Reliance, Essar Cut Crude Imports from Middle East

India’s biggest oil refineries, owned by Reliance Industries and Essar, have gradually reduced imports from the Middle East and are increasing purchases from Africa, Latin America and even Canada, where prices have fallen due to lower demand from the US.

The change helps the country take significant steps towards its goal to diversify its energy sources although it may not drastically reduce imports from the Middle East. Experts and industry executives say this trend could reduce India’s dependence on Organization of the Petroleum Exporting Countries (OPEC) and make it less vulnerable to the cartel’s market practices. It would also help moderate the price expectations of OPEC, whose domination and share of global output has fallen because more and more countries outside the cartel have discovered oil and the American continents have made rapid advances towards self sufficiency with the help of shale and deep-sea exploration.

“There are multiple factors taken into consideration before refineries buy crude. Right now, there is a price advantage in buying from Latin America and Africa so Indian companies may look at procuring from these regions,” Lalit Kumar Gupta, managing director and chief executive officer, Essar Oil, said. “But it’s a competitive market and it is expected that over a period of time OPEC countries will notice the change in demand and align their prices to compete with crude oil from these regions.”

The official selling price in Middle East is set by the government owned national oil companies so it may have a lag,” Gupta said. The shale gas boom in the US has lowered the country’s demand for crude from African and Latin American countries, making it cheaper than the much demanded heavy crude grades from Middle East.

“India has been trying to diversify fuel sources for several years and it’s good if it is happening because OPEC doesn’t give India concessional rates. This will help India moderate the impact of hawks in the OPEC,” said Mani Shankar Aiyar, Congress leader and former Minister of Petroleum and Natural Gas (2004–2009).

“The global energy scene has gone through a massive change but there is no way India can reduce imports from Middle East drastically. But a diversified portfolio will help in moving away from the Oligopolistic pricing regime,” Aiyar said. While Essar and RIL did not disclose their import details, Reuter’s data reveals a gradual decline in crude shipments since January from the Middle East. Essar Oil, which is a significant buyer of Iranian Oil, halved its imports from there in April from the previous month. Essar’s imports from Middle East declined 5% year-on-year in January-April to 184,900 barrel per day (bpd), which was compensated by tripling its imports from Africa and almost doubling imports from Canada, which had thus far had smaller share in its imports.

RIL’s crude oil purchase form Africa rose 5% in the first four months of 2014 to about 142,800 bpd. In the same period, its import from the Middle East declined 1.4% to about 483,800 bpd.

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