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Business News/ Industry / Energy/  India pitches for review of oil payment terms to stem rupee fall
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India pitches for review of oil payment terms to stem rupee fall

The move is part of the Narendra Modi government's strategy to help counter a depreciating rupee and high global crude oil prices

Prime Minister Narendra Modi during a meeting with CEOs and experts from the oil and gas sector, from India and abroad, in New Delhi on Monday. Photo: PTIPremium
Prime Minister Narendra Modi during a meeting with CEOs and experts from the oil and gas sector, from India and abroad, in New Delhi on Monday. Photo: PTI

New Delhi: India on Monday sought a review of payment terms with major oil producers as part of the National Democratic Alliance (NDA) government’s strategy to help counter a depreciating rupee and high global crude oil prices.

The pitch was made by Prime Minister Narendra Modi during his meeting with top executives of global oil companies and experts from the energy sector.

Rising oil prices have fueled inflationary pressures at home ahead of a series of state assembly elections and the general election next year.

“Interacting with the global leaders of the energy sector, Prime Minister highlighted the significant positioning of India in the oil and gas market. He said the oil market is producer driven; and both the quantity and prices are determined by the oil producing countries," the government said in a statement, adding Modi “requested for review of payment terms so as to provide temporary relief to the local currency."

“Though there is enough production, the unique features of marketing in the oil sector have pushed up the oil prices," according to the statement.

Growing tensions between the US and Venezuela, the US demanding a global end to imports of Iranian oil by early November, and the rupee’s performance as Asia’s worst performing currency, have exacerbated the situation, putting India, the world’s third-largest oil importer, in a spot.

The meeting was attended by Khalid A. Al-Falih, Saudi Arabia’s energy, industry and mineral resources minister and chairman of world’s biggest oil producer, Saudi Arabian Oil Co. (Saudi Aramco); Sultan Ahmed Al Jaber, minister of state in United Arab Emirates government and the chief executive officer (CEO) of state run-Abu Dhabi National Oil Co (Adnoc) and BP’s group chief executive officer Bob Dudley. There were also representatives from Russia’s OAO Rosneft—the world’s largest publicly traded oil firm, Pioneer Natural Resources Co., Abu Dhabi’s Mubadala Development Co., Schlumberger Ltd, Wood Mackenzie, World Bank, International Energy Agency (IEA) among others.

India’s finance minister Arun Jaitley, oil minister Dharmendra Pradhan and federal policy think tank NITI Aayog’s vice-chairman Rajiv Kumar also attended the meeting.

Speaking at the India Energy Forum by CERAWeek, Pradhan said crude prices have jumped 50% in dollar terms and 70% in rupee terms since last year.

While Brent prices softened on Monday and is trading at $80.41 per barrel, traders are betting on crude prices to cross the $100 mark yet again.

Crude prices had touched a record high of $147 per barrel in July 2009.

Oil producers on their part stated their commitment to meet India’s energy needs.

“Prime Minister Modi today cautioned producers like myself not to kill the hen that lays the golden egg," said Saudi Arabia’s Khalid A. Al-Falih at the India Energy Forum. “Oil will be easily in the three digits today, had it not been for the extra efforts that the kingdom has done," he said.

The Organization of the Petroleum Exporting Countries’ (Opec) accounts for about 40% of global production. The grouping’s June decision to increase output by about one million barrels per day (bpd) or about 1% of global supply came against the backdrop of calls from the US, China and India to help moderate prices.

“Mr. Modi drew attention of the experts on certain key policy issues relevant to India. Firstly, he highlighted that the consuming countries, due to rising crude oil prices, face many other economic challenges including serious resource crunch. The cooperation of the oil producing countries would be very critical to bridge this gap," the Indian government statement added.

India, which is reeling under the impact of high oil prices, also reminded Saudi Arabia of Opec’s promise to increase production by an additional one million barrels per day.

“India’s energy security is a top priority for UAE and Adnoc," added Sultan Ahmed Al Jaber, CEO of Adnoc at the India Energy Forum.

This is significant given the UAE supplies 6% of India’s crude oil imports. With 3.5 million barrels per day of crude oil production, Adnoc is the world’s 12th largest producer.

“During this cycle, the Opec and non-Opec partners after visiting India earlier this year, we went out of our way to alleviate anxiety over supply shortfalls. At the risk of accusation of reversing our production policy, we decided to increase production at last June’s Opec meeting to ensure that there no supply shortages. This has averted a major price escalation," Falih added.

This comes at a time when India has pitched the International Solar Alliance (ISA) as a counterweight to Opec, at the recently concluded first general assembly of the first treaty-based international government organization headquartered in India. Prime Minister Modi said ISA will play a role similar to that of Opec. With India being one of the major Opec consumers, India has called for a global consensus on “responsible pricing" against the backdrop of rising oil prices after the Opec and Russia cut supplies.

“In our view, the fundamentals of the current oil markets are quite balanced in large measures due to the collective efforts of Saudi Arabia, UAE, Russia and other allies who have opened the taps and increased production," Falih said and added, “We delivered on our role as the world’s cushion against market shocks. Today, I want to assure our Indian partners and petroleum consumers around the world that we will continue to support the growth of global economies."

“If prices stay at these levels for another 18 months, we might see the demand dropping. It is still healthy though," said BP’s Dudley.

This also comes at a time of impending sanctions on Iran. India plans to continue its energy imports from Iran even in the wake of the US government’s 4 November deadline. India is a top buyer of Iranian oil. Of the 220.4 million metric tonnes (million MT) of oil imported by India in 2017-18, about 9.4% was from Iran.

“We came to this coalition of Opec and non-Opec. The commitment was clear to make inventories down to a normal range. A balanced market on fundamentals and allowed investments to flow... We have healthy inventories today, the supply and demand are in balance," Falih said.

“I think the job has been largely done. What we have realised that along the way that this is not a one-time transaction. This is an ongoing partnership between producers that needs to take place for a long term. We need to make sure that we have always have our hands on the wheels," Falih added.

Saudi Arabia and UAE meanwhile plan to increase their investment in India. Mint reported on 21 June about Adnoc’s plan to pick up a 25% stake in the largest global refinery and petrochemicals complex coming up at Ratnagiri in Maharashtra. Adnoc, the only company to commit to India’s crude oil reserve programme till date, plans to acquire the stake from Saudi Aramco, which partnered with a consortium of Indian state-run companies for the $44 billion project.

Falih said that Aramco is interested in investing in consumer facing business and across the energy business value chain.

“These collaborations represent only the beginning of what we believe is a growing strategic partnership with India. Infact, as Adnoc continues to explore downstream investments internationally, we are very keen to identify partnership opportunities across India in the entire crude, refining, petrochemical and derivatives value chains in the years ahead," said Adnoc’s Jaber.

“There are a number of other opportunities in the pipeline that are currently being explored and studied by Adnoc along side its strategic partners in India," Jaber added.

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ABOUT THE AUTHOR
Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Published: 15 Oct 2018, 05:05 PM IST
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