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India lockdown: Extension unsettles oil and gas, shipping markets

Singapore — India's move to extend a countrywide lockdown in its battle against the coronavirus pandemic will not only create more hurdles for trade flows, but also would prompt refiners to cut runs further and reduce the country's appetite for LNG imports.

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A 21-day lockdown started March 25 and was due to end on April 14, but Indian Prime Minister Narendra Modi said Tuesday that a further extension until May 3 was needed to stem the spread of COVID-19.

S&P Global Platts Analytics expects oil demand to contract by 405,000 b/d year on year in the second quarter before posting positive growth in H2, taking the whole year demand decline to 110,000 b/d year on year.

And on the gas side, the lockdown extension would impact Indian LNG demand and put imports at risk of falling below year-earlier Q2 levels at 93 Mcm/d, according to Platts Analytics.

Trade flows

Oil

  • India has restricted cargo movements on coasts but allowed oil and gas cargoes to be unloaded after clearance of COVID-19 quarantine protocols by port authorities, as oil and gas fall under essential commodities.
  • Indian refineries have already received all crude shipments they require for processing over the next several weeks. Except for strategic reserves, they are not making any large purchase commitments because of weak demand.
  • Bharat Petroleum Corp. Ltd. has received a 1-million-barrel cargo of US crude at Mumbai port after port authorities cleared the Suezmax ship.
  • IOC, BPCL, HPCL, and MRPL are looking to buy up to 19 million mt of crude in April, mainly from Saudi Arabia, UAE and Iraq, for strategic reserves.
  • IOC has received the first cargo of 1 million barrels of Upper Zakum crude from UAE at Mangalore. A VLCC is currently being chartered by UAE's ADNOC for loading another cargo, to be delivered next month. The cargo is expected to go in for strategic reserves.
  • Every week, more than a dozen cargoes of gasoil, gasoline and jet fuel of 35,000 mt-90,000 mt each are being loaded at ports of Sikka and Vadinar for exports. India is a major supplier of these commodities to Europe and Africa, and some volumes are also delivered in Singapore for storage.

Gas

  • During the initial lockdown duration from March 24-April 14, 19 LNG ships, with total volume of 1.232 million mt, discharged across Hazira, Dahej, Mundra, Dabhol and Kochi LNG terminals, down 23% from the three weeks preceding the lockdown, Platts Analytics data showed.
  • India had been one of the main bright spots for LNG demand this year, with first quarter imports up by an average of 29 Mcm/d over 2019 levels, but deliveries at Indian regasification terminals have started falling in April to close to last year's levels.

Infrastructure

Oil

  • Following advisory issued by India's shipping ministry, all major ports have considered the pandemic as a valid ground for invoking the force majeure clause on port activities and operations.
  • IOC, HPCL and MRPL have invoked force majeure clauses on some of their suppliers.
  • Crude imported to fill up strategic reserves has been allowed to be offloaded at ports on both the east and the west coasts, subject to fulfillment of quarantine protocol by port authorities.
  • Pipeline discharge has not been affected at any of the Indian ports. Tanker operations are normal.

Gas

  • Downstream demand for gas has fallen, with little or no demand from the transportation sector. Only essential industries, such as fertilizers and refineries, are operational but refinery operating rates are down by at least 30%-40% from prelockdown levels.
  • State-run LNG importer Petronet has issued force majeure notice to its spot suppliers, citing downtrend in local demand.
  • Upstream companies like ONGC and Cairn have managed to keep their operations running but have witnessed about a 10%-15% fall in oil and gas output due to shortage of workers.

Shipping

  • To maintain proper supply chain at seaports, shipping companies or carriers and their agents have been asked by the government not to charge, levy or recover any demurrage or ground rent beyond the allowed free period, as well as storage charges at ports during the lockdown period.
  • Ports have been struggling due to shortage of workers to move cargoes, particularly for dry bulk shipments. In addition, the movement of trucks is very slow at some ports.
  • Ships arriving from COVID-19 infected countries can only be berthed in India 14 days after their departure from their port of origin. Stoppage time spent on the way, for bunkering at a port of any such infected country, will not be counted in this calculation.

Prices

Oil

  • India's crude basket averaged $33.36/b in March, down 39% from February and 50% lower than a year earlier.
  • Retail diesel prices in New Delhi were around Rupees 62.29/l, while gasoline was quoted at Rupees 69.59/l. There has been no major change in diesel and gasoline retail prices since prelockdown levels.

Gas

  • In an oversupplied spot LNG market, the imposition of the lockdown in the country has tightened its bearish grip on the market, with the DES West India assessment collapsing 35% from March 24 to an all-time low at $2/MMBtu on April 1.

Shipping

  • At least a dozen LR2 tankers have been taken with an option for floating storage of gasoil and jet fuel, mostly near Singapore for up to six months, taking away a substantial part of supply from the spot market. A significant portion of these volumes under storage are being purchased from India.
  • The strong demand to load distillate cargoes from India have pushed up the LR freight rates to their highest levels so far this year, above the key psychological mark of 200 Worldscale points. Earnings of LR owners on the benchmark Persian Gulf-North Asia routes have risen to $55,000/d.
  • The LR2 spot freight rates on the India-Western Europe routes have risen to a six-month high at above $4.5 million.