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India Needs to Trim Its Overdependence On OPEC Crude Oil

In December 2015, the United States (US) lifted the 40-12 months-previous ban on oil export which opened up avenues for India to capitalise on the opportunities to import oil from the US. Indian Oil Corporation Limited (IOCL), Bharat Petroleum Company Restricted (BPCL), and Hindustan Petroleum Corporation Limited (HPCL) placed orders to the tune of 7.Eighty five million barrels (1.15 million tonnes, MT) of crude oil.

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The imported US crude was to be processed in refineries located at Paradip, Haldia, Baruni, Bongaigaon, Kochi and Vizag. On October 1, 2017, IOCL grew to become the primary public sector refiner to obtain 1.6 million barrels (0.233 MT) of US crude at Paradip in Odisha. Soon, BPCL and HPCL are expected to receive 2.9 million barrels (0.45 MT) and 1 million barrels (0.146 MT) of US crude for Kochi and Vizag refineries respectively.

Refineries are importing both candy and bitter US crude. Reliance Industries Ltd (RIL), the world’s largest refinery, bought a million barrels (zero.146MT) of West Texas Intermediate Midland crude and Eagle Ford crude for November 2017 supply.

The demand for crude oil in India elevated from 203 MT in 2015-16 to 214 MT in annual oil prices 2016-17, registering a development fee of 5.5 per cent compared to the global average progress of 1.6 per cent. Indian fashionable refineries are able to handling a posh mixture of crude including sour and heavy crude, which provides these refiners opportunities to be globally aggressive. Subsequently, Indian refiners are consciously scouting for a number of sources to optimise refinery productivity.

India is vigorously increasing LNG, pure pipelines, and town fuel distribution infrastructure. Growth of the natural gasoline market means larger import of pure fuel, and the US emerges as a viable different to essentially the most most popular supplier reminiscent of Qatar. GAIL (India) Restricted (GAIL) has already made a contract with Cheniere Energy, USA to buy 3.5 MT/annum of liquefied natural fuel (LNG) for 20 years. The first contract of LNG is predicted by January 2018.

India’s move to import crude oil and LNG from the US is certain to reduce the US-India trade deficit of $19.9 billion in 2016-17, which can please the Trump administration. Indo-US oil diplomacy might show helpful for each the nations within the long-run.

India’s crude import from Nigeria dropped from 27.9 MT in 2015-sixteen to 17.7 MT in 2016-17, round 23 per cent drop. On the contrary, during the identical interval, import from Iran jumped from thirteen.6 MT to 27 MT, registering near one hundred per cent development; making it the third largest supplier after Saudi Arabia (39.Three MT) and Iraq (37.Seventy five MT). Throughout April-August 2017, India’s prime importers were Iraq, Saudi Arabia, Iran, Venezuela, Nigeria and UAE. Although the quality of crude is sweet in Nigeria, safety considerations and political uncertainty influenced India’s quest for alternative sources of crude provide. The federal government strategically desires to diversify crude oil import sources to scale back over-dependence on a couple of Group of the Petroleum Exporting Countries (OPEC).

Currently, 86 per cent crude oil, seventy five per cent gasoline and 95 per cent LPG is imported from OPEC, and India is reviewing its fossil gas import strategy; especially with suppliers from the Center East. India has been consistently pushing for a low cost instead of ‘Asian Premium’ charged by the OPEC, with Petroleum Minister Dharmendra Pradhan pressing for ‘Asian Dividend’. The Wall Avenue Journal (2010) reported that the ‘Asia Premium’ was on a median of “about $1.20 a barrel since 1988”. In a globally competitive market, OPEC charging premium on crude to Indian importers reduces their competitive benefit.

Due to this fact, annual oil prices Asian consumers like India call for truthful pricing with out discrimination, which can supply a degree playing area to Indian refiners. Despite repeated attempts by India, OPEC remains dispassionate concerning the discriminatory pricing apply.

On the demand front, India stays a significant driver of worldwide oil demand. World oil provide dynamics has been steadily altering. The emergence of the US from a web importer to net exporter provides to the worldwide supply glut. On November 30, 2016, OPEC decided to chop production by 1.2 million barrels a day with effect from January 1, 2017; which couldn’t drive desired upward worth corrections. However, inspired by the upward value motion and potential stability within the range of $55-60/bbl, on the identical day, OPEC decided to increase production adjustment until December 2018. This is predicted to push oil value higher. Nevertheless, OPEC’s current forecast instructed that US shale oil will drive world production growth in the years to return and could presumably play an important position in balancing oil costs.

Underneath rising circumstances, India is pressured to look for different oil and gas sourcing destinations beyond traditional sources. Its quest for energy provide safety is dependent on strong relations with fossil gasoline wealthy countries just like the US, Center East, Eurasia and Africa. To satisfy the rising oil and gasoline demand, India should tap into surplus provide of oil in the US and Russia. To chop its dependence on OPEC, India ought to exploit opportunities to diversify its oil and fuel sourcing mix. Enhance in sourcing of crude and natural gasoline from the US could make OPEC rethink India’s proposal on ‘Asian Dividend’.

Kar is the top of Department of Administration Research on the Rajiv Gandhi Institute of Petroleum Technology. Chandra is a scholar at RGIPT.Views expressed are personal.

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