Current state of markets aiding India's plans to diversify oil imports
The current state of the global oil market characterized by low oil prices is helping India to diversify its supply sources, as evidenced by its recent purchase of US sour crude, senior Indian officials said Tuesday.
"In an oversupplied market, it is important for the producer to understand the perspective of the consumer," India's petroleum minister Dharmendra Pradhan told the World Petroleum Congress in Istanbul. "Gone are the days of the seller. Now, the consumer is the king."
India relies on OPEC for 86% of its oil imports. The recent deal between OPEC and non-OPEC countries to cut production has prompted India to look for more opportunities to diversify its crude supply sources.
Indian Oil Corp., the country's largest refiner, told S&P Global Platts earlier that it had made its first purchase of crude oil from the United States, closing a deal to ship in 1.6 million barrels of US sour crude Mars, which is set to arrive in October. IOC's chairman Sanjiv Singh told the congress that US crudes were currently proving to be competitive and more purchases were possible, as Indian refineries were flexible to run various grades.
"Traditionally, we had not been importing significant volumes of US crude but after the recent [lifting of US export restrictions] we have started. I think it will further widen [our supplier base]," said Singh. "We expect our source of US crude to continue for the [existing future]."
Indian imports of Russian Urals have also risen this year as the grade shows signs of competing with some Middle Eastern sour barrels.
PRICE SENSITIVE
Pradhan later told S&P Global Platts in an interview that India was a "price sensitive" market and was open to buying from any part of the world.
"If we take North American or Canadian crude, the primary reason is that they are competitive. We are a price sensitive country. Whoever will give us a competitive price, we will prefer them," he added.
The front-month Dubai crude swap has commanded a premium to the same-month WTI swap for most of this year. A weaker WTI versus Dubai crude typically makes various North, Central and South American crudes priced against WTI more competitive.
The spread averaged at a premium of $1.28/b in the second quarter and $0.49/b in the first quarter of this year, Platts data showed. In comparison, the spread between Dubai and WTI swaps averaged at a discount of $1.62/b in the fourth quarter of last year or minus $2.48/b for the whole of 2016.
DOMESTIC OIL OUTPUT
Pradhan also said that as part of India's plans to reduce its import bill, the country has recently launched an oil and gas licensing round in a quest increase domestic oil production.
"Today we are producing around 700,000 b/d [of crude oil]... 75% of that belongs to state oil upstream companies," he said. "Now, India is focusing on how to rejuvenate the 75%. Our oil recovery is 30-40%. How can we make it over 50%?that is the challenge."
India opened 2.8 square km of sedimentary basins for oil and gas exploration to overseas investors on July 1 as part of the Open Acreage Licensing or OAL program, the first-round offering of oil and gas blocks under the Hydrocarbon Exploration and Licensing Policy, or HELP.
HELP is a part of the government's strategy to double India's oil output to 150-155 million mt/year by 2022, from the current 80 million mt/year.
RUSSIAN TIES
Pradhan also said that he had a productive meeting with Russian energy minister Alexander Novak earlier in the week. He said Russia was hoping to attract Indian interest in the offshore Arctic fields of the Russian Federation, and added that Indian companies were already technically evaluating these projects.
When asked why the takeover of Indian refiner Essar Oil by a consortium led by Russian oil giant Rosneft had been delayed, Pradhan said that there were some "procedural issues," but that these would be resolved imminently.
Separately, Essar Oil Managing Director and CEO Lalit Kumar Gupta told Platts the deal would be closed "very soon."
The deal would give Rosneft and a consortium led by commodities trading group Trafigura a 98% stake in Essar Oil. It was supposed to be finalized in March, but it has been facing some regulatory hurdles in India.
In addition, India hopes to forge stronger energy ties with Turkey and engage with the strategically located country on "a bigger platform," Pradhan said.
Pradhan met with his Turkish counterpart Berat Albayrak this week to explore ways of working together on upstream and downstream sectors. He said that he had a "very good" discussion with Albayrak.
