India Losing Its Steep Discount on Russian Crude Oil
The discount enjoyed by India on Russian crude oil since Moscow’s full-scale invasion of Ukraine in February 2022 has now shrunk from around $30 to $4 per barrel. Yet, while steep discounts have plunged, the Russian-managed shipping rates continue to remain higher than normal. India is now bearing anywhere between $11 and $19 of shipping costs per barrel from the Russian ports to India, which is higher than the rates for similar distances from other countries (Economic Times, July 10). Moreover, the price of Urals-grade oil has surged and surpassed the $60 price cap imposed by the Group of Seven (G7) countries, thus making it difficult for India to continue its oil trade with Russia in US dollars. As such, New Delhi is alternatively considering payments for Russian oil in Chinese yuan, as Russia has been banned from using the international SWIFT system due to its invasion of Ukraine. The price for Urals crude surged following the commitments made by Saudi Arabia and Russia to cut output by 1 million barrels per day (bpd) and exports by 500,000 per day starting in August 2023 (Times Now, July 16). India is the world’s third-largest importer of oil. As a result, New Delhi fully exploited the rapidly changing situation in the global oil market after Russia invaded Ukraine. India was able to further capitalize on the situation as some Western companies shunned buying Russian crude in retaliation for Moscow’s war (Al Jazeera, January 17). Only two months after the Kremlin’s invasion, Russia became India’s fourth-largest oil provider. New Delhi imported between 970,000 and 981,000 bpd of crude oil from Moscow in 2022–2023, which accounts for more than a fifth of India’s overall imports (see EDM, April 27). On December 5, 2022, the European Union and G7 imposed a $60 price cap on Russian oil to cut Moscow’s oil revenues and consequently limit its ability to finance its war. Before the embargo, India’s December 2022 oil imports from Russia were the highest in seven months. According to one estimate, Indian imports surged to an all-time high of 1.25 million bpd, about a quarter of the 4.9 million bpd New Delhi purchased overall. The Organization of the Petroleum Exporting Countries witnessed their share in India’s crude imports reduced to 64.5 percent in 2022, from a peak of 87 percent in 2008 (Al Jazeera, January 17). According to some estimates, India’s total bill of discounted Russian crude oil from April 2022 to May 2023 is valued at $186.45 billion; without the discount, this bill would have been $193.62 billion on average. Hence, India saved at least $7.17 billion just through purchasing discounted Russian oil (Indian Express, July 5). And the story does not end here, as India opened a backdoor to European markets and began to resell the discounted Russian oil it had purchased. New Delhi bought more and more Russian oil and exported it to Europe after refining it into fuel. This helped India boost its exports of diesel and jet fuel to Europe, with the country exporting between 70,000 and 75,000 bpd to Europe already for the 2023 fiscal year (see EDM, April 27). Now, it seems that the honeymoon is over for India. Today, the steep discount on Russian crude has decreased due to various factors. One major reason for the shrinking discount is the higher and more opaque costs for the shipping and insurance involved in the delivery of Russian oil to India. New Delhi buys crude oil from Moscow on a “delivered” basis, which means that the Kremlin makes all the arrangements for shipping and insurance. As such, invoicing for oil remains under the $60 price cap; however, the shipping and insurance costs are given by the three Russia-arranged shadow entities, which consume a large portion of Russian oil revenues. According to Indian refiners, the overall identity and nature of these entities remain opaque. Nevertheless, if these costs were taken into consideration, Russia’s Urals crude is actually being sold at a price around $70–$75 per barrel (Economic Times, July 10) Another reason for India’s narrowing discount is that Russian oil has found additional buyers, including China and Pakistan. Some Indian officials hold China’s rising oil demand as responsible for the decrease in Russia’s discount to India. “With Russian oil finding more buyers, the discounts to Indian refiners have been coming down. Earlier, we were getting discounts that varied from cargo to cargo,” one government official said. Another official mentioned, “We used to get around $15–$20 per barrel discount on Russian oil cargoes depending on what used to be the price in the spot market. That discount has become less now” (Wionnews.com, April 28). For Moscow, Pakistan has become a new outlet in South Asia for selling its crude oil. On July 12, former Pakistani Petroleum Minister Musadiq Masood Malik disclosed that Islamabad is in talks with Moscow for a second shipment of discounted Russian oil following the successful arrival in June 2023 of the first cargo of 100,000 tons of Russian Urals-grade crude to Pakistan (Dawn, July 12). Islamabad placed its first order for discounted Russian crude in April (Dawn, June 11). At present, Pakistan mainly relies on Saudi Arabia and the United Arab Emirates for 80 percent of its oil needs, about 154,000 bpd. Thus, the projected 100,000 bpd from Russia would significantly reduce Pakistan’s dependence on Middle Eastern fuel (Dawn, June 11).
Modi govt may soon decide on cutting petrol tax among other steps to quell inflation before Vote
Indian officials are considering a plan to reallocate as much as Rs 1000 billion ($12 billion) from the budgets of various ministries to contain a surge in food and fuel costs without imperilling the federal deficit target, according to people familiar with the matter. Prime Minister Narendra Modi will take a decision in the coming weeks, which could include lowering taxes on local gasoline sales and easing import tariffs on cooking oil and wheat, the people said, asking not to be identified as the discussions are private. It would be the second straight year of similar adjustments to contain costs for consumers after the government unveiled a $26-billion plan last year. The proposals follow the central bank’s last week rate decision where it left borrowing costs unchanged — one of the highest in Asia — flagging risks from soaring prices Shares of Hindustan Petroleum Corp., Bharat Petroleum Corp. and Indian Oil Corp. erased some of the earlier losses on news that India will cut domestic fuel taxes
ADNOC Gas Signs LNG Deal With Japanese Energy Giant
ADNOC Gas, the natural gas arm of Abu Dhabi’s state energy group, has signed an agreement with Japan Petroleum Exploration (Japex) to supply liquefied natural gas (LNG) for five years. The LNG supply deal is valued between $450 million and $550 million and “builds on the long-standing bilateral relationship between the UAE and Japan and ADNOC’s track record of fostering mutually beneficial strategic partnerships with Japanese energy companies,” Emirates News Agency quoted ADNOC Gas as saying. Japan, heavily dependent on energy imports, is looking to boost its energy security and lower import bills amid volatile energy commodity prices and altered energy flows following the Russian invasion of Ukraine. Last month, Japanese Prime Minister Fumio Kishida visited the United Arab Emirates (UAE) during a trip in several Arab Gulf states to discuss energy and trade relations. ADNOC and ADNOC Gas, on the other hand, are looking to expand their international presence and have signed several major deals abroad in recent weeks. ADNOC Gas signed in July a long-term agreement to supply LNG to Indian Oil Corporation, in a deal worth between $7 billion and $9 billion. Under the terms of the agreement, ADNOC Gas, the integrated gas unit of Abu Dhabi National Oil Company (ADNOC), will export up to 1.2 million metric tonnes per annum (mmtpa) of LNG to Indian Oil over a period of 14 years, the Abu Dhabi company said in a statement. ADNOC Gas, which supplies around 60% of the UAE’s sales gas needs and has access to 95% of the UAE’s huge gas reserves, looks to expand its global presence as the LNG market grows and countries look to diversify supply to boost energy security. Earlier this month, ADNOC announced it would buy 30% of the Absheron gas field in the Caspian Sea in Azerbaijan by acquiring stakes from the current partners in the field, TotalEnergies and SOCAR. After completion of the transaction, TotalEnergies and SOCAR will each own 35% in Absheron, and ADNOC will have 30% in the gas and condensate field, where first gas was achieved last month.
Russian Crude Oil Discount For India Shrinks
The discount of Russian oil exported to India has tightened considerably, from some $30 to Brent crude last year to as little as $4 per barrel, Eurasia Daily Monitor has reported, adding that shipping costs, on the other hand, have increased. Per the agency, the shipping costs per barrel of Urals sent to India now vary between $11 and $19, which Eurasia Daily Monitor says is higher than the shipping costs for oil imported from other countries at similar distances. Meanwhile, Indian media reported that imports from Russia in the period between April and July doubled to $20.45 billion. This has turned Russia into India’s second-largest supplier of foreign goods, with oil and fertilizers making up the biggest share. In oil, Russia’s share of the Indian import market has ballooned from less than 1% last year to as much as 40% this year. That said, imports of Russian crude oil into India last month dipped and the decline could deepen this month, Kpler predicted recently as Russia pledged to reduce exports in line with OPEC+ efforts to support prices. In July, crude imports from Russia into India, the world’s third-largest oil importer, dropped to 2.09 million barrels per day, down from 2.11 million bpd in the previous month, Viktor Katona, head of crude analysis at Kpler, told Bloomberg earlier this month. At the same time, expectations that the narrowed discount of Urals to Brent would dampen India’s appetite for Russian crude appear to have been wrong. “There was a perception that India had limited capacity to refine medium sour grade of Russian crude, which would create a natural ceiling on Russian imports,” a Citi analyst told Bloomberg this month. “It has now been clearly demonstrated that such a bottleneck does not exist. This would imply that Indian refiners can continue with their Russian oil imports as long as discounts outweigh the higher logistics cost of imports,” Samiran Chakraborty, chief India economist at the Wall Street bank, also said.
APM Terminals Pipavav starts operations of Very Large Gas Carriers
Private port operator APM Terminals Pipavav on Monday said it has commenced operations of Very Large Gas Carriers (VLGCs). The vessel loaded with cargo from Ruwais, ADNOC Refinery Jetty, discharged 21,907 MT parcel at port Pipavav for Bharat Petroleum Corporation Ltd, Indian Oil Corporation Ltd and Hindustan Petroleum Corporation Ltd. The maiden berthing of the vessel MT Jag Viraat happened at the port earlier this month. With a major shift in all India LPG imports to VLGC vessels from earlier Medium Gas Carrier (MGC) ships, the VLGC handling capability at APM Terminals Pipavav becomes critically important. This will allow oil marketing companies to maximise their LPG imports efficiently and safely, the port operator said in a statement. Owned by Great Eastern Shipping Company, MT Jag Viraat is a VLGC vessel is 230 metres long.
CNG sales volume grows 51% in 6 months to March
City gas companies have grown their super-profitable CNG sales volume at a faster rate in the past two years than the less profitable segment of gas supplies meant for homes City gas distributors sold 19.4 million metric standard cubic meters a day (mmscmd) of CNG in six months to March 2023, up 51% from October 2020 to March 2021 period, oil ministry data showed. In the same period, the sale of piped natural gas (PNG) meant for cooking at home rose 11% to 2.9 mmscmd. Sales to commercial customers that includes hotels and malls, dropped 25% to 0.7 mmscmd, while those to industries fell 38% to 10.3 mmscmd as high imported gas prices forced them to switch to alternative fuels As a result, the share of CNG in city gas distributors’ overall sales sharply increased to 58% in two years from 39% in the six months to March 2021. The share of sales to industrial customers fell from 50% to 30%. The share of sales to households, or domestic PNG, rose marginally to 8.7% from 8%.
China’s Oil Imports From Iran Set To Hit Decade-High In August
China is expected to import as much as 1.5 million barrels per day (bpd) of crude oil from Iran in August, the highest since 2013, per estimates from data intelligence firm Kpler cited by Bloomberg. During the period January to July 2023, China received on average 917,000 bpd of oil from Iran, according to Kpler’s estimates. The world’s largest crude oil importer, China, has been ramping up purchases of cheaper Iranian crude this year as competition with India for cheap Russian crude supply has intensified. Earlier this year, many private Chinese refiners in the Shandong province started buying increasing volumes of Iranian crude as competition for Russian oil from China’s major state-held refiners and from Indian buyers has made Moscow’s barrels relatively more expensive. There isn’t official data on Iranian imports into China, so the market relies on tanker-tracking companies that aim to capture the true picture of how much of Iran’s oil, sanctioned by the U.S. and going to very few destinations these days, is being shipped to China. Commenting on China’s crude oil imports in July, analysts at Vortexa said last week that private Chinese refiners, the so-called teapots, are likely to boost imports of Iranian oil, especially after Russia has pledged to reduce the volume of its oil exports this month and next. “With lower Russian crude supplies, Chinese teapot refiners that largely boosted Russian grades imports since Q2 last year, are expected to lean towards the deeply discounted Iranian barrels or other heavy feedstocks, as Shandong partially re-allowed non-crude imports recently,” Emma Li, China Market Analyst at Vortexa, said. “State-run refiners, on the other hand, will likely import more crude from West Africa and the Americas, as attractive light-sweet crude margins encourage spot purchases against rising Saudi and Russian crude prices.” Meanwhile, Iran’s oil exports have recently jumped to a five-year high of 1.4 million bpd, and the Islamic Republic is looking to boost its oil production to 3.5 million bpd by the end of September.
Woodside Energy Reports Positive Progress In LNG Strike Talks
Talks between workers and LNG producers in Australia are continuing this week although there is talk of positive progress. Woodside Energy, one of the companies risking LNG supply disruptions due to potential industrial action, said negotiations with trade unions had resulted in some “positive progress”, as quoted by Reuters. On the other hand, the unions themselves have said that differences remain on some key issues, the report notes. “Positive progress is being made and the parties have reached an in-principle agreement on a number of issues that are key to the workforce,” Woodside told Reuters, adding “We continue to engage actively and constructively in the bargaining process.” Woodside and Chevron—the other company involved in negotiations—have good reason to want to speed up things. Together, the two produce a tenth of the world’s liquefied natural gas and last week the very talk about strikes led to a 40% jump in European gas prices. With 99% of workers at Woodside’s North West Shelf LNG facilities voting for industrial action a few days ago, negotiations have become even more important. The Australian labor regulator has already allowed the strike if the negotiations fail. “Woodside are well off the pace on key bargaining issues including job security and remuneration,” the Offshore Alliance trade union representing the platform workers said on social media. Chevron workers, meanwhile, are yet to vote on whether they will strike or not, which, according to the trade union, will take place next week. Meanwhile, Reuters reported that Woodside is likely to report strong first-half results thanks to the resilience in LNG prices, according to analysts. Woodside’s North West Shelf is the largest LNG production project in Australia, with a capacity of 16.9 million tons annually, followed by Chevron’s Gorgon, which has a capacity of 15.6 million tons. The Wheatstone project, also operated by Chevron, can produce 8.9 million tons of LNG annually.
India fuel sales slow due to monsoon rains, shows prelim data
Indian state retailers’ gasoline and diesel sales fell in the first half of August from the previous month and a year ago, preliminary sales data showed on Wednesday, as industrial activity and mobility was hit due to monsoon rains. Fuel demand in India, the world’s third-biggest oil importer and consumer, typically falls during the four-month monsoon season beginning in June as parts of the country are affected by heavy floods. State retailers sold 1.19 million metric tons of gasoline in the first half of August, down 5.2% from the same period in July and by 8% from a year earlier, the data showed. Gasoline, also called petrol, is primarily used in passenger vehicles. Sale of diesel, mainly used by trucks and other commercial vehicles, dipped by 9.5% from the previous month and 5.7% from a year ago to about 2.68 million tons in the first half of August, the data showed. Monsoon rains also hit demand from the agriculture sector as farmers use gasoil-fired generators for irrigation. Diesel sales of state fuel retailers were also affected due to marginally lower prices of the fuel at outlets of private refiners. Gasoil accounts for about two-fifths of India’s overall refined fuel consumption and is directly linked to industrial activity in Asia’s third-largest economy. State retailers Indian Oil Corp, Hindustan Petroleum Corp Ltd and Bharat Petroleum Corp Ltd own about 90% of the country’s retail fuel outlets. Below is a table of India’s preliminary fuel sales data with volumes in thousand tonnes: Refined Fuel Aug. 1-15 % chg from % chg % chg vs 2023 July 1-15 yr/yr 2021 Gasoline 1193.3 -5.2 -8.0 20.6 Gasoil 2677.5 -9.5 -5.7 26.0 Jet Fuel 290.3 -2.1 8.1 66.7 Liquefied 1214.2 -2.0 3.7 11.9
The Real Reason Russia Is Ramping Up Oil Production In Iraq
Russia took control of the oil sector of the semi-autonomous region of Kurdistan (KRI) in northern Iraq in 2017 for four key reasons, as analysed in depth in my new book on the new global oil market order. First, the KRI has significant oil and gas reserves. Second, its troublesome relationship with southern Iraq, governed out of Baghdad, would allow Russia to play the role of mediator between the two parts of the country, giving it leverage over both sides. Third, this leverage could then be used to extend Russia’s grip over southern Iraq too, which has even more oil and gas reserves. And fourth, it would enable Russia to stymie any efforts by the U.S. and its allies to begin to rebuild their influence in the country. This last point found further resonance after March’s resumption of relationship agreement between Iran (Iraq’s chief regional sponsor) and Saudi Arabia, brokered by China. Specifically, a source who works closely with the European Union’s energy security apparatus exclusively told OilPrice.com at the time, Iran was told by a very high-ranking official from the Kremlin that: “By keeping the West out of energy deals in Iraq – and closer to the new Iran-Saudi axis – the end of Western hegemony in the Middle East will become the decisive chapter in the West’s final demise”. With the future of independent oil supplies from the KRI looking highly precarious, Russia is moving firmly into the last phases of its plan for Iraq, as highlighted by serious discussions over the past two weeks for it to increase its presence in the country’s oil fields. A litmus test for both sides in this respect is Russia finally effecting a major increase in oil production from Iraq’s supergiant West Qurna 2 oil field. This field – along with the supergiant Rumaila – was cited recently by Iraq’s Oil Ministry as being vital to the country’s plan to increase its oil production capacity to around 7 million barrels per day (bpd) in 2027. The entire West Qurna oil field, located 65 kilometres northwest of the southern port city of Basra, has total estimated recoverable oil reserves of 43 billion barrels – making it one of the very biggest oil fields in the world. West Qurna 2 has estimated recoverable oil reserves of around 13 billion barrels and, like most of the big fields in Iraq (and Iran, and Saudi Arabia), it benefits from the lowest lifting costs in the world – at just US$1-2 per barrel. The original development plan for the West Qurna 2 field was to produce 1.8 million bpd but this was amended in 2013 to a three-stage plan in which peak production would be 1.2 million bpd. Phase 1 would add around 120,000 barrels per day (bpd) to the early 30,000 bpd of production from the site’s Mishrif Formation. Phase 2 would add another 400,000 bpd from the full development of the Mishrif Formation. And Phase 3 would add another 650,000 bpd from the development of the deeper Yamama Formation. Related: Oil Prices Continue To Climb As Pace Of Drilling Continues To Slow However, it was at the time of this transition from Phase 2 to Phase 3, scheduled to start around the middle of 2017, that the trouble started from the Russian side, which is why output from the field has barely moved in years. The genesis of the trouble was that Russia’s key corporate oil proxy in Iraq at the time, Lukoil, believed the level of remuneration it was receiving per barrel drilled was too low. It was being paid US$1.15 per barrel recovered – the lowest rate being paid to any international oil company (IOC) in Iraq at that time and dwarfed by the US$5.50 per barrel being paid to GazpromNeft to develop the Badra oil field. Making matters worse for Lukoil at that point was that it had already spent at least US$8 billion in developing West Qurna 2, and compounding this grievance was the fact that Iraq’s Oil Ministry still owed it around US$6 billion in remuneration on recovered barrels and other development payments. In August 2017, a senior source who works closely with Iran’s Petroleum Ministry exclusively told OilPrice.com at the time, Lukoil was assured that Iraq’s Oil Ministry would very quickly pay the US$6 billion that it owed the company and that a higher compensation rate per barrel would be looked into as soon as was feasible. In addition, the Oil Ministry agreed to extend Lukoil’s contract period from 20 to 25 years, so lowering the average yearly cost to the Russian firm. It was also agreed that Lukoil would invest at least US$1.5 billion in West Qurna 2 in the following 12 months with a view to raising production from the 400,000-bpd level closer to the 1.2 million bpd peak production target. However, only one month later, 93% of the people of Iraq’s semi-autonomous region of Kurdistan voted in favour of complete independence from Iraq and chaos ensued, seeing Iranian forces move into the KRI, with Russian support. Only one month after that, Russia effectively took control of the region’s oil sector, and looked to put the squeeze on the Federal Government of Iraq (FGI) run out of Baghdad. As also analysed in depth in my new book on the new global oil market order, Russia looked to gain more favourable terms for its existing operations in the FGI region, and for new oil field development awards there, by interposing itself between the two sides in their ongoing dispute over the 2014 ‘budget disbursements-for-oil’ deal. Part of Russia’s manoeuvring at this point was doing nothing to increase production from West Qurna 2. Crucially for what followed, Lukoil knew back then that it was perfectly capable of producing at least 635,000 bpd on a sustained basis. According to the Iran source, the Russian oil firm had hit 650,000 bpd production over extended periods in August and September 2017, and its engineers had assured senior management that 635,000-bpd