Europe has set the bar on Russian fuel excessive sufficient to go away India untouched | Popgen Tech


The motion of gas costs in 2023 will decide how a lot India can be affected by the mixed impression of two petroleum worth caps imposed by Western nations.

On December 19, two weeks after the US-led G7 group of countries imposed a worth cap on crude oil equipped by Russia, European Union (EU) power ministers agreed on a “market correction mechanism” to stabilize costs of pure fuel in Europe. Each of those measures collectively had been designed to scale back Russia’s earnings from petroleum exports, and to stabilize costs of gas, a key inflationary determinant, within the US and Europe. However the measures, at present having little impression because of decrease commodity costs amid a better sanctions bar, threaten to harm power import-dependent nations like India if crude and fuel costs rise.

Crude oil costs recovered on Friday after Moscow stated it could minimize oil manufacturing to offset worth caps on Russian crude. Russian Deputy Prime Minister Alexander Novak stated Russia may minimize its oil manufacturing by 500,000-700,000 barrels per day in early 2023, preferring to chop manufacturing fairly than promote crude in step with the value cap. Brent rose 3.6 p.c to $84.5 a barrel, and Goldman Sachs expects Brent to common $98 subsequent yr, a forecast made earlier than the Russian output minimize warning.

Worth caps on each oil and fuel by Western nations are necessary to India as a result of it is dependent upon crude imports to fulfill 86 p.c of its wants, whereas fuel holds the important thing to India’s quick future. The Modi authorities has spurred greater than Rs 2 trillion in investments in fuel infrastructure to extend use of the gas to fifteen p.c of the nation’s power combine by 2030, which mainly implies that fuel consumption will virtually quadruple to round 500 million cubic meters per day from present ranges. . The reliance of round 50 p.c on imported liquefied pure fuel (LNG) is anticipated to extend additional within the absence of any main home discoveries, and amid lowered output from older fields.

Earlier than wanting on the impression of the EU fuel worth cap on India’s LNG buying patterns, it would even be illustrative to look at the impression of the crude worth cap on Russian provides, which started on India on December 5, though ‘ A grace interval of 1 month allowed shipments till January 19 to stay unaffected by the cap. Brent crude fell to as little as $76 a barrel after the cap was introduced. After factoring within the low cost provided by Russia for Urals crude, the value of Russian oil traded beneath the $60 per barrel cap. Russian provides to India in December stay sturdy, based on Vortexa information, as these provides had been contracted in October forward of the caps, an official at a state refiner stated.

However 2023 could possibly be totally different as Brent is buying and selling up about $9 a barrel from early December lows, and any additional rise in costs reduces the low cost and plunges Russian barrels above the $60 a barrel ceiling. At such charges, India should prepare its personal ships and insurance coverage to move Russian crude, a frightening process for now. The issues begin when oil costs rise and Russia insists on a fee above the value cap, stated Narendra Taneja, a number one power professional in Delhi.

Nonetheless, the impression of the petrol worth cap on India could also be muted because the EU, fearing disruption of home fuel provides in winter, units the bar very excessive.

In actual fact, interruptions in India’s fuel provides begin at ranges properly beneath the EU worth cap. Spot LNG charges this yr, that are buying and selling at simply half the EU cap ranges, noticed India’s fuel consumption fall 6 p.c in April-November of the 2022-23 fiscal to a year-on-year 40.9 billion cubic meters earlier than — which reversed a 5 p.c progress in fuel demand in fiscal 2021-2022 from a yr earlier when LNG was less expensive.

The EU’s fuel worth cap begins on February 15 if the month-ahead worth on TTF, a European fuel benchmark, exceeds €180 per megawatt hour (Mwh), equal to about $53 per million British thermal models (Btu) of LNG, for 3 working days, and if the month-ahead TTF worth €35 per Mwh larger than a reference worth for LNG on world markets for a similar three working days. The EU has given itself an escape clause which states that if dangers to “the safety of provide” (nevertheless outlined) happen, the European Fee can droop the value cap rule.

Nikos Tsafos, an power professional and chief power adviser to the Prime Minister of Greece, reckons that the restrict permits for uninterrupted provides, retains a lid on home demand and avoids any extra monetary stress. Gasoline and LNG costs are disconnected from fundamentals, Tsafos stated.

However the worth vary is steep even by European requirements. Dutch fuel fell beneath €91 per Mwh final week, half the cap, so the cap would not matter till costs double once more in some unspecified time in the future – and which may not occur for a very long time, says Mathew Carr, a London-based power supply professional and founding father of

India doesn’t have to fret in regards to the EU’s worth cap for now as a result of it’s set very excessive, stated Rajesh Kumar Mediratta, CEO of Indian Gasoline Trade, the nation’s main fuel buying and selling platform. India isn’t shopping for LNG at $50 per million Btu ranges anyway, he added. India’s time period LNG prices round $12 per million Btu with something over $20/million Btu changing into unaffordable for Indian customers, a Petronet LNG official stated. Even at present TTF ranges, equal to $26 per million Btu, India can not surpass Europe for provides.

“By way of the impression of the cap on the Asia market, there could also be extra provide accessible for the area and fewer strain to modify fuels, as patrons can solely bid barely above the cap to draw LNG to northeast Asia,” says Ryhana Rasidi, LNG analyst at Kpler. However India will nonetheless not be capable to compete with Japan, South Korea or China for provides because of low affordability.

Strikes by free-market Western economies to introduce worth controls on gas are seen favorably by Narendra Modi’s authorities, which has unleashed measures to regulate gas costs. Gasoline makes up 34 p.c of Europe’s power combine in comparison with 6 p.c for India. So what Europe successfully achieves by placing a ceiling on fuel charges additionally holds a lesson for India, which continues on the identical path. The Kirit Parikh Committee, set as much as tame rising home fuel charges, has proposed worth caps on shares of the gas, that are 24 p.c lower than the $8.57 per million Btu that ONGC and others are at present asking for shares.

Any binding worth cap would trigger shortages of the gas, stated Tilak Doshi, a London-based power professional with senior positions at Unocal and Saudi Aramco. “The one right resolution is to assist a rise in provide,” he added, one thing each the EU and the Modi authorities ought to take note of.


  • Final week, EU power ministers agreed on a “market correction mechanism” to cap costs of pure fuel in Europe
  • Worth caps on each oil and fuel by Western nations are necessary for India because it is dependent upon crude imports to fulfill 86% of its wants, whereas fuel holds the important thing to India’s quick future
  • The impression of petrol worth cap on India may be dampened as a result of the EU has set the benchmark very excessive
  • The EU’s fuel worth cap begins on February 15 if the month-ahead worth on TTF, a European fuel benchmark, exceeds €180 per Mwh, equal to about $53 per million Btu of LNG
  • Gasoline makes up 34% of Europe’s power combine in comparison with 6% for India


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