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Fri, 24th February 2017

Anirudh Sethi Report

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Archives of “NATURAL GAS” Tag

Natural gas price likely to be hiked by 8 %

Natural gas price in India is likely to be hiked by 8 per cent from April 1 driven by an increase in rates in reference markets including US Henry Hub. Price of natural gas, used for generating power and making fertiliser and petrochemicals as well as CNG for automobiles, is likely to rise to USD 2.7 per million British thermal unit for the period from April 1, 2017 to September 30, 2017 from current USD 2.5 per mmBtu, industry sources said. This will be the first increase in domestic gas prices in two years. Rates may further rise to USD 3.1 per mmBtu in second half of 2017-18 fiscal (April to March). As per the mechanism approved in October 2014, the price of domestically produced natural gas is to be revised every six months — April 1 and October 1 — using weighted average or rates prevalent in gas-surplus economies at Henry Hub of US, National Balancing Point of the UK, rates in Alberta (Canada) and Russia with a lag of one quarter. So, the rates for April 1, 2017 to September 30, 2017 period will be based on average price at the international hubs during January 1, 2016 to December 31, 2016.

Sources said prices in the reference markets for 2016 are known and so the rates in first half of fiscal year beginning April 1 can be calculated. Rates were last changed on October 1, 2016 when they were cut by 18 per cent to USD 2.5 per mmBtu from USD 3.06. This was the fourth six-monthly reduction.

A rate hike will provide relief to upstream gas producers who have been getting rates below the cost of production. But at the same time, an increase in natural gas prices would mean higher raw material cost for compressed natural gas (CNG) and natural gas piped to households (PNG) and would translate into hike in retail prices.

Mukesh Ambani’s gas pipeline company’s net worth erodes by Rs 7,966 crore

Even as Reliance Industries is creating ripples in the telecom industry, the net worth of  Mukesh Ambani owned, Reliance Gas and Transportation Infrastructure Ltd (RGTIL) has eroded by a massive Rs 7,966 crore as on September 2016 as low gas supply from RIL’s Krishna Godavari basin hit the pipeline company’s financials. The company owns and operates a 1400 kilometers gas pipeline connecting Krishna Godavari basin to Gujarat and depends on gas production from RIL’s KG basin to earn revenues.

According to Reliance Gas filings, for the financial year 2016 its net worth was negative Rs 2,641 crore (see chart). Reliance Gas said the net worth erosion statement is prepared in compliance with Indian accounting standards and is subject to further transition adjustment as may be required under the Ministry of Corporate Affairs’ guidelines and interpretations.

Reliance Gas, which made profit only once since 2010, said it plans to Rs 4,000 crore by issuing Cumulative Optionally Convertible Preference Shares, the company said on October 25th filings with the stock exchanges. 

OPEC Production Cut May Need to Be Extended: Oil Ministers

The oil ministers of Iran and Qatar have suggested that OPEC’s production cut agreement may have to be extended beyond the June deadline, despite an almost 100-percent compliance rate.

The comments come a day after the American Petroleum Institute reported the second-largest crude oil inventory increase in history, at 14.227 million barrels, which added fuel to worries that production cut efforts are not enough to rebalance the market.

Saudi oil minister welcomes Donald Trump election

Saudi Arabia’s oil minister has said President Donald Trump’s election will be good for the oil industry, playing down concerns over the impact of his “America First” policies for the export-reliant kingdom.

Khalid al-Falih said Saudi Arabia is considering increasing its investment in the US encouraged by the new White House administration’s pro-industry and pro-oil and gas stance.

The minister, a former head of Saudi’s state oil company Aramco, said in an interview with BBC, the Trump administration looked like adopting policies “which are good for the oil industry” while steering “away from excessively anti fossil fuel, unrealistic policies by some well intentioned environment proponents”.

But Mr al-Falih said what the US wanted was a “mixed energy portfolio that includes oil, gas, renewables and make sure that the American economy is competitive. We want the same in Saudi Arabia”.

India :Eight core industries grow by 5.6% in December

Eight core industries register a growth of 5.6% in December 2016 on the back of healthy output recorded by refinery products and steel.

The growth rate of eight infrastructure sectors — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity — was 2.9% in December 2015.

It stood at 4.9% in November 2016.

The core sectors, which contribute 38% to the total industrial production, expanded 5% in April – December 2016 compared to 2.6% growth in the same period last financial year, according to data released by the commerce and industry ministry today.

Refinery products and steel production jumped 6.4% and 14.9%, respectively during the month under review. However, crude oil, fertliser, natural gas and cement output reported contraction.

Coal output declined by 4.4% in December 2016 from 5.3% in the same month previous year. Similarly, electricity generation too dipped by 6% as compared to 8.8% in December 2015.

US oil output to rise 1.3% in 2017, EIA says

US oil production has turned a corner after a long period of weak petroleum prices, the government said, with volumes rising for the first time since early 2015.

The Energy Information Administration forecast that oil output from the US will increase 1.3 per cent to 9m barrels per day in 2017, abandoning an earlier prediction of a 0.9 per cent fall.

In the first forecast for 2018 in its monthly Short-Term Energy Outlook, the statistical agency said US crude production will rise another 3.3 per cent, or 300,000 b/d, to 9.3m b/d. Production hit bottom last September, EIA said.

These Are Barclays’ 13 Commodity “Black Swan Threats” For 2017

In a special report by Barclays’ Michael Cohen, the analyst lays out what he believes are the 13 commodity “black swan threats” for the current year, divided into two “shock” categories: supply and demand, split evenly between bearish and bullish.

Investors, Barclays warns, will have to balance the risks of unforeseen macroeconomic shocks and their effect on demand (bearish price) with potential geopolitical shocks disrupting the supply side of the market (bullish price). A tightening commodity inventory picture, especially in oil, will likely exacerbate how the market prices supply risks even if no physical supply disruption occurs.

The potential threats, which range from a trade war with China, to a default in Venezuela, to riots in Chile, all have a common denominator: politics: “we assess several black swan threats to the supply, demand, and transit of commodities that could potentially move markets in 2017. Our analysis illustrates an important point: politics are likely to matter just as much as economics” and not just any politics: “in particular, the new politics of populism and protectionist trade policies have the potential to disrupt global supply and demand assumptions for various commodities.”

Those who have been following Trump’s twitter feed are all too aware of this.

While we realize the futility of “identifying” black swans in advance, something which is by definition impossible, nonetheless here is what Cohen warns:

In 2016, few people predicted a Trump election or Brexit, not to mention that the Chicago Cubs would win the World Series or that Leicester City would take the Premier League title. And commodities markets were not without their own set of surprises as well. OPEC cut production with non-OPEC countries for the first time in 10 years. Weather whipsawed natural gas, and Trump’s election inspired a late metals complex rally on the basis of hopes for new infrastructure spending. In fact, when all was said and done, 2016 was a pretty good year for commodities, with the asset class posting its first annual advance since 2010.

Commodity market black swan events come in many forms, and the market may take years or an instant to price them in. Technological innovation caused the US shale gas revolution, the Great Recession caused structural demand destruction, while geopolitical strife has disrupted commodity supplies overnight. We all know that markets will surprise in some fashion in 2017, so we attempt this review to shine  a spotlight on the specific commodity market risks that clients should watch.

Where could the surprises come from: “Watch these spaces: China, Russia, the Middle East and Turkey are likely to surprise the commodity complex in 2017.”

Below is the summary list of the proposed “black swans”

Breaking down the list, Barclays says that generally “it sees risks skewed to the upside in 2017, based on several supply-side risks.”

Given the scenarios laid out below we view supply driven disruptions in 2017 as being more likely than demand side Black Swan events. Although commodity price disruptions may mean higher prices in the short-term there is a risk they result in lower medium-long-term prices. A supply disruption that results in a higher futures curve could result in the sanctioning of new projects or increased producer hedging activity, eventually putting downward pressure on prices in the long-dated contracts. There are, of course, supply-side risks that would be bearish for the market as well, such as higher production from Libya or the Neutral Zone.”

Demand events less likely but more structurally impactful. Given the relative liquidity in global commodity markets we see supply related outages being shorter in duration compared to potential demand side risks. We see demand side events, such as those driven by economic weakness, as less likely but events that would have a longer term structural impact on commodity prices to the downside.

As noted above, the two big categories laid out by Barclays are as follows:

Reliance Industries faces $1 bn penalty in dispute with ONGC

The Directorate General of Hydrocarbons is understood to have computed the penalty payable by Reliance Industries (RIL) for exploiting natural gas that migrated to its KG-D6 block from ONGC’s adjacent asset at upwards of $1 billion. The figure has been arrived at after taking into account capital and operational expenditures incurred by RIL in taking out the migrated gas, sources with knowledge of the matter told FE. With the DGH giving the report to the oil ministry last week, the latter is likely to issue a notice in this regard to the Mukesh Ambani-led firm later this week, the sources added.

A November 2015 study by US-based consultant DeGolyer and MacNaughton noted that up to 11.122 billion cubic metres of natural gas had migrated from ONGC’s 98/2 area to the adjoining KG-D6 block of RIL in the Bay of Bengal between April 1, 2009, and March 31, 2015. Later, former Delhi HC chief justice AP Shah in a report on the issue said the quantification of RIL’s unjust enrichment can either be based on the monetary value of the migrated gas produced, and to be produced, by RIL or it can be the profit it earned, after taking into account its costs and sales figures. But Shah was clear ONGC has no locus standi to make tortuous claim against RIL.

India -Core sector grows 5% in Sept

India’s core sectors – coal, crude, natural gas, refinery products, fertilisers, steel, cement and electricity – rose 5 per cent in September compared with 3.2 per cent in August.

Data showed the eight core industries grew 4.6 per cent in the April-September period.

With a weightage of some 38 per cent of India’s industrial output, core sector index is seen as a barometer of how India’s industry is doing.

 Steel was the best performer despite the downturn in the global market, reporting a 16.3 per cent growth, nearly as much as the 17-month high of 17 per cent reported in August.

Analysts said the range of tariff protection that India has given to the steel sector from dumping by Chinese and East Asian competitors helped.

“Steel growth shows that demand from downstream industries remains and that they are replacing imports with domestic production,” said Sudipto Bose, an independent steel sector market analyst.

The refinery sector reported the second highest growth rate at 9.3 per cent, while cement, which reflects on downstream construction and infrastructure, showed a 5.5 per cent growth.

However, electricity generation grew just 2.2 per cent while fertiliser grew 2 per cent. Three key sectors – coal, crude and natural gas – contracted. Coal output contracted 5.8 per cent, natural gas output shrank 5.5 per cent, while crude production contracted 4.1 per cent.

Baker Hughes US oil drilling rig count 441 vs 443 prior

Weekly drilling rig data from Baker Hughes

  • First decline since June 24 week
  • Prior was 443
  • Natural gas rigs 114
  • Prior natural gas was 108
  • Total rigs 557
  • Prior total rigs were 553

The number of oil rigs bottomed out at 316 in late May but despite the jump, production still hasn’t picked up. It will, it’s just a matter of the time lag.

I wouldn’t read too much into one week of declines because rigs jumped 11 last week so it puts it back on trend.

What is a bit positive for oil is that there isn’t an upward acceleration of rigs in response to higher prices but that might just be a matter of time if crude stays around $50.