The third largest importer of the crude, India has time and again suggested to OPEC+ the demand-led path to recovery in international oil production and price. OPEC+ however has its own mind; it cuts down production.
By Abdul Nafey,
The one million barrel of crude from Guyana is on its way to Paradip port in India. The ‘trial cargo’, as theIndian Oil Corporation (IOC) describes its first purchase, is part of India’s revamped oil import strategy. The third largest importer of the crude, India has time and again suggested to OPEC+ the demand-led path to recovery in international oil production and price. OPEC+ however has its own mind; it cuts down production. This is what precisely explains the recent spurt in domestic oil price and the inflationary trend in the Indian economy.
India’s revamped strategy is to source oil from non-OPEC countries. Import of crude from the Middle East is now at its lowest in the last 20 years. Sourcing from the Western Hemispheric countries including US, Canada, Mexico and, in the latest, Guyana has increased. It makes business sense. Margins in nature grade’ crude are better; more so in a market hit by the Covid-19 pandemic. India’s public sector refineries have upgraded their capacity to process ‘heavy’ and ‘extra-heavy’ crude – which yields more diesel. Public sector refineries account for three-fifth of the 5mbd national refining capacity. Times are good; improvement in global shipping value chains is helping India identify new and cheaper sources of oil import. The purchase of Liza light sweet crude from Guyana has admittedly come at a ‘competitive rate’. Indian importers also say that non-OPEC sources work in mitigation of unwarranted surges or premiums levied on crude import.
State-owned refineries are interested in having a term supply agreement with Guyana. India is reportedly ready to buy Guyana’s annual share of crude under a government-to-government agreement. India has offered Guyana a range of its technical services – gas-to-shore project; gas for the production of electricity and fertiliser; and bottling as LPG.
The new kid on the oil block is grabbing global headlines. The nine billion barrels of recoverable oil make Guyana the 19th largest oil country in the world. The Stabroek block is unusually vast- spread over 6.6 million acres. ExxonMobil has made a whopping 18 discoveries to date on the Stabroek block. The oil wells are prodigious; Guyana would become the 11th country in history to reach 1mbd production target by 2028. ExxonMobil plans to ramp up production to 120,000 b/d from Liza I. Once Liza II and Payara come on line in 2022 and 2024 respectively, the production could reach 220,000b/d. The agreement with ExxonMobil, signed in 2016, is generous: 2 percent royalty and 50 per cent profit sharing. ExxonMobil is lining up billions in new investments. Guyana’s oil earnings would go up to US$5 billion in 2025 and per capita GDP could treble by 2030.
The country has gained in regional geopolitics. It took visa restrictions and a stern warning from Mike Pompeo for David Granger to “step aside” and Irfaan Ali to assume the presidencyin August last year– some five months after he had won the popular mandate. The ruling Indo-Guyanese People’s Progressive Party (PPP) seems to have mended ties with the US. Mike Pompeo, the secretary of state under the Trump administration, was in Georgetown in September ostensibly looking for sites for radio stations and other operations in north-western Guyana – close to Venezuelan border. The US has ramped up its military presence in Guyana. Guyana broke away from the regional consensus when it came out in support of Mauricio Claver-Carone – the first American to head theInter-American Development Bank. The US might use IDBas a financial tool to check China’s rising influence in the Caribbean.
The Caribbean producer deserves attention for India’s long-term energy security.Guiana Shield, which includes Guyana, Suriname and French Guiana, is thought to have lots of oil. Guyana has the largest Indian Diaspora population in the Caribbean. Indo-Guyanese form the largest ethnic group at 40 per cent in a population of 783,000. Oil diplomacy could complement India’s parvasi bharatya outreach. It is time for India to step up.
(The author is former Professor of Latin America & Caribbean Studies at JNU, New Delhi. Views expressed are personal and do not reflect the official position or policy of the Financial Express Online.)