Crude oil-sourcing map shows early signs of change

Chad, Angola and Cambodia make an appearance

The global crude oil market today is a buyer’s market, and India, as one of the major consumers of crude oil, is broad-basing its fuel sourcing in terms of geography.

While the ranking of the top suppliers to India in the West Asian market is changing, countries like the Congo Republic, Angola, and Brazil also figure on India’s crude oil-sourcing map.

This change in sourcing dynamics has also changed the ranking of supplier countries. The latest Petroleum Production and Analysis Cell (PPAC) data say on a cumulative basis, Iraq— with a share of 20.6 per cent — has pushed Saudi Arabia to second position during the June quarter of the current fiscal year (FY18). Saudi Arabia had a 17.3 per cent share in India’s crude oil import during that period. Dependence on West Asia is reducing. According to the BP Statistical Review of World Energy, India’s import of crude oil from West Asia was just over 63 per cent of its requirements in 2016, lower than the 73 per cent in 2010.

While this dependence reduces, other geographies are attracting Indian refiners. State-run Indian Oil Corporation (IndianOil), for instance, sourced crude oil in July from the US for the first time on a spot basis.

Industry analysts say this probably would be an early sign of change in India’s crude oil-sourcing mix. “The crude oil production mix is changing and so are India’s requirements. But India will continue to rely heavily on West Asia for its crude oil imports. It will remain the most economical source for most refineries. Some highly complex refineries (Reliance, for example) may find it cheaper to import heavy crude oil from the Americas,” said Vikas Halan, vice-president, Corporate Finance Group, Moody’s Investors Service.

The BP Statistical Review suggests the supply of crude oil and petro products from the US has increased from almost nil to about 3 per cent. The rest of the Americas (Mexico, South and Central America) has increased its share from 6 per cent to 14 per cent over the same period.

Not just the Americas, new geographies are being explored. According to the PPAC data, during June, Reliance Industries (RIL) diversified its crude oil purchase portfolio by importing from the Congo Republic, Angola, and Oman. Among the public sector oil-marketing companies (OMCs), IndianOil has been ahead in experimenting with its crude oil-sourcing basket.

The PPAC data suggest IndianOil and RIL added Russia to their crude oil import basket in May.

“A notable addition to the import basket during May 2017 was Russia, with IndianOil and RIL importing 859,000 tonnes,” the PPAC report for May 2017 added.

While lower crude oil prices give Indian refiners an edge in choosing a supplier and negotiating spot prices, India’s improving refining efficiency is also fuelling this shift in the crude mix. “For IndianOil, its new Paradip refinery facility allows more flexibility to source different types of crude oil and process it,” said an industry consultant.

Halan agreed newer refineries provided a further advantage to OMCs. “All the OMCs have at least one high-complexity refinery that is capable of using heavy crude oil. They are also trying to increase the complexity of their existing refineries, but those are still some time away to start utilising heavy crude oils,” he said.

For Bharat Petroleum Corporation, the Bina refinery helps such sourcing and in Hindustan Petroleum Corporation’s case, it is the Bathinda refinery. In the past, the US and European Union sanctions had forced India to move away from importing crude oil from Iran, which was one of the major suppliers. It, however, along with China, Japan, and South Korea, continued to import large amounts of oil from Iran after sanctions were toughened in 2012. After the partial lifting of sanctions last year, India’s annual oil imports from Iran surged to a record high in 2016, as some refiners resumed purchases. In 2016, Iran was the fourth-largest supplier to India, rising from seventh position in 2015. It used to be India’s second-biggest supplier before the imposition of sanctions.

India has beaten China to show the largest growth in crude oil consumption. In 2016, it accounted for 21.8 per cent of the additional global oil demand. Its oil consumption grew 8.3 per cent to 212.7 million tonnes in 2016, compared to global growth of 1.5 per cent. In 2015, it became the third-largest oil consuming nation in the world after overtaking Japan.