Rosneft’s entry sets trend for securing mkts
The entry of Russian governmentowned Rosneft into India’s petroleum sector through its purchase of Essar Oil is expected to change the dynamics of the refining and marketing business.
It also ushers a new era in which global oil producers buy refinery stakes in high demand markets in order to secure their hydrocarbon business, which is under threat from other energy sources.
Barring Shell, which is present in India only in marketing and the LNG segment, no major foreign player has management control and large-scale investment in the downstream sector. The LN Mittal group has an equity presence in the Guru Gobind Singh refinery at Bhatinda through a joint venture with Hindustan Petroleum Corporation, but operationally it has no direct role in management.
A major effect of Rosneft’s entry will be on crude oil procurement strategies. Rosneft has indicated that its shares in upstream projects in Venezuela and working offtake contracts with PDVSA will provide it with significant operational synergies in India and help improve the refinery’s economics. "Further synergy will be derived from crosssupplies of oil products to Asia Pacific markets," Rosneft said in its statement announcing the completion of $12.9 billion deal on Monday.
Rosneft, along with a consortium of Trafigura and United Capital Partners, has bought 98 per cent in Essar Oil, which has a 20 million tonne refinery at Vadinar in Gujarat.
“In the long run, it will be a strategic investment by Rosneft to ensure it has buyers for Russian crude. It will continue to invest in increasing refining capacity in India to have captive demand for its crude production,” said Aditya Gandhi, director, technology, Sapient Global Markets.
However, Debasish Mishra, partner at Deloitte Touche Tohmatsu India, added these changes would not be immediate. “It is unlikely that there will be immediate change in the crude buying pattern or expansion of the retail network, as the new owner might want to integrate the existing operation and look for efficiency gains,” he pointed out.
India has beaten China in growth of crude oil consumption. In 2016, it accounted for 21.8 per cent of additional global oil demand, rising 8.3 per cent to 212.7 million tonnes compared with a global growth of 1.5 per cent. In 2015, India became the third largest crude oilconsuming nation in the world, overtaking Japan.
According to the BP Statistical Review of World Energy, India’s import of crude from West Asia was just over 63 per cent in 2016, lower than the 73 per cent in 2010. India's crude sourcing will now diversify further with less dependence on Opec. “Given the pricing and market share challenge that all crude producers have been facing, one strategic play crude producers are looking at is to buy refining assets across the world so that they can lock in demand for their crude. I expect that to continue with players like Aramco and Rosneft acquiring assets in high demand areas like the US, India and China to lock in customers for the long term,” said Gandhi.
Essar has been making a lot of investment in its refinery to upgrade capacity and the complexity of crude that it can process as well as to support production of higher grade and lower emission fuel. Some of this was prompted by Western sanctions on Iran, the major supplier of crude to the Vadinar refinery.