuts should not affect crude output. International firms operate in Iraq’s southern oilfields under service contracts. Under the contracts, they are paid a fixed dollar fee for volumes produced and Baghdad repays companies for the cost of building projects and approve oilfields development plans. Energy companies around the world are slashing spending after the benchmark Brent oil price more than halved since the start of the year, to trade around $26/barrel. Iraq, OPEC’s second-biggest oil producer, pumps around 4.6 mn bpd. Iraq’s oil ministry said there had been discussions with the oil companies on cost cuts but a decision on that should be taken when there is more clarity on the impact of the coronavirus crisis on the oil market. Meanwhile, ExxonMobil, which is the main developer of the West Qurna 1 oilfield in southern Iraq, has also asked all its suppliers in Iraq to reduce costs, according to a letter seen by Reuters. Exxon Mobil Corp has said it was notifying contractors and vendors of planned near-term cuts in capital and operating expenses due to the coronavirus pandemic. Other Arab oil producers are also reviewing their spending plans. Kuwait Petroleum Corp has instructed all subsidiaries to cut spending this year due to an “unprecedented” decline in oil prices caused by the collapse of a global oil supply cut pact and the spread of the coronavirus which has hit demand. Abu Dhabi National Oil Company has also notified contractors and suppliers that it will review existing deals to find ways to cut costs. Saudi Aramco, the world’s top oil producing planned to cut capital spending for 2020 to between $25 bn and $30 bn, from $32.8 bn in 2019.

Egypt’s 2020-21 draft budget is based on an oil price of $61/barrel down from $68 in the current budget which ends on June 30 but around three times higher than the present price. Oil prices fell sharply, with US crude briefly dropping below $20 and Brent hitting its lowest in 18 years, on heightened fears that the global coronavirus shutdown could last months and demand for fuel could decline further.

Sanctions

Gasoline shortages in Venezuela are worsening after US officials have told foreign firms to refrain from supplying the fuel to the sanctioned South American nation and only provide diesel. Since late 2019, US officials have asked most of Venezuela’s fuel suppliers to avoid sending gasoline to the crisis-stricken nation. In the latest round of calls in early March between US officials and oil firms, they repeated the ban, despite worsening humanitarian conditions in the country. The US Treasury Department sanctioned Venezuela’s PDVSA over a year ago as a measure to oust its President. The restriction on crude oil-for-gasoline swaps with Venezuela is being maintained as the country’s own once-formidable refining industry collapses, with almost no gasoline produced in recent months, leading to chronic shortages across the country. Both Repsol and Eni send PDVSA diesel, not gasoline, as part of their swaps. In March, Eni delivered two diesel cargoes, while Repsol sent one and Rosneft did not send any. Fuel shortages began well before the sanctions because of plunging refining in Venezuela, which has a total capacity of 1.3 mn bpd of crude processing. Of that, PDVSA only refined 101,000 bpd of crude in March, according to an internal PDVSA document, increasing the crisis-stricken nation’s dependence on imports. Venezuelan state oil company PDVSA is trying to repair the catalytic cracker at its 146,000 bpd El Palito refinery in an effort to restart gasoline production at the facility after years of inactivity. US sanctions on PDVSA have made it more difficult for Venezuela to import fuel, resulting in widespread gasoline shortages. The OPEC country’s refineries, which can process up to 1.3 mn bpd, are producing at a small fraction of capacity due to years of lack of maintenance. A plunge in global oil prices as a result of falling demand due to the coronavirus pandemic, as well as a price war between producers Russia and Saudi Arabia, has also left cash-strapped Venezuela with even fewer funds to import goods like fuel.

China

China began trading LPG options on the Dalian Commodity Exchange, only a day after the debut of an LPG futures contract, as the bourse experiments with simultaneous launches. The LPG futures contract for November delivery fell 9 percent, its first day of trade, but rallied 7 percent to settle at 2,513 yuan per tonne. During the session, it hit its trading limit as the global oil price staged a recovery from a deep sell-off triggered by the impact of the coronavirus crisis on demand. The derivatives for LPG, a refined oil product used as a fuel in vehicles and for cooking, are the third type of oil and gas product to be listed in China.

S America

Ecuadorean authorities were scrambling to limit the environmental impact of a crude oil spill in the country’s Amazon region, where pipeline bursts prompted by a landslide caused crude to enter the Coca River. The energy ministry had placed barriers around the spill in an area home to several indigenous communities and near the source of drinking water for the city of El Coca, with some 45,000 residents. Ecuador produces some 530,000 bpd of crude, the cash-strapped country’s main source of export revenue. According to the government the incident will not affect crude exports or domestic fuel supply.

Europe

Western Europe’s largest oil and gas producer Norway said it would consider cutting its oil production if a global deal to curb supply is agreed by the world’s biggest producers. OPEC and its allies are working on a deal for an oil output cut equivalent to about 10 percent of world supply in what member states expect will be an unprecedented global effort including the US.

Norway is in a dialogue with other oil producing countries regarding production cuts. Norway, which meets about 2 percent of global oil demand, is not a member of OPEC. It has cut its oil output several times before, including in 1990, 1998 and in 2002, always in tandem with other producers when prices fell. During the first half of 2002, Norway cut its output by around 150,000 bpd after oil prices fell to below $20 a barrel following attacks in the US on 11 September 2001. Norway’s crude oil production stood at 1.75 mn bpd in February, up 26 percent from a year ago thanks to the ramp-up of state-controlled Equinor’s giant Johan Sverdrup oilfield. Norway’s Supreme Court will hear a lawsuit opposing the country’s Arctic oil exploration brought by Greenpeace and other environmental groups, it said, in a landmark case for Western Europe’s largest oil and gas producer. The environmental groups argue that the Norwegian government’s decision to grant oil exploration licences in 2016 in the Arctic Barents Sea to oil firms, including Equinor, was illegal. Oil companies have already drilled exploration wells in some licences awarded in 2016, but have not made any significant discoveries.

PPAC: Petroleum Planning and Analysis Cell, LPG: liquefied petroleum gas,  mn: million, bn: billion, mtpa: million tonnes per annum, ATF: aviation turbine fuel, ONGC: Oil and Natural Gas Corp, mmBtu: million metric British thermal units, CIHL: Cairn India Holdings Ltd, FY: Financial Year, boepd: barrels of oil equivalent per day, tmt: thousand metric tonne, BPCL: Bharat Petroleum Corp Ltd, PMUY: Pradhan Mantri Ujjwala Yojana, kg: kilogram, OMCs: Oil Marketing Companies, IOC: Indian Oil Corp, HPCL: Hindustan Petroleum Corp Ltd, MRPL: Mangalore Refinery and Petrochemicals Ltd, ISPRL: Indian Strategic Petroleum Reserves Ltd, UAE: United Arab Emirates, mt: million tonnes, ppm: parts per million, OPEC: Organization of the Petroleum Exporting Countries, US: United States, bpd: barrels per day, IEA: International Energy Agency, EIA: Energy Information Administration, PDVSA: Petróleos de Venezuela

Courtesy: Energy News Monitor | Volume XVI; Issue 47

Monthly Non-Fossil Fuels News Commentary: March – April 2020

India

Virus Impact

Following the lockdown and fall in electricity demand, several states are now curtailing renewable power purchases and have also issued notices on non-payment to generators. These states have invoked Force Majeure clause in their PPA with renewable projects to nix power supply and payment. While Punjab has told renewable power producers to run their units at their own cost and risk, UP, Andhra Pradesh and Madhya Pradesh have refused payment and have stated that they are curtailing renewable power. Renewable power including solar, wind, small hydro and biomass comes under ‘must-run status’, that is, it cannot be stalled or shut under any circumstances. The MNRE in a notice asked the states to comply with the must-run status of renewable energy. It also asked them to ensure timely payment to generating companies even during the lockdown period. Punjab had issued a notice to several renewable power producers that supply to the state, it will curtail electricity power purchase and generation. The demand for power went down by 31 percent, while there was a 68 percent increase in capacity which has been backed down. UP was the first state to refuse payment to solar power projects citing Force Majeure and inability to pay in wake of reduced revenue. The plea was declined by the SECI. According to SECI which comes under the MNRE and supplies renewable power to UP the inability of paying bills due to “insufficiency of finances or funds” cannot be claimed as force majeure Leading renewable energy players such as Azure Power, ReNew Power, SoftBank Energy and Hero Future Energies supply power to UP. Several group of renewable power producers had requested the Centre to clarify to the states on scheduling of renewable power and payment for the same.

India’s top 10 worst-hit states in terms of confirmed coronavirus cases also happen to be those which registered maximum addition of solar and wind energy generation capacity in 2019. There is no causal link between the geographical spread of coronavirus infections and renewable energy capacity addition. An analysis shows how the growth of the renewable energy capacity is at risk owing to the lockdown imposed across states. The analysis that superimposed the two data sets, obtained from government records, shows states such as Tamil Nadu, Karnataka, Rajasthan, Andhra Pradesh and Madhya Pradesh — with some of the highest coronavirus infections — added a total of 4,880 MW of solar and 24,949 MW of wind capacity last year. Tamil Nadu, which added 1,213 MW of solar and 9,286 MW of wind capacity during 2019-20 up to December is also the state with the second-highest number of confirmed cases as on 7 April, 2020. Rajasthan, which is also among the top coronavirus infected states, had added 1,617 MW solar capacity and 4,299 MW wind capacity during 2019-20. In case the worst hit states impose longer lockdown periods it can result in an extended hit to the growth of the solar and wind energy capacity. In terms of solar PV installations, too, the states with the highest capacity additions in 2019 were those with the highest number of infections, according to research and consultancy firm Wood Mackenzie. According to the consultancy that India could face over 21.6 percent or 3 GW of solar PV and wind installations being delayed as a result of the lockdown.

In a bid to minimise the impact of COVID-19 pandemic on the heavily import-dependent domestic solar industry, the MNRE has asked state and port authorities to identify land sites suitable for renewable energy manufacturing and export services hubs. The ministry is expected to provide full support to companies planning to expand or set-up bases in India for manufacturing and export of services in the renewable energy sector. The pandemic and its resultant lockdown has impacted operations of the solar industry. Hence, this step comes as a relief as far as local manufacturing of renewables is concerned. The ministry has also extended the deadline for the approved list of models and manufacturers by six months to provide some relief to renewable energy firms that are under stress due to the COVID-19 crisis. The earlier deadline was 31 March. According to the MNRE RE projects under implementation will be given extension of time considering period of lockdown and time required for re-mobilisation of work force. The spread of coronavirus has not only disrupted the supply chain of components used in RE projects but also has impacted the availability of workforce. The announcement of the extension of time will provide relief to all the stakeholders in Renewable Energy sector.

RE Policy and Market Trends

The government is planning to issue solar tenders of 20 GW capacity till June 2021 in order to achieve the National Solar Mission’s target of installing 100 GW grid-connected solar power capacity by 2022. The government has formulated and is implementing various schemes for promotion, development and deployment of solar power in the country to meet the targets. Under the National Solar Mission, the solar park scheme for setting up solar parks and ultra mega solar power projects targeting over 40,000 MW projects is underway. Apart from this, other schemes such as for setting up of grid-connected solar PV power projects with viability gap funding, and the government’s flagship PM-KUSUM are being implemented, among others. According to data reported on SPIN portal of the MNRE till 13 March 2020, rooftop solar power plants of an aggregate capacity of 1,922 MW have been installed in the country of which 346 MW have been installed in the residential sector.

The MNRE is confident the target of achieving 100 GW of solar power generation capacity by 2022 will be met and concerted efforts are being made to sort out issues, it has told a Parliamentary panel. The Parliamentary Standing Committee on Energy in its latest report had expressed dissatisfaction with the performance of the ministry for continuously missing on its yearly solar energy capacity addition targets. The MNRE was confident of achieving the target by 2022 and has worked out the detailed plan. The ministry, however, added that developers were facing constraints related to land acquisition, evacuation infrastructure, non-conducive state policy for development of solar and business environments. MNRE also informed that 9,000 MW of solar capacity is likely to be commissioned in 2020-21. According to the MNRE the budgetary allocation to meet the 2020-21 solar targets is sufficient and that it is confident of achieving the 100 GW target.

Transmission

The Board of state-owned shadow banking firm REC has approved a proposal to incorporate seven power transmission projects which would facilitate evacuation of renewable energy. These projects will evacuate clean energy from Maharashtra, Madya Pradesh, Karnataka and Rajasthan. RECTPCL (REC Transmission Projects Company Ltd) auctions these transmission projects and hands over the incorporated entities to successful bidders for development and operation. The seven transmission projects are allocated by the power ministry. These seven SPVs include a transmission system for evacuation of power from RE projects in Osmanabad area (1 GW) in Maharashtra. Besides, the board has also approved three transmission systems for evacuation of power from RE projects in Rajgarh (2,500 MW) SEZ in Madhya Pradesh; in Gadag (2,500 MW), Karnataka — Part A and in Bidar (2,500 MW), Karnataka. These projects also include three transmission system-strengthening schemes for evacuation of power of 8.1 GW each from solar energy zones in Rajasthan.

About 1,000 MW of solar projects in Haryana are unable to transmit electricity because distribution firms are not giving them the required connectivity.  According to the Distributed Solar Power Association, a body of solar rooftop developers a petition before the Haryana Electricity Regulatory Commission protesting the power discoms’ reluctance will be filed. All these are ‘open access’ projects, where developers supply power directly to their customers without routing it via a discom. But they need the consent of the area’s discom to do so.

Roof Top /Distributed Solar Projects

Tata Power has expanded its rooftop solar service to 90 cities across the country. Tata Power launched customisable rooftop solar solutions on a pan-India basis in September 2018.

The MNRE has recently decided to permit installation of innovative standalone solar pumps in test mode for which it has issued draft guidelines. New technologies for which patent or IP-related filings have been done would also be eligible to participate in the EoI. The applications would be evaluated by an Evaluation Committee constituted by ministry. The Committee might recommend testing of performance of the pump at National Institute of Solar Energy or any other NABL-accredited laboratory before allowing installation of such pumps in the field. After the recommendations of the Committee, the technology will be allowed for demonstration in the field after getting consent from the respective state implementing agency and the beneficiary farmers by the innovator. The guidelines highlighted that the innovator would be allowed to install up to 50 solar pumps in different parts of the state or country for demonstration purposes. Every month, the innovator will have to submit a detailed performance report of the pump including a comparative analysis with similar capacity MNRE specified pump along with feedback to the Evaluation Committee. At present, under the ministry’s PM-KUSUM scheme, only those standalone solar pumps which fulfil the ministry specifications are eligible to be installed.

Maharashtra Solar Sangathan, an umbrella association of over 1,000 solar system manufacturers in the state, has welcomed the latest tariff order issued by Maharashtra Electricity Regulatory Commission for rooftop solar power units. While the power regulator has exempted the rooftop units from Grid Support Charges till the cumulative installation of 2000 MW, the decision will give a breather to the rooftop solar industry, which was said to be in uncertainty for the past six months due to alleged policy paralysis. The association, however, has raised an objection to the capping of 2,000 MW.

Utility Scale Solar Projects

GUVNL, the holding company of all the power utilities in the states, has floated a tender for 700 MW capacity solar power projects to be set up in Dholera solar park. The selected companies will set up solar power projects in Dholera park on Build-Own-and-Operate basis in line with the provisions of the tender conditions and the standard PPA. GUVNL is re-tendering the 700 MW capacity which remained unallocated in solar tenders invited in January last year. A pre-bid meeting was also held at that time. The company has also given an option to bidders to raise queries before 3 April 2020. The deadline for submission of interest is 18 April. The opening of the financial bid and reverse e-auction will start on 27 April.

Despite its preoccupations with coronavirus vigil, Kerala has maintained its focus on the 1,000 MW Soura solar project. The KSEB has floated bids for setting up 150 MW of grid-tied residential rooftop solar project. Bids were floated to empanel contractors for design, supply, installation, testing and commissioning and 25-year maintenance. Earlier, the KSEB had awarded 46.5 MW of rooftop solar capacity in a recently-conducted auction to Tata Power, Waaree Group and Inkel. The 1,000 MW Soura solar power project includes 500 MW of rooftop solar power plants in houses, schools, hospitals and commercial establishments. Highways will also have solar panels. In irrigation canals and dam reservoirs, more floating solar power plants will be installed. The idea is dovetail together 500 MW rooftop solar, 200 MW ground-mounted solar, 100 MW floating solar, 150 MW solar park and 50 MW of canal-top solar.

Tata Power Solar Systems has got a letter of award to build a 300 MW plant for state-owned utility major NTPC Ltd at an all-inclusive price of ₹17.3 bn. This follows a post-reverse auction held on 21 February. The commercial operation date for the grid-connected solar PV project is set for September 2021. With this project, the order book of Tata Power Solar stands at ₹85.41 bn, including external and internal orders. Tata Power. Tata Power is India’s largest integrated power company and has an installed capacity of 10,763 MW together with its subsidiaries and jointly controlled entities. It has a presence across the entire power value chain — generation of renewable as well as conventional power including hydro and thermal energy, transmission and distribution, trading and coal and freight logistics.

RECs

Sales of RECs rose over 64 percent to 2.142 mn units in February compared to 1.302 mn in the same month a year ago owing to high demand. RECs are a type of market-based instrument. 1 REC is created when 1 MWh of electricity is generated from an eligible renewable energy resource. A total of 1.491 mn RECs were traded on IEX in February compared to 1.059 mn in the same month last year. Power Exchange of India recorded sale of 651,000 RECs in the month under review against 243,000 in February 2019. The IEX data showed that both non-solar and solar RECs witnessed good demand, with buy bids exceeding sell bids. There were buy bids for over 1.7 mn RECs in the month against sell bids for over 1.2 mn RECs for the month of February 2019. Overall demand for RECs was high as the total sell bids at both power exchanges was over 2.5 mn units against sell bids of over 2.3 mn units. Under the renewable purchase obligation, bulk purchasers like discoms, open access consumers and capacitive users are required to buy certain proportion of RECs.

Hydro Power

The Centre will soon make it mandatory for states to meet part of their electricity requirement from hydro power plants, a reward to these projects that saved the country’s grid collapse during the nine-minute lights switch off. The power ministry is soon likely to notify guidelines giving states hydro power procurement targets on the lines of renewable energy purchase obligations. The move comes soon after nine-minute lights-off feat when the grid survived 32 GW demand drop for a few minutes backed by flexible generation from hydropower resources. The notification is pending since March last year when the Union cabinet approved measures to promote hydropower, which included declaring all such plants as renewable generation, tariff rationalisation measures and budgetary support for flood moderation and enabling infrastructure. The trajectory for hydro power obligation will be notified for discoms up to 2030, against 2-3 years in case of renewable energy projects.

Private utility Tata Power has commenced commercial operations of 178 MW Shuakhevi hydro power project in Georgia. Adjaristsqali Georgia – a joint venture between Tata Power, Norway’s Clean Energy Invest and International Financial Corp- is setting up a 187 MW of hydro project at a cost of around $500 mn. It has commissioned 178 MW of the total capacity. AGL will soon commission the remaining 9 MW Skhalta hydro power project, which is also a component of the overall Shuakhevi project scheme. Shuakhevi project is the only project in Georgia’s energy sector which has been funded by three of the largest financial institutes such as EBRD, Asian Development Bank and IFC, a member of the World Bank Group. The project will generate around 450 GW of clean energy to reduce the emission of greenhouse gases by more than 200,000 tonne a year. Tata Power has an installed hydro power capacity of around 500 MW with three plants in Maharashtra, which generates power for the domestic market.

Nuclear Energy

Nuclear power plants of 7,000 MW capacity are currently under various phases of construction in the country. The plants under construction include Unit 3, 4 and 5 of Kudankulam Nuclear Power Project of 3,000 MW capacity and a 500 MW capacity Prototype Fast Breeder Reactor in Tamil Nadu. Apart from this, there are two upcoming 1,400 MW capacity nuclear power plants including Kakrapar Atomic Power Plant in Gujarat and the Rajasthan Atomic Power Station. A 700 MW project, Gorakhpur Nuclear Power Plant, has also been planned on a 560 hectare area situated west of Gorakhpur village in Fatehabad district of Haryana. India is planning to add around 20,000 MW nuclear power generation capacity over the next decade.

Rest of the World

Global

As the world economy faces severe economic disruption due to the Coronavirus pandemic, global solar PV installations are expected to drop 18 percent from 129.5 GW to 106.4 GW in 2020, according to consultancy firm Wood Mackenzie. According to the cinsultancy the pandemic will have a significant impact on the global solar PV market and the construction and development is slowing as countries around the world enforce unprecedented lockdowns. According to Wood Mackenzie, wafer, cell and module production is ramping back up towards full capacity and construction at many project sites has resumed. The firm does not expect the impact on the Chinese PV market, either upstream or downstream, will continue beyond the end of the second quarter this year.

The share of VRE technologies – mainly solar PV and wind power — in power generation can increase from 4.5 percent in 2015 to around 60 percent by 2050, according to a report by IRENA. According to IRENA electricity storage could play a key role in facilitating the next stage of energy transition by enabling higher share of VRE in power systems, accelerating off-grid electrification and indirectly decarbonising the transport sector. However, the system value of storage is often poorly accounted for in electricity markets, resulting in sub-optimal deployment of electricity storage. Based on recent analysis by IRENA, the share of renewables in global power generation is expected to grow from 25 percent to 86 percent in 2050.

More than 60 GW of wind energy capacity was installed around the world last year, driven by market-based mechanisms such as capacity auctions, a market outlook by the GWEC showed. New installations totalled 60.4 GW, up 19 percent from a year earlier and the second biggest annual addition on record. Overall, total wind energy capacity last year was more than 651 GW, up 17 percent from 2018. In 2019, China and the US remained the world’s largest onshore wind markets, together accounting for more than 60 percent of new capacity. GWEC forecasts that more than 355 GW of wind energy capacity added over the next five years, equivalent to 71 GW of wind energy added each year to the end of 2024.

Asia

Vietnamese private firm Trung Nam Group will at the end of this month start building a 450 MW solar farm in central Vietnam that will be the largest of its kind in southeast Asia. The $593.22 mn facility in Ninh Thuan province is scheduled to start power generation in the fourth quarter this year. Vietnam, which is working to limit its use of fossil fuel, would more than double its power generation capacity over the next decade to 125-130 GW to support economic growth. Trung Nam has received an approval from the province to build the wind farm, which will be connected to the national power grid. Ninh Thuan province is aiming to have 8,000 MW of renewable capacity by 2030.

Middle East and Africa

Ethiopia has signed a power purchase agreement worth $800 mn with the developers of a 150 MW geothermal plant. The Horn-of-Africa nation, which is the second most populous on the continent, has the second biggest electricity deficit in Africa according to the World Bank, with about two thirds of the population lacking a connection to the grid. Geothermal power refers to the use of underground hot steam to drive turbines which in turn generate electricity. It makes up a huge portion of the sources of electricity in neighbouring Kenya, which has abundant geothermal resources on the floor of the Rift Valley. Ethiopia’s Tulu Moye Geothermal plant, which signed the deal with the government, expects to start generating 50 MW of power when the first phase is completed in February 2023, rising to 150 MW at full completion in 2025.

Abu Dhabi’s department of energy has postponed the announcement of the winning bids for developing a 1.5 GW solar power plant in the Al Dhafra region. The department of energy will continue to ensure continued supply of safe, reliable water, wastewater and electricity services.

Europe and UK

The EBRD will provide a €40 mn ($44 mn) loan to Estonia’s Enefit Green to help the company develop solar energy in coal-reliant Poland. Poland generates almost 80 percent of its energy from coal, but under European Union pressure to reduce carbon emissions the government has encouraged investment in solar panels. Poland has increased its installed capacity to produce solar power by 175 percent in the past year to almost 1.3 GW, as the government launched a number of incentives for individuals and smaller companies to invest in solar energy.

France has cleared nearly 300 wind and solar power projects with total installed capacity of about 1.7 GW, and also approved several project deadline extensions because of the coronavirus outbreak. Progress on several renewables projects and the calendar for France’s renewables tenders have been disrupted by the outbreak. Measures have been taken to continue to support the sector, including the freezing of power prices for small rooftop solar projects, which were expected to decrease on 1 April. Among the 300 projects that were approved, 35 are onshore wind projects with a total capacity of 750 MW, while the rest are solar.

Portugal has postponed its second solar energy licensing auction due to the impact of the coronavirus pandemic, but still hopes to launch it by June if the spread of the outbreak starts to slow. Initially scheduled to kick off in April, the licensing auction for 700 MW of new solar energy capacity would help Portugal – one of Europe’s countries with most hours of sunshine per day – reach its ambition of having 7,000 MW of renewable energy by 2030. Portugal’s first mega auction of 1,150 MW of solar energy capacity last June attracted mainly international players, such as Spanish Iberdrola, French Akuo Energy, British Aura Power and German Enerpac Projects. It set a record minimum price per MWh of €14.6, while the average auction price was €20 MWh, less than half the base price.

Slovenia’s only nuclear power plant, Krsko, has not been affected by a large earthquake which hit neighbouring Croatia early but the government had started inspecting systems and equipment as a normal preventive action. The nuclear power plant continues to operate at full power.

Bulgaria will give more time for shortlisted investors to file binding bids for its Belene nuclear power project after measures over the coronavirus outbreak have limited access to the project’s data room. Russia’s Rosatom, China’s CNNC and Korea Hydro & Nuclear Power Co had to file their offers to invest in the estimated €10 bn ($10.7 bn) project by the end of April. French energy company EDF’s Framatome and US group General Electric, which had both offered to provide equipment for the 2,000 MW project and arrange financing, will also be part of the process. Italy’s Saipem has reached an agreement with Norway’s Equinor to develop technology to build floating solar power farms close to the coast. The agreement is between Saipem’s high-value services unit Moss Maritime and the Norwegian energy firm. Saipem, a market leader in subsea construction for the oil and gas industry, is looking to develop new lines of business to boost order books, including floating renewable energy farms.

USA

A US government agency has delayed issuing a permit for the Gemini solar power project in Nevada, one of the country’s largest proposed solar farms, over concerns about its impact on a historic region traversed by settlers of the American West. The US Bureau of Land Management missed its target to decide on the so-called Section 106 permit governing the project’s historic impact by the end of March, after overshooting a previous deadline in December. Many infrastructure projects are facing construction and supply chain delays due to the coronavirus pandemic. About a third of the nation’s planned utility-scale solar capacity could be slowed by the crisis, according to energy research firm Wood Mackenzie report.

The US EPA unveiled measures to help oil refineries cope with fallout from the coronavirus outbreak, including waiving anti-smog requirements for gasoline and extending the deadline for small facilities to show compliance with the nation’s biofuels law. The EPA will also extend the deadline for small oil refineries to prove their compliance with the RFS, the law that requires refineries to blend billions of gallons of biofuels like ethanol into their fuel or buy credits from those that do. The decision was related to ongoing litigation over the agency’s Small Refinery Exemption Program, which can free some small plants from obligations under the RFS. A federal court ruled in January that the EPA had been too free with the waivers, and while the agency did not challenge the ruling, some refineries have.

About 5 GW of big US solar energy projects, enough to power nearly 1 mn homes, could suffer delays this year if construction is halted for months due to the coronavirus pandemic. The forecast, a worst-case scenario laid out in an analysis by energy research firm Wood Mackenzie, would amount to about a third of the utility-scale solar capacity expected to be installed in the US this year. Even the firm’s best-case scenario would result in substantial delays. With up to four weeks of disruption, the outbreak will push out 2 GW of projects, or enough to power about 380,000 homes. Before factoring in the impact of the coronavirus, Wood Mackenzie had forecast 14.7 GW of utility-scale solar projects would be installed this year. Risks to supplies of solar modules include potential manufacturing shutdowns in key producing nations in Southeast Asia such as Malaysia, Vietnam and Thailand. Thus far, solar module production has been identified as an essential business and has been allowed to continue.

South America

Brazil’s largest fixed-line carrier Oi SA has kicked off a renewable energy project that will cut its operating costs by $77.09 mn per year. The renewable project, which involves 25 solar, biomass and hydroelectric mills totalling 123 MW in capacity, follows the so-called “distributed generation” model, in which Oi buys clean energy at lower prices. The first plant, a solar one based in the southeastern state of Minas Gerais, was inaugurated and the others are likely to start operations by year-end. The carrier expects to have 60 percent of its energy consumption coming from renewable sources by the end of 2020 compared with 15.8 percent since 2018.

SECI: Solar Energy Corp of India, MNRE: Ministry of New and Renewable Energy, PPA: power purchase agreement, UP: Uttar Pradesh, PV: photovoltaic, MW: megawatt GW: gigawatt, mn: million, bn: billion, RE: renewable Energy, PM: Prime Minister, discoms: distribution companies, EoI: Expression of Interest, GUVNL: Gujarat Urja Vikas Nigam Ltd, KSEB: Kerala State Electricity Board, SPV: solar photovoltaic, RECs: Renewable Energy Certificates, IEX: Indian Energy Exchange, MWh: megawatt hour, VRE: variable renewable energy, IRENA: International Renewable Energy Agency, GWEC: Global Wind Energy Council, EBRD: European Bank for Reconstruction and Development, US: United States, EPA: Environmental Protection Agency, UK: United Kingdom, RFS: Renewable Fuel Standard

Courtesy: Energy News Monitor | Volume XVI; Issue 46