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Extension to prompt more oil refinery run cuts, put LNG imports at risk

India extended its countrywide lockdown until May 3 in its battle against the coronavirus pandemic, a move that would prompt refiners to cut runs further and offer more oil product cargoes for exports, while putting LNG demand and imports at risk of slowing.

Indian Prime Minister Narendra Modi said on Tuesday that the extension was needed to stem the spread of the virus — the first phase of a 21-day lockdown started March 25 and was due to end on April 14.

While LPG is largely expected to witness relatively stronger demand due to an increase in home cooking, demand for most other oil products is expected to see a dramatic fall.

“We expect India’s crude runs to fall year-on-year by nearly 1.4 million b/d in the second quarter,” said Lim Jit Yang, advisor for oil markets at S&P Global Platts Analytics.

India’s current refining capacity stands at around 5.2 million b/d.

“Despite the reduction in crude runs, refinery output would still exceed current domestic demand, leading to more prompt exports of refined products,” added Yang.

India oil demand

Indian demand for refined products fell 17.8% year-on-year in March to 16.08 million mt, or 4.07 million b/d, provisional data from the Petroleum Planning and Analysis Cell, or PPAC showed, reflecting a slump in consumption due to the lockdown.

In March, demand for diesel fell 24.2% year-on-year to 5.65 million mt, the biggest fall in two-and-a-half years as most of commercial vehicles were off the road and railways stopped running trains.

Gasoline demand declined 16.4% year-on-year to 2.16 million mt as most cars and two-wheel vehicles were not in use, while jet fuel demand slumped 32.4% year-on-year to 484,000 mt as flights, both domestic and international, were grounded from mid-March.

As domestic users rushed to book refills and stock up before the start of the lockdown, LPG became the outlier with March demand up 1.9% year-on-year to 2.31 million mt.

On a month-on-month basis, LPG demand in March rose 9% compared with February.

The government’s decision to free give LPG cylinder refills to more than 80 million poor households is also expected to support LPG demand, analysts said.
OIL AND GAS OPERATIONS TO CONTINUE

In the January 1 through March 31 period, fuel demand fell 4.8% year-on-year to 52.84 million mt or 4.56 million b/d, according to PPAC. .

Platts Analytics currently expects India’s oil demand to contract year-on-year by 405,000 b/d in the second-quarter before posting positive growth in the second half of the year, taking the whole year demand decline to 110,000 b/d year-on-year.

India has restricted cargo movements on coasts, but has allowed oil and gas cargoes, falling under the category of essential commodities, after clearance of COVID-19 quarantine protocol by the port authorities.

“Oil and gas services will be exempted from a blanket ban during the extended lockdown period as these services have been put under the category of essential commodities,” said an oil ministry official.

Upstream companies like ONGC and Cairn have managed to keep their operations running but have witnessed about 10%-15% fall in output due to shortage of workers.

India’s crude imports averaged around 4.5 million b/d in 2019.

The country plans to either get ADNOC or Saudi Aramco to fill up its remaining first phase of SPR over the next few months, or proceed to fill up the SPR on its own as the government seeks to take advantage of the low-price environment, according to Platts Analytics and Indian government officials.
IMPLICATIONS FOR LNG

India has so far this year been one of the main bright spots for LNG demand with first quarter imports up by an average of 29 Mcm/d over 2019 levels for the same period.

“However, the restrictions have already started to impact demand in April and based on Platts Analytics ship-tracking data,” said Jeff Moore, manager at Asian LNG at Platts Analytics. ” We have started to see deliveries to Indian regasification terminals fall back close to last-year’s levels.”

According to Platts Analytics, close to 50 Mcm/d of volumes might be at risk given lockdown restrictions might potentially affect petrochemical demand, as well as compressed natural gas or gas consumption in refineries.

“Any extension to the lockdown restrictions would further impact Indian LNG demand and put imports at risk of falling below year-ago levels in Q2, which averaged 93 Mcm/d in 2019,” Moore said.

Although the lockdown has been extended, the government said it will likely to allow relaxation for economic activities in COVID-19 free zones from April 20 after officials have assessed risk parameters.

Further details on the extended phase of the lockdown is expected to be made available on Wednesday.
Source: Platts

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