New Delhi / Bloomberg
India is expanding its footprint in Chinaâ€™s backyard by forging deals with Russia for stakes in Siberian fields that supply Asiaâ€™s biggest economy and crude consumer.
Deals last week between Rosneft and Indian state-run companies beefed up the South Asian nationâ€™s share in two assets that are linked to the East Siberia-Pacific Ocean pipeline. That conduit has a direct link to China, which also lifts a majority of ESPO supplies shipped from the Pacific port of Kozmino and is the biggest buyer of Russian crude.
India is replacing China as the center of the worldâ€™s oil demand growth as its economy expands faster than any other major country and Prime Minister Narendra Modi has made energy security a priority for the nation, which imports 80 percent of its oil requirements. If it chooses to ship its share from the fields to run at domestic refineries, that would change the flow of Siberian supply, which is typically sent to closer regions. It could also sell cargoes in the open market.
â€œIf we want to go anywhere close to self sufficiency we have to go for assets abroad,â€ said Sudhir Vasudeva, who was the chairman and managing director of Indian state-run explorer Oil & Natural Gas Corp. for more than two years before retiring in 2014. â€œEnergy security doesnâ€™t mean you have to physically bring in oil and gas. You can sell your share and get money or you can swap this oil and get something nearby. But, at least you have the resources.â€
A group of three Indian state-run companies will take a combined 29.9 percent share in Taas-Yuriakh Neftegazodobycha, the Asian nationâ€™s petroleum ministry and Rosneft OJSC said last week. The consortium, made up of Indian Oil Corp., Oil India Ltd. and Bharat PetroResources Ltd., expects to close the deal by September.
Russiaâ€™s biggest oil company also offered 23.9 percent in Vankorneft to the group as well as a separate 11 percent in the project to ONGC, which would be in addition to the 15 percent that the Indian explorer bought for $1.27 billion in September. If the Vankorneft deals are closed, the four Indian state-run companies will own a total of
49.9 percent in the project, which is Russiaâ€™s second-largest oil development.
For Russia, the deals are part of its effort to boost sales of its supplies amid a glut and potentially grab a slice of the Asian market from dominant Middle East suppliers such as Saudi Arabia.
â€œIn an oversupplied market, every producer is looking for buyers all around,â€ said to Ehsan Ul-Haq, an analyst at KBC Advanced Technologies in London. â€œRussia also wants to diversify its buyers,â€ he said.
Brent, the global benchmark, has clawed back nearly 50 percent since slumping to a 12-year low earlier this year amid speculation that stronger demand and falling US output will ease a global surplus. The grade lost 0.2 percent to $41.47 a barrel at 12:45 p.m. Singapore time on Tuesday.
ONGC will explore long-term oil-supply agreements with Rosneft, according to an e-mailed statement from the Indian company. Rosneft also signed an agreement with Mumbai-based Essar Oil Ltd. to start crude shipments this year, the Russian energy giant said in a separate statement on its website. It signed a deal in July to supply 10 million metric tons a year, or 200,000 barrels a day, to Essarâ€™s Vadinar refinery in the western state of Gujarat.
The South Asian nation plans to diversify its crude-import basket to guard against geopolitical risks in Middle East producing nations, which meet about 60 percent of its supply needs. ONGC said it will consider substituting the Russian crude with alternative grades, potentially opening the option for bartering the supply with buyers such as Japan for oil from elsewhere. Currently, ONGC sells Russian Sokol crude produced in the Sakhalin region in the open market via tenders.
â€œFreight is the only difference because of the longer travel,â€ said N.K. Verma, the managing director of ONGCâ€™s overseas unit. â€œBut Indian companies are bringing crude from Venezuela, Mexico and Colombia, and Russia is equally distant.
Itâ€™s all economics. The crude
composition will depend on