By DEBJIT CHAKRABORTY and RAKTEEM KATAKEY
India, Asias second-biggest energy user, is in talks
with Saudi Arabia and Kuwait for better terms on oil
contracts as surging US output frees up supplies.
Hindustan Petroleum, Indias third-largest state
refiner, is seeking to at least double the interest-free
credit period for crude purchases from Saudi Arabia and
Kuwait to 60 days, B.K. Namdeo, the companys refineries
director, said in Mumbai.
discounts for agreeing to contracts that are more than 10
years long, according to Managing Director P.P. Upadhya.
Discussions are going on, and we expect the extended
credit period to be reflected in the new contracts from April
1, Namdeo said. There is a surplus in the market,
and India should take full advantage of the situation.
A shale-oil boom in the US, the worlds biggest
consumer, has pushed crude production to the highest in
almost 26 years, leading the country to cut imports. In
response, some of the biggest Middle East producers are
turning to Asian nations to lock in buyers as the easing of
sanctions on Iran brings more oil into the market.
Deals between India
n refiners and countries in
the Middle East are best viewed as a security of supply
effort, said Abhishek Kumar, a London-based energy and
modeling analyst at Interfax Europe
Ltd.s Global Gas
Analytics. Countries like Saudi Arabia and Kuwait are
as much concerned about competition from Iran as from the
Indian Oil, the nations biggest refiner, is in talks
with some Middle East suppliers, including Saudi Arabia and
Kuwait, to increase the credit period for crude purchases to
60 days, its finance director P.K. Goyal said in an interview
in New Delhi. Iraq, the companys biggest crude
supplier, started offering 60-day credit from January, he
Iran currently gives Mangalore Refinery
and Mumbai-based Essar
Oil 90-day credit.
Until some years back, Saudi Arabia used to give us
better payment terms, which was later stopped, said
B.K. Datta, Mumbai-based director of refineries at Bharat
Petroleum, the nations second-biggest state refiner.
It will be good if payment terms are relaxed once
Kuwait Petroleum officials couldnt immediately be
reached to comment on potential changes to payment terms.
Saudi Aramco declined to comment.
Indian state-run refiners sell fuels below their production
cost to help the government curb inflation. While they are
partly compensated by the government, subsidies are often
delayed, forcing the oil processors to borrow money.
Longer credit periods from the biggest crude suppliers
will help the refiners reduce their working capital loans,
which in turn will bring down interest charges, said
Dhaval Joshi, a Mumbai-based analyst at Emkay Global
Financial Services. This is crucial, especially because
the compensation provided by the government is not regular
and takes time to come.
Oil companies rose in trading today in Mumbail. Bharat
Petroleum increased as much as 3% to 399.20 rupees, the
highest since May 2013. Hindustan Petroleum gained as much as
n Oil, 2.2%, and Mangalore
Imports of Iranian crude by countries including China, Japan
and India rose by 100,000 bpd in January to 1.32 million bbl
as a deal easing sanctions over Irans nuclear program
took effect, the International Energy Agency said in its
monthly oil market report released Feb. 13. Six world powers
including the US agreed to ease sanctions on Iran in November
in return for curbs on the countrys nuclear program.
Negotiations between Iran and P5+1 may result in the
lifting of the ban on petroleum products from Iran, which is
certainly not ideal for countries like Saudi and
Kuwait, Kumar said. Therefore, they are keen on
long-term contracts with Asian buyers prior to the lifting of
sanctions on Iran.
India, which imported about 185 million metric tons (3.7
million bpd) of crude in the year ended March 2013, gets
about 63% of its requirement from Middle East suppliers
including Saudi Arabia, Kuwait, Iraq, Iran, the United Arab
Emirates, Qatar, Oman and Yemen, according to data from
Indias Ministry of Oil.
Saudi Arabia is the biggest supplier, followed by Iraq and
Kuwait, together making up 43% of the South Asian
economys total oil imports, according to the oil
Pressure is obviously there on the Middle East
suppliers, to improve credit and pricing terms, said S.
Varadarajan, chairman of Bharat Petroleum. Very
clearly, there are ways and means by which Indian refiners
could look at extracting better pricing and better terms.
Maybe longer term commitments could translate into some of
the terms and prices being relaxed.
Longer term commitments must necessarily come with
attractive price discounts, Mangalore Refinery
s Upadhya said.
If Kuwait is offering good discounts, I dont see
n refiners cant commit
to longer term contracts.
US production has averaged 8.1 million bpd so far this year,
up 43% from 2011s average, according to the US Energy
Information Administration. Advances in oil extraction from
shale rock will boost output to a 28-year high this year.
With the worlds biggest consumer becoming a more
energy- independent nation, there will be cutbacks in imports
from Saudi Arabia and Nigeria.
The US bought 3% less crude oil from Saudi Arabia in 2013
compared to the previous year, while imports from OPEC fell
more than 13 percent, according to EIA data.
The US supplied 86% of its own energy last year, data of the
statistical arm of the US Energy Department showed. With
average oil production estimated at 9.2 million bpd in 2015,
up from 7.4 million last year, the US will free more supplies
in the market.
As far as ability to negotiate is concerned, very
clearly because because US production is increasing, it will
be advantageous for countries which are import
dependent, Bharat Petroleums Varadarajan said.