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Business News/ Industry / Energy/  India to ink oil supply pacts with Petrobras, Ecopetrol

India to ink oil supply pacts with Petrobras, Ecopetrol

India had stopped sourcing crude via long-term contracts from Colombia’s Ecopetrol in 2015

The supply contracts follow price negotiations. bloombergPremium
The supply contracts follow price negotiations. bloomberg

NEW DELHI : India’s efforts to diversify its energy basket by importing crude oil from non-Opec sources are bearing fruit as it is set to sign long-term contracts to procure at least 2 million tonnes (mt) of crude from Brazil’s Petroleo Brasileiro SA (Petrobras) and 1 mt from Colombia’s state-run Ecopetrol SA, two government officials in the know said.

This follows government-to-government negotiations on preferential pricing for India and supply stability in a highly volatile global energy market, the officials said, seeking anonymity.

Pankaj Jain, secretary, ministry of petroleum and natural gas (MoPNG), will travel to Brazil next week to sign the contract, they added.

The development assumes significance as India, the world’s third-largest oil importer, has been trying to convince the Organization of Petroleum Exporting Countries (Opec) and its allies to find a balance between the needs of suppliers and consumers but has so far failed to negotiate a fair deal.

India is a key Asian refining hub with an installed capacity of more than 249.36 million tonnes per annum (mtpa) through 23 refineries.

For the first time, New Delhi will be inking a long-term supply deal with Petrobras, one of the few global oil majors increasing production.

India had stopped sourcing crude via long-term contracts from Colombia’s Ecopetrol in 2015. The latest step follows the country’s largest refiner, Indian Oil Corp. Ltd (IOC), commissioning its 15 mtpa Paradip refinery, which has a complexity factor of 10.7 based on the Nelson Index and can process high-sulphur crude.

“A delegation from MoPNG will travel to Brazil next week, accompanied by businessmen, as part of efforts to strengthen ties between the two countries in the energy sector and as a follow-up to the very successful visit last April of the minister of mines and energy of Brazil to India," Andre Aranha Correa do Lago, Brazilian ambassador to India, told Mint.

Lago added that Brazil is becoming a central player in the oil market, with it currently being the 7th largest global crude oil producer and exporter of oil, and poised to quickly become the 5th largest global crude oil producer and exporter.

Mariana Pacheco Montes, the Colombian ambassador to India, also confirmed the development.

“In the last two decades, both India and Latin America began to redefine their political and economic strategies and identify the complementarities, the capabilities, and the opportunities where each other may find common grounds -in an ever-increasing uncertain world. These common grounds have both grown in the bilateral and multilateral arena, and in the case of Colombia, this partnership has deepened and strengthened in the last years," Mariana Pacheco Montes told Mint.

“Colombia is eager to reinforce that it is in our mutual interest to strengthen India- Colombia relationship in the oil sector and is looking forward to establishing a crude oil supply term deal with Indian Oil Corporation and increase collaboration with ONGC Videsh, as well as explore jointly opportunities in Colombia," she said.

“India is going to sign long-term supply agreements for crude from Brazil and Colombia. This is a part of de-risking our oil supply chain. In long-term contract, you get preferential pricing. Long-term contracts help avoid the vagaries of the market. Though diversification is highly desired, it is not something that happened in the recent past," said one of the two officials cited above.

Queries emailed to spokespeople for India’s oil ministry, Petrobras and Ecopetrol, and IOCL on Wednesday did not elicit any response till press time.

“Colombia's exports to India in 2021 reached USD 2.7 billion, the same as Canada's exports to India and more than countries like Spain, Norway and Bangladesh. This is a sign of the potential that exist to increase trade between both countries. Colombian exports to India in this year, from January to June 2022, have already reached USD 1.54 billion, double the amount it was in the same time-period in 2021. This is due to the increase in exports of crude petroleum oil, coal, gold, teakwood, plastics, and other light manufacturing products. Though, crude oil accounts for more than 90% of this trade," Mariana Pacheco Montes said.

“Ecopetrol, Colombia’s public oil company, has played a pivotal role in this expansion. Today, India is the third largest market for Colombian crude oil and we hope to be signing additional contracts soon to expand and grow this trade. Colombia and India’s collaborative efforts move towards a long-term partnership when it comes to crude oil,“ Montes said.

New Delhi’s latest strategy also gives a signal to Opec+ grouping, to which India has been requesting to boost output amid record high prices of petroleum products in the country. Global energy markets are in a frenzy with surging prices across fuel sources such as crude oil and gas, with India particularly at a disadvantage, as any increase in global prices has the potential to affect its import bill, stoke inflationary pressures and widen the trade deficit.

India is dependent on imports for as much as 85% of its oil needs and 55% of its natural gas demand.

“We are also signalling to Opec plus. Brazil is neither a member of Opec nor Opec plus. Brazil is among the few countries that are increasing crude oil production," said the official cited above.

Opec’s production cut has been weighing heavy on India’s energy market.

While crude imports by state-run firms from West Asia were 69% or 88.9 mt out of total imports of 128.8 mt, it fell to 63.49% or 69.9 mt out of total imports of 110 mt during FY21 after Opec cut output from May 2020.

“We are looking at diversification to non-Opec countries. For us, any oil is good, as long as it is okay for the refiners. Our refineries are also very complex; the Paradip refinery, which would not take heavy crude earlier, can now process these," said the second government official cited above, requesting anonymity. “We are looking at de-risking energy supply chains. All these partnerships will be between national oil companies with the push given by the government," the official said.

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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: 16 Sep 2022, 12:44 AM IST
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