India’s state-refiners, who account for about two-thirds of the country’s oil processing capacity, are seeking more flexibility in import contracts as they look to tap new sources of supply flushed out by the U.S. shale boom.
India, the world’s fourth-biggest oil consumer with refining capacity of 4.3 million barrels per day, imports 80 percent of its crude needs and has traditionally relied on the Middle East for heavy oil supplies and West Africa for lighter, sweet crude.
A push to include both fixed and optional volumes in contracts would allow refiners to fill some of their needs from cheaper spot cargoes now on offer from suppliers such as Algeria, Latin America and Canadia as U.S. demand has dwindled.
“It’s a buyer’s market now,” said Sanjiv Singh, head of refineries at Indian Oil Corp, the country’s biggest refiner.
As refiners start to negotiate annual term contracts for the coming financial year starting in April, IOC is looking to build in both firm and optional volumes, its head of finance A.K. Sharma told Reuters.
A contract would include a fixed amount, as well an optional amount that the buyer could forgo if cheaper spot supplies appear on the market.
“We will be looking for flexibility from most of the term crude suppliers so that whenever some ‘opportunity crude’ is available in the market we can directly tap it,” Sharma said.
Brent’s premium to Dubai; DUB-EFS-1M, currently near its lowest since July 2010 due to a glut of crude in the Atlantic Basin, has made crude from the North Sea, Africa and Latin America more competitive in Asia.
“We have more bargaining power,” said an official at Bharat Petroleum Corp Ltd (BPCL), who is not authorised to speak to media. “Crude sources are far more than before and all of them are reaching Asia because there is no other market for this surplus crude.”
OPTIONS AND DISCOUNTS
The market changes meant some multinationals were offering optional volumes, better credit terms and discounts on official selling prices, said UK-based consultant KBC Energy Economics.
“Overall discounts can be as high as 50 cents a barrel,” said KBC senior consultant Ehsan Ul-Haq.
The Indian government is also looking to help the industry by changing regulations to lower shipping costs, and widening a list of multinationals eligible to supply oil under term deals.
BPCL has negotiated a flexible contract with Chevron for West African grades and with Malaysian state oil firm Petronas, the company official said.
Hindustan Petroleum (HPCL) has similar contracts with Total for Iraqi Basrah, Petronas and Kuwait, its head of refineries B. K. Namdeo said.
The company has also offset the impact of a fall in global oil prices to four-year lows by paying for spot crude on the basis of prices in the month of loading and the subsequent month, rather than just the month of loading.
“We have saved a significant amount as global prices have been falling,” Namdeo said.
India’s Mangalore Refinery and Petrochemicals Ltd (MRPL) this year bought oil from Argentina while IOC, which has small term deals with Latin American nations, shipped in Canadian barrels.
IOC’s crude imports in the next financial year will rise after it commissions its 300,000 barrels per day (bpd) east coast Paradip refinery, planned for March.
MRPL will also try for optional purchases within its term contract and may raise the share of spot purchases in its imports, said its head of refinery, Vijay Joshi.