State-owned oil marketing companies (OMCs) may find it hard to comply with the government’s recent order to cut crude imports from West Asia, especially Saudi Arabia, three senior OMC executives said. This has implications for costs and supplies, they said. Saudi Arabia is one of the biggest members of the Organization of the Petroleum Exporting Countries (Opec), the world’s largest bloc of crude exporting countries.
State-owned refiners are likely to face a challenge in attempts to find a reliable crude oil supplier, according to the three persons, all of whom requested anonymity.
They also spoke about the increased costs involved in importing non-Opec crude because of additional freight charges.
“We have been building our refineries substantially on Middle Eastern crude not only because of the availability of a variety of crude cocktails but also because we are ensured a continuous and voluminous supply, something other countries promise often but fail to deliver,” said one of the three people cited above.
Union minister for oil, petroleum and natural gas Dharmendra Pradhan recently urged refiners to speed up diversification of crude resources and reduce dependence on West Asia. Indian consumers have been hit hard by rising oil prices, but the government’s repeated entreaties for Opec and its allies to ease supply curbs have fallen on deaf ears.
The OMCs, Indian Oil Corporation Ltd, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd (HPCL), have been asked to scout for other regions to source crude and potentially cut imports from Opec by at least a quarter. Last month, HPCL-Mittal Energy Ltd, a joint venture between HPCL and Mittal Energy Ltd, bought cargo from Guyana for the first time as part of the shift.
India is the world’s third-largest oil importer after the US and China, and Opec makes up about 83% of the country’s oil imports. Diversification may be a tall order with around 79.4% of the world’s proven oil reserves located in Opec+ countries, according to experts.
“Every time there is a crude oil pricing issue, OMCs are directed to look for alternative geographies to import crude from. We try. But given the other dynamics of cost, supply, volume and freight charges, we are back to square one in a few months,” said another of the officials mentioned above.
After West Asia, the next biggest suppliers for India are Russia and the US. However, they have their own challenges and commitments to other countries.
“The kind of crude volumes and continuous supply our refineries need, only Middle Eastern crude can ensure. That is one of the reasons we are so heavily dependent on them,” the second person said.
This also allows refineries to change their product slate (the ability of a refinery to vary their production of output) depending on demand and the properties of the crude being refined.
“If you look at the price of crude, it is the same for all countries. Opec does not sell it to India at a special price. The tax that Indian consumers pay on fuel is the primary reason behind the price hike. The government needs to look at that,” said an analyst. The excise duty on petrol from April 2014 till date has gone up by ₹23.42 per litre or by 247%, the analyst said. For diesel, it has risen by ₹27.3 per litre, or 607%. VAT has also gone up by ₹9.14 per litre (up 77%) on petrol and ₹5.33 per litre on diesel (up 80.6%).