Refiners turn to heavier crude to boost margins, insulate against shocks

Apr 14 2014, 12:45 IST
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Venezuela, Brazil, Colombia, Azerbaijan and Algeria emerged as exporters to India over the last three to six years. (Reuters) Venezuela, Brazil, Colombia, Azerbaijan and Algeria emerged as exporters to India over the last three to six years. (Reuters)
SummaryThe share of African and South and Central American countries in India’s crude imports have risen from less than 20% in 2008 to about 30% now.

The country’s relatively new public sector and private petroleum refineries, looking to improve margins, have in recent years stepped up sourcing of heavier blends of crude, which has reduced the relative share of Brent crude in domestic oil imports.

The trend, so far most visible in the rise in India’s oil imports from South America, especially Venezuela, is expected to extend into the coming years, going by the term contracts being signed and the buzz in the spot markets.

More regions other than the Gulf countries, conventionally India’s biggest oil supplier, are getting to export heavier varieties of crude oil to India, as companies are eager to recover the capital investments in their modern refineries expediently.

Indian refiners including state-run Indian Oil Corporation as also Reliance Industries and Essar Oil are now importing crude oil from a new set of supplier countries such as Colombia, Ecuador, Panama, Algeria, Cameroon, Congo, Guinea, Azerbaijan and Sudan, while their imports from countries such as Venezuela, Brazil, Mexico, Angola and Brunei have increased in the past two to three years.

The share of African and South and Central American countries in India’s crude imports have risen from less than 20% in 2008 to about 30% now.

South America’s own share more than doubled in the period to 30 million tonnes (mt). This is even as India’s overall oil imports have increased from 122 mt in FY08 to 185 mt in FY13 (during April-February FY14, the figure stood at 175 mt).

“Some of the Indian refiners such as RIL and Essar Oil have high refinery complexity index and can process heavy grade crude as well. These factors have encouraged them to buy less-expensive oil available from South and Central American countries. Many refineries including IOC have also upgraded their existing refineries to handle the heavier grades of crude oil,” said Manish Aggarwal, partner at KPMG in India.

Heavier blends of crude trade at a discount to lighter grades (up to 12-13%), such as Brent, prompting refineries to import heavy and ultra-heavy grades to improve margins. Recently commissioned Indian refineries including those that have had upgrades have high levels of complexity (high Nelson Index), making them capable of processing heavier blends.

Venezuela, Brazil, Colombia, Azerbaijan and Algeria emerged as exporters to India over the last three to six years. Imports from Australia, though in small quantities, have been done in the last two to three years. Refiners are buying these crude oil varieties

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