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Business News/ Industry / Energy/  India, China step on the gas on oil sourcing plan
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India, China step on the gas on oil sourcing plan

The two are in talks to form a consumers’ collective for joint sourcing of oil
  • The coming together of China and India may change global energy equations
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    New Delhi: China and India, the world’s second and third largest oil importers, respectively, are nearing an arrangement to form a buyers’ bloc to bargain collectively for oil supplies and reduce the influence of the Saudi Arabia-led cartel on oil prices, according to three officials aware of the development.

    The two strategic rivals have made progress on joint sourcing of crude oil, with Li Fanrong, deputy administrator of China’s National Energy Administration, visiting New Delhi last month.

    India and China are attempting to form a buyers’ club that may also persuade the Organization of Petroleum Exporting Countries (Opec) oil cartel to pare the premiums placed on oil sold to Asian nations.

    Tightening US sanctions against Iran and Opec’s production curbs have driven oil prices to more than $75 a barrel for the first time in 2019. Higher oil prices stoke inflation and hurt economic growth in India, which imports more than 80% of its oil requirements.

    The US’s conditional waiver for Iranian oil imports to eight countries, including China and India, is set to expire on 2 May. China and India are among Iran’s top oil customers.

    The visit by Fanrong, who earlier headed China’s largest offshore oil and gas producer CNOOC, followed India’s petroleum secretary, M.M. Kutty’s visit to Beijing last October. Kutty had led a delegation of officials from the oil ministry and state-run oil marketing companies.

    “This initiative is being effectively followed up because it is part of our India-China Wuhan spirit. Petroleum secretary’s visit to China was in that spirit. It was an exploratory visit to see where we can converge in our interest areas. The Chinese visit was a follow-up to that visit. The traction will grow," said a government official, one of the three people cited earlier, requesting anonymity.

    The Wuhan summit in April 2018, for which Prime Minister Narendra Modi travelled to China for an informal meeting with Chinese president Xi Jinping, set the stage for the two countries to stabilize ties rocked by a 73-day-long military standoff at Doklam in Bhutan in the previous year.

    The coming together of China and India may change the global energy architecture. India has been trying to stitch together alliances and has also proposed that Japan and South Korea, the world’s fourth and fifth largest oil importers, respectively, join the buyers’ front. However, detailed engagements between New Delhi and Beijing are the first off the block.

    “Petroleum secretary visited China last year. The visit wasn’t advertised as desired by the Chinese side," the second Indian government official said on condition of anonymity.

    A joint energy sourcing strategy will help in negotiating better terms with producers such as those in West Asia, which have been charging a so-called Asian premium. With most Asian countries being primarily dependent on West Asia to meet their energy needs, customers from the continent are forced to pay a premium due to their dependence as compared to the US and the European Union. India has consistently pitched for a price and terms correction.

    “The question is, as consuming countries, do we have any bargaining power? While we may not be able to form a coalition like Opec, we have certain common objectives that we want to achieve," the first official said.

    Energy consumers have been trying to minimize their supply risks at a time when Opec, which accounts for about 40% of global production, is continuing with supply cuts and the US administration is imposing sanctions on Venezuela’s state-owned oil firm, Petróleos de Venezuela SA.

    The third person cited earlier said, “The proposed combine is a work in progress."

    Indian Oil Corp. Ltd (IOC) chairman Sanjiv Singh and China National Petroleum Corp. chairman Wang Yilin were earlier tasked with exploring such an engagement.

    “The need to work together has dawned on their side as well. We are trying to take advantage of that," said the first official.

    India is in discussions with oil producers in West Asia as well as other producers to procure extra crude over the year to urgently bridge a supply gap that will be caused by the exit of Iran from its energy basket. While there may not be supply-side constraints, pricing is certainly an issue. “There will be no shortages starting May and there will be enough to be refined to ensure that enough fuel is available at the pumps," the first official said. “Our imports from Iran have been tapering off since November. The supplies can’t be at the same rates as Iran. Crude oil price has gone up by 1$ per barrel since Wednesday."

    Queries emailed to spokespeople of India’s ministries of external affairs and petroleum and natural gas, the Chinese embassy in New Delhi, IOC, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd remained unanswered.

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    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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    Updated: 26 Apr 2019, 02:12 AM IST
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