Saturday 26 November 2022

Ghana to buy oil with gold instead of US dollar

Ghana's government is working on a new policy to buy oil products with gold rather than US dollars, Vice-President Mahamudu Bawumia said on Facebook on Thursday.

The move is meant to tackle dwindling foreign currency reserves coupled with demand for dollars by oil importers, which is weakening the local cedi and increasing living costs.

Ghana's Gross International Reserves stood at around US$6.6 billion at the end of September 2022, equating to less than three months of imports cover. That is down from around US$9.7 billion at the end of last year, according to the government.

“If implemented as planned for the first quarter of 2023, the new policy will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency," Bawumia said.

Using gold would prevent the exchange rate from directly impacting fuel or utility prices as domestic sellers would no longer need foreign exchange to import oil products, he explained.

"The barter of gold for oil represents a major structural change," he added.

The proposed policy is uncommon. While countries sometimes trade oil for other goods or commodities, such deals typically involve an oil-producing nation receiving non-oil goods rather than the opposite.

Ghana produces crude oil but it has relied on imports for refined oil products since its only refinery shut down after an explosion in 2017.

Bawumia's announcement was posted as Finance Minister Ken Ofori-Atta announced measures to cut spending and boost revenues in a bid to tackle a spiraling debt crisis.

In a 2023 budget presentation to parliament on Thursday, Ofori-Atta warned the West African nation was at high risk of debt distress and that the cedi's depreciation was seriously affecting Ghana's ability to manage its public debt.

The government is negotiating a relief package with the International Monetary Fund as the cocoa, gold and oil-producing nation faces its worst economic crisis in a generation.

 

Friday 25 November 2022

Pakistan Stock Exchange benchmark index closes flat

The uncertainty stemming from the appointment of the next Chief of Army Staff kept Pakistan Stock Exchange under pressure during the week ended on November 25, 2022. The benchmark index ended the week at 42,937, posting 0.48%WoW gain.

Participation in the market remained lackluster, with daily average trading volume at 159.58 million shares, as compared to 186.3 million shares traded in the earlier week.

All eyes had been on the Monetary Policy announcement scheduled for Friday; the State Bank of Pakistan (SBP) decided to increase the policy rate 100bps to 16%.

Other major news flows during the week were: 1) Pakistan’s foreign exchange reserves declined by
US$134 million to US$7.8 billion, 2) fertilizer offtakes plunged by 50.3%YoY in October, 2022, 3) revenue collection target for December 2022 set at PKR 965 billion, 4) FDI dropped 52% to US$348 million during first four months of current financial year, 5) World Bank approved soft loan of US$200 million for Pakistan for green project, 6) Credit default swap shoots up to 92.53% on political unrest and 7) SBP failed in setting up US$400 million oil fund.

The top performing sectors were: Jute, Technology & Communication and Transport, while the least favorite sectors were: Power generation & distribution, Vanaspati & Allied Industries and Cable & Electrical.

Stock-wise, top performers were: INDU, SYS, ENGRO, DAWH and PSEL, while laggards included: HUBC, MUREB, FCEPL, FATIMA and KEL.

Flow wise, Individuals were major buyers with net buy of US$4.8 million, followed by Foreign Investors (US$1.1 million), while Mutual Funds were major sellers during the week, with a net sell of US$2.8 million. Insurance continued to be a seller, with a net sell of US$1.4 million during the week.

The market is expected to remain range-bound in the near future. The 100bps increase in policy rate announced on Friday does not bode well and likely to dampen the outlook for equity markets.

Furthermore, the upcoming maturity of the International
Sukuk of US$1 billion will be in focus, with a positive outcome possibly restoring sentiment regarding Pakistan's external position that would follow the same.

Any development regarding the 9th review by the IMF would remain in the limelight. The market could come under further pressure due to political uncertainty from the continuing long march slated to reach Rawalpindi by November 26, 2022.

Analysts advise clients to stay cautious while building new positions in the market.

US bans Huawei, ZTE equipment sales

According to Reuters, the Biden administration has banned approvals of new telecommunications equipment from China's Huawei Technologies and ZTE because they pose an unacceptable risk to US national security.

The US Federal Communications Commission said on Friday it had adopted the final rules, which also bar the sale or import of equipment made by Chinese surveillance equipment maker Dahua Technology Co, video surveillance firm Hangzhou Hikvision Digital Technology Co and telecoms firm Hytera Communications Corp.

The move represents Washington's latest crackdown on the Chinese tech giants amid fears that Beijing could use them to spy on Americans.

"These new rules are an important part of our ongoing actions to protect the American people from national security threats involving telecommunications," FCC Chairwoman Jessica Rosenworcel said in a statement.

Huawei declined to comment. ZTE, Dahua, Hytera and the Chinese embassy in Washington did not immediately respond to requests for comment.

Hikvision said in a statement that its products don't threaten US security.

"This decision by the FCC will do nothing to protect US national security, but will do a great deal to make it more harmful and more expensive for US small businesses, local authorities, school districts, and individual consumers to protect themselves, their homes, businesses and property," Hikvision said, adding that it will continue to serve US customers in full compliance with US regulations.

Rosenworcel circulated the proposed measure, which effectively bars the firms from selling new equipment in the United States, to the other three commissioners for final approval last month.

The FCC said in June 2021 it was considering banning all equipment authorizations for all companies on the covered list.

That came after a March 2021 designation of five Chinese companies on the so-called covered list as posing a threat to national security under a 2019 law aimed at protecting US communications networks: Huawei, ZTE, Hytera Communications Corp Hikvision and Dahua.

All four commissioners at the agency, including two Republicans and two Democrats, supported Friday's move. The agency said it has authority to revoke prior authorizations, but declined to do so.

 

 

 

Poland seeking German support to sanction Russian Druzhba oil pipeline

According to a Reuters Report, Poland is seeking German support to slap EU sanctions on the Polish-German section of the Druzhba crude pipeline so Warsaw can abandon a deal to buy Russian oil next year without paying penalties.

The sources also said the pair was nearing an agreement for Poland to coordinate seaborne oil supplies to Germany via Gdansk and part of Druzhba to facilitate Poland's purchase of the Russian-owned Schwedt refinery in Germany.

The EU has pledged to stop buying Russian oil via maritime routes from December 05, 2022, but Druzhba is currently exempt from sanctions. That presents a problem for Polish refiner PKN Orlen, which has a long-term deal to purchase Russian oil via the pipeline and would need to pay penalties to break the contract.

If the EU were to impose sanctions on Druzhba - or at least its northern section supplying Poland and Germany - both countries would be able to get out of their Russian oil importing commitments penalty-free.

The southern section of the pipeline supplies Hungary, Slovakia and the Czech Republic which, unlike Poland and Germany, would struggle to diversify their oil imports.

According to the sources, the Polish climate ministry and German economy ministry are in the final stage of talks on a memorandum of understanding on oil logistics, which could unlock non-Russian flows and help Poland's top refiner pursue its interest in Schwedt.

Germany remains committed to not using Russian oil from 2023 and is working on a solution with Poland to secure the supply of Schwedt, a spokeswoman for the economy ministry in Berlin said on Friday.

Meeting pledges by Poland and Germany to stop buying Russian oil requires regulation at the EU level and both countries are cooperating to achieve this, the Polish climate ministry said on Friday.

Germany has put Schwedt under a six month trusteeship, stopping short of nationalising the refinery, and is seeking ways to supply it with oil.

Poland and Germany promised in spring to try to end Russian oil imports via Druzhba's northern leg by the end of year but Orlen remains tied to its contract with Russian oil and gas company Tatneft.

The Polish refiner has nominated supplies for Druzhba for 2023 as stipulated by the contract but these would stop if the pipeline was hit by sanctions, one of the sources said.

Orlen declined to comment on Friday.

The company has already cut its reliance on Russian oil to 30% of its requirement, replacing it with deliveries from Saudi Arabia and Norway among others.

Kommersant newspaper reported earlier this month that Orlen had submitted an application to the Russian oil pipeline operator Transneft for the supply of 3 million tonnes of oil to Poland through Druzhba in 2023.

Control over Schwedt, which also supplies western Poland, would boost Orlen's refining capacity and control over the flows of oil and its products in the region with assets in Poland, Czech Republic, Lithuania and Germany.

 

 

 

OGDC: Takeaways from FY22 Analyst Briefing

Pakistan’s largest exploration and production company; Oil & Gas Development Company Limited (OGDCL), held its analyst briefing earlier, wherein the following was discussed:

The Company has posted the highest quarterly profit after tax of PKR53.3 billion (EPS: PKR12.4) for 1QFY23, higher by 145%QoQ and 58.5%YoY basis.

Major projects during the year were: Discovery in Wali block with cumulative potential of 219bcf gas and 13 million bbl oil and exploration and appraisal activities at Abu-Dhabi offshore block 5.

Other developments during the year included: company entering into a framework agreement with the Government of Pakistan, provincial government of Baluchistan, GHPL, PPL and Barrick Gold Corporation for extraction of gold and copper reserves from Reko Diq.

As per company presentation, OGDCL holds 87,300 square km of exploration coverage with total of 57/111 exploration/development licenses, respectively.

Province wise concession shares are: KPK 19%, Sindh 21%, Punjab 21% and 39% Baluchistan.

Seismic survey acquisition during the last six fiscal years was 15,380 Line km of 2D and 3,766 sq. km of 3D portraying.

OGDCL’s share in total industry stood at 80% 2D and 31%3D surveys. Finally, OGDCL’s share in gross production works out at 23%, with industry’s total production at 73,400 bpd as on June 2022.

According to management, average natural decline rate of major oil fields stands at 16% (5-year average). Although, the said decline rate has been arrested to 6-8% more recently with the help of workovers and development wells etc.

Industry’s net gas production stood at 3,390mmcfd (OGDCL share 29%) during FY22. Natural depletion rate stands at 8% for major fields (Mela, Nashpa, Kunnar Pasakhi Deep etc.), but has been arrested at 5% by the company through workovers and development wells etc.

Management stated that Reko Diq project is a stepping stone for the diversification strategy company is trying to achieve. Company is also trying to move into power and other energy projects as well.

Thursday 24 November 2022

LNG trade faces unprecedented times

According to Seatrade Maritime News, LNG shipping is seeing exceptional strength, already fueled by geopolitical vagaries, and with the impact of winter weather patterns yet to be determined.

The sector received considerable emphasis at Marine Money’s mid-November Ship Finance Forum, held in midtown New York.

Mike Tusiani, Poten & Partner’s Chairman Emeritus, in introducing the day’s kick-off panel, described the present situation as an unprecedented time in the LNG trades.

His colleague at Poten, Jefferson Clarke, talked about “ton time” having supplanted ton miles as the operative metric in explaining LNG shipping’s rise.

He said that commodity prices are driving the flows of LNG; in short, it gives the incentive for charterers to hold on to tonnage…and not get access to tonnage.

He explained that vessel charterers have been moving vigorously into the term market, and explicitly linked high LNG prices with demand for term charters.

Though media headlines within the mainstream and trade press have pointed to charter hires for high end LNG carriers at US$400,000 per day or more, spot fixtures are actually few and far between.

Oystein Kalleklev, CEO of Flex LNG said, after reviewing fixture lists, that he could only find two spot fixtures done in November.

On a shipowner panel later in the day, Kalleklev opined that LNG shipping is like a liner trade in contrast to more spot-oriented commodity sectors, including VLGC/ LPG transporter Avance Gas, where he is Executive Chairman.

On that same panel, he described the FLNG strategy, if he were taking delivery of a hypothetical new vessel, as “fix it out, finance it, and pay a hell of a lot of dividends.”

He described one year time charters as being in the US$200,000 per day range with three-year deals drawing around US$170,000 per day but added that there will be volatility.

In the earlier panel, he indicated a preference for a strategy of fixing FLNG’s vessels on term business when they come off existing charters, rather than expanding the fleet with expensive newbuilds.

Kalleklev attributed strength in the markets to waiting and delays, which effectively reduce available supply, in explaining the market’s dynamics. In LNG trades, he explained that “ton time has mitigated the downturn in ton miles.

People are waiting more, people are deploying floating storage. One component of the potential volatility awaiting market participants this time around might be unwinding of such storage if the present contango structure LNG pricing was to flatten out.

He noted that a precipitous market fall in late 2018 had been brought about by a previous instance of floating storage being unwound.

 

 

 

Wednesday 23 November 2022

US may save itself, but destroy others

The United States hopes to save itself by destroying others, rather than solving its own problems by managing and controlling crises. The US has created many crises in its relations with China. If they're not properly dealt with, not only China, but also the US itself will suffer, and the latter will suffer more.

Some elites in Washington make no attempt to improve themselves when facing competition with China and dealing with domestic woes, instead, they dedicate themselves to taking China down through committing sabotage.

Former US Treasury Secretary Lawrence Summers warned US policymakers to focus on building the country's own economic strengths in its contest with China, rather than attacking its adversary.

"If we change our focus from building ourselves up to tearing China down, I think we will be making a very risky and very unfortunate choice," he was quoted as saying, according to Bloomberg's report.

The primary reason why Washington focuses on "tearing China down," rather than concentrate on its own innovation, infrastructure, education and challenges lies in the US political system's structural contradictions.

The US is now trapped in conundrums such as the loss of manufacturing capability, the hollowing out of local industries, and the asymmetric distribution of benefits from global trade among different groups in the country. For the US, the top capitalist country, the excessive expansion of financial capital will inevitably lead to the emergence of the above mentioned problems.

If the US wants to improve itself as Summers suggested, it must overcome the constraints of its system and carry out domestic reforms to curb the excessive expansion of financial capital, implement a fairer tax policy, and manage the wide income distribution gap between different groups. It also needs to plan and guide national innovation through policies so as to enhance the creativity and competitiveness of the country. However, unless the US becomes a socialist country, these are difficult to accomplish under its existing capitalist framework, Shen Yi, a professor at the School of International Relations and Public Affairs of Fudan University, told the Global Times.

In addition, reforms require short-term costs, but under the current US system with political parties facing pressure of winning more votes in the elections, any reforms demanding short-term costs cannot be implemented in the US unless the two parties reach a consensus," said Shen.

The simpler solution, for both parties, is to "hoax" the American public that the US has been running smoothly and that the main obstacle for US' development is because of a "bad" country. Both Republicans and their Democratic counterparts claim that they can help deal with the "bad" country if elected, so as to solve their current predicament. To win the election, the two parties have been intensifying their steps to contain China.

As a matter of fact, there is nothing complicated about what is the proper solution for the US, and many elites, including Summers, are fully aware of it. Shen noted that the US seems to stay in a paralysis state, under which the brain is actually sober, but the body cannot operate according to people's thoughts.

This is how Washington's strategic anxiety in terms of China policy has been formulated. In this context, decision-makers have been given some absurd advice, with strong gambling and speculative mentality.

Furthermore, US term of office and election determine that the government has very limited time to carry out practical policies, as much time is spent on election and buck-passing. Such a nature of US political games also determines that Washington has little time to make remarkable changes.

Only when the entire US reaches a new consensus, realizing that US problems do not lie in China, but the US itself, can the US make fundamental changes on its China policy. Until that day comes, what Summers proposed will not take place.