US crude set to change India’s oil dependence on Gulf

17 Aug 2017


India's oil equation with countries of the Middle East is likely to undergo a major change with crude oil starting to flow from the United States. Oil shipments from the US have already started and the first crude oil tanker is expected to arrive in India in the last week of September.

The development will also put India in a better bargaining position in sourcing crude oil from Gulf oil producers, including Saudi Arabia and Iran.

India's ambassador to the United States Navtej Sarna handed over the papers of the first shipment of crude oil that will be imported from the US to India to the Governor of Texas, Greg Abbott, thus giving a major boost to the world's third-largest oil importer.

Indian Oil Corporation Ltd (IOCL) and Bharat Petroleum Corporation Ltd (BPCL).have together ordered over 6 million barrels of US crude oil in the last one month and the shipments have already begun with the vessels starting sail on 8 and 14 August.

Indian companies have also contracted 9 million metric tonnes per annum (MMTPA) of LNG from the US and the first shipment is expected in January 2018. GAIL has contracted 5.8 million tonnes per annum, including 3.5 MMTPA of LNG from Sabine Pass Liquefaction terminal (Louisiana) and 2.3 MMTPA from Cove Point LNG liquefaction project (Maryland).

The development comes three days after US President Donald Trump made a phone call to Prime Minister Narendra Modi to greet him on India's 71st Independence day.

President Trump, while extending his Independence Day greetings, also pledged that the US would continue to be a reliable and long-term supplier of energy to India, according to the White House.

White House said Trump was also very optimistic about the energy relations between the two countries as the first-ever shipment of American crude oil to India from Texas was scheduled to begin this month.

Trump had mentioned that his country looked forward to exporting more energy products to India, when Prime Minister Modi visited the United States in June.

India, the world's third-largest oil importer, now joins Asian countries like South Korea, Japan and China to buy American crude after production cuts by Opec drove up prices of Middle East heavy-sour crude, or grades with a high sulphur content.

The first lot of two million barrels of crude oil costs $100 million, but given the volume being contemplated by Indian companies, this new development is expected to boost bilateral oil trade to $2 billion.

While America lifted a 40-year-old ban on export of its crude oil in December 2015, when Barack Obama was the President, the real move to supply US crude to India started during the maiden meeting between Prime Minister Narendra Modi and US President Donald Trump on 26 June and the two leaders agreed to deepen engagement in the energy sector.

Soon thereafter, Indian companies started purchasing crude from the US. Indian Oil Corporation Ltd placed its first order in July and the second order on 10 August. Bharat Petroleum Corp made its first purchase of US oil, buying high Sulphur crudes Mars and Poseidon. BPCL has bought a cargo containing 500,000 barrels each of Mars and Poseidon for delivery from 26 September to 10 October. Hindustan Petroleum Corp Ltd (HPCL) is also looking at buying US crude oil.

Buying US crude has become attractive for Indian refiners after the differential between Brent (the benchmark crude or marker crude that serves as a reference price for buyers in western world) and Dubai (which serves as a benchmark for countries in the east) narrowed.

Even after including the shipping cost, buying US crude is cost competitive to Indian refiners.

Indian companies have also made significant investment in purchasing energy assets in the United States. Four Indian public and private sector companies have invested approximately $5 billion in shale assets in the US.

India's energy consumption growth is projected to grow the fastest among major economies in the next 20 years. And, by 2035, China and India will have the largest share of global demand (35 per cent).

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