With political conflicts and other contingencies often threatening to impact oil supplies from West Asia, India’s petroleum refiners are gradually increasing sourcing of crude from Africa and Latin America. The move would not only be a hedge against supply disruptions, but could also help regulate the country’s oil import bill, besides enabling some newer refineries to bolster margins.
India’s crude sourcing has diversified into Colombia, Venezuela and Brazil in South America and Angola and Algeria in Africa.
While Indian refiners have ramped up imports by 6-7% from African and Latin American suppliers in FY14 over the year before, they raised purchases from North America — Mexico and Canada — by a steep 26%.
Conventionally, India’s dominant crude suppliers have been West Asian counties such as Saudi Arabia, Kuwait, Iraq, Iran and UAE.
According to oil traders, the spread between heavy crude oil (from South America) and Arab light crude can be around $5-10/barrel. Buying cheaper crude could help the PSU refiners — IOCL, BPCL and HPCL — improve their gross refining margins by about $1-1.5/ barrel. Private refiners such as RIL and Essar Oil have been processing heavier crude oil and their current GRMs are much higher. RIL and Essar Oil are already lifting about 330,000 barrels per day of Venezuelan crude oil under a 15-year contract.
“Indian Oil Corporation (IOC) already has term contracts with the national oil company (Pemex) of Mexico for importing crude oil. During 2013-14, the company procured crude oil from Colombia and Brazil on trial basis. For 2014-15, the company has plans to enter into term contracts with Colombia and Brazil for supply of crude oil and has initiated discussions with the Petróleos de Venezuela of Venezuela for supply of crude oil on term basis. Such contracts are based on techno-commercial considerations,” a senior official at the external affairs ministry (MEA) told FE.
IOC has a regular annual term contract with Nigerian National Petroleum Corporation for supply of Nigerian crude oil grades and regular annual term contract with Sonangol of Angola for supply of Angolan crude oil.
“IOC had a term contract with Sonatrach of Algeria for supply of Algerian crude oil during 2010-11. The contract was not renewed during subsequent years as it was not found economical. However, for 2014-15, the company plans to enter into a term contract with Sonatrach,” said the MEA official.
Another government-owned refiner BPCL has entered into a term contract with oil major Chevron for importing the required Nigerian crude oil grade. “BPCL is interested in entering into a term contract with Libya after the geopolitical situation in the country normalises and crude oil exports stabilise. HPCL is also keen to enter into a term contract with NNPC, Nigeria,” the official continued…
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