By Nantoo Banerjee
Notwithstanding the assurance given in Parliament last week by Union Petroleum and Natural Gas Minister Hardeep Singh Puri on India’s ‘robust’ energy supplies, fuel and gas prices in the country are expected to shoot up soon in keeping with the global trend. The minister’s statement appears to be substantially political having little connection with reality. It may have more to do with the ensuing elections in four of India’s highly politically-sensitive states – West Bengal, Kerala, Assam and Tamil Nadu – than the on-ground situation. Barring Assam, three other states are governed by political parties strongly opposed to the Bharatiya Janata Party, which rules the national government. A domestic oil price surge may be temporarily suppressed but it is bound to spike in due course as the country is 90 percent import dependent for oil and gas. India is also a major importer of fertiliser. Fuel and fertiliser prices and their availability are a big concern for India.
Even import from Russia is going to be costly. Thanks to the worldwide oil and fertiliser supply disruptions due to the US-Israel led war against Iran, Russian oil prices are also shooting up. Just over the last fortnight, Russian crude oil prices have experienced a sharp increase, with the flagship Urals grade spiking from around $45 to over $76 per barrel. This has caused Russian oil to trade at a premium to global benchmarks in certain markets, reversing the heavy discounts seen earlier in the year. However, it is still cheaper than the generally recorded prices of crude oil sold by suppliers from the other parts of the world surpassing $100 per barrel due to escalating tensions in West Asia as Iran continues to pound bombs, ballistic missiles and drone strikes on the US-protected Arab nations and Israel. The Iran-Israel war has effectively shut the Strait of Hormuz, the narrow shipping lane between Iran and Oman through which around a fifth of the world’s daily oil and liquefied natural gas (LNG) supply passes. The world is currently fixating on the Strait of Hormuz as one of the most strategic choke points on Earth, and on what is being described as one of the most serious disruptions to global energy supply ever experienced.
The depleting liquefied natural gas availability has already become a big concern among Indian consumers despite the government assurance that LNG and liquefied petroleum gas (LPG) supplies for domestic household use are protected and prioritized, in spite of significant import disruptions. There have been constant media reports of shortages in commercial LPG although the government has maintained that household supplies are stable. The government has invoked the Essential Commodities Act, making domestic piped natural gas (PNG) and household LPG the top priority to ensure uninterrupted supply. To counter the disruption of shipments through the Strait of Hormuz, India is sourcing additional LNG from alternative suppliers, including the US and Russia. The supply constraints have already hit commercial LPG users such as restaurants and hotels. They have been urged to switch to alternative fuels or piped natural gas where available.
Qatar, the world’s second largest exporter of LNG behind the USA and India’s key supply source, has stopped production, following the massive Iranian attacks on its facilities. LNG tankers are also being diverted away from the region. A disruption in LNG supplies is bound to jack up natural gas prices and hit consumers in India, industrial and domestic, hard. LNG prices are moving up across the world. The news of Qatar’s state-run energy company, QatarEnergy’s shutdown of operating facilities, with the firm providing no timetable for output resumption, led to skyrocketing natural gas futures in Europe and other parts of the world. Several Indian companies, particularly in the fertilizer and industrial sectors, have been forced to shut down production or drastically reduce operations due to a severe LNG shortage.
Gujarat-based Indian Farmers Fertiliser Cooperative (IFFCO), India’s largest urea producer, and Kribhco Fertilizers have reported shutting down plants or bringing forward annual maintenance due to the scarcity of LNG, which is the primary feedstock for urea. ONGC Petro Additions has been operating its Dahej gas cracker at a “drastically” lower capacity. Small steel producers and other manufacturing units in Gujarat and Maharashtra have experienced significant production cuts. In Chhatrapati Sambhajinagar (Aurangabad), industries including the Sanjeev Auto Group and companies supplying components to major automobile manufacturers reported that they might have to temporarily shut down due to LNG supply shortage.
Hindalco Industries, part of the Aditya Birla group, has halted production of extruded aluminium products due to a critical shortage of natural gas, stemming from supply disruptions. Adani Total Gas Ltd (ATGL) reported receiving upstream gas curtailments, leading to near-tripling of industrial gas prices to around Rs 119/scm, forcing companies to seek alternatives. Major suppliers such as GAIL and Indian Oil Corp (IOC) informed customers of 10 to 30 percent cuts in natural gas allocations. The scarcity has forced suppliers to look for costly spot purchases to bridge the gap. Restoration of normal production facilities by the affected industrial units could take a month or so even after normal LNG supplies are restored, posing a significant risk of inflation and production shortages for fertilisers, steel, and manufactured goods.
The domestic concerns for shrinking availability of oil and gas and rising prices are real due India’s near total dependence on foreign supplies. High energy costs are bound to impact the country’s economy and growth. The inflation rate is moving up. The trade gap may expand substantially unless the government severely cuts the imports of non-essential items. Import tax may need to be rejigged, especially for gold, the country’s second largest item of import after petroleum. Both the central and state governments must sit together to reduce taxes and levies on petro-fuel, which now works to be around 50 percent of the retail prices. High government taxes will further raise the prices of fuel. Some countries such as Serbia and Portugal have cut domestic fuel tax. The situation is grave. The energy minister’s assurance of India’s robust energy supplies appears to be vague if not incredible. (IPA Service)
Iran links tanker release to Hormuz transit 