IOC Buys First Shale Oil From U.S.
State-owned Indian Oil Corporation Ltd. has bought the country’s first shale oil from the U.S. and is looking to step up imports from America as part of its crude diversification strategy.
IOC bought 1.9 million barrels of U.S. crude in its second import tender seeking oil from the Americas, IOC’s Dierctor - Finance AK Sharma told PTI.
India, the world’s third-largest oil importer, joins Asian countries like South Korea, Japan and China to buy U.S. crude after production cuts by Organisation of Petroleum Exporting Countries (OPEC) drove up prices of Middle East heavy-sour crude, or grades with a high sulphur content.
IOC had last month sealed a deal to import 1.6 million barrels of Mars crude from the U.S. and 4,00,000 barrels of Western Canadian Select oil for delivery at its Paradip refinery in Odisha -- the first ever such purchase of U.S. crude by an Indian state-run refiner.
"In the second tender, we have bought 9,50,000 barrels of light sweet Eagle Ford shale oil and 9,50,000 barrels of heavy sour Mars crude. This is for delivery in end-October," he said adding the oil was bought from trading firm Trafigura.
The first cargo was loaded on ships on August 7 and would after a 40-day journey reach Paradip sometime around September 20, he said.
Sharma said IOC has received government nod for buying one cargo (or shipload) of US oil every month till March 2018.
India allows import of crude oil only on Indian carriers but U.S. oil can be imported only on foreign vessels. So a special permission is needed for using foreign-flagged ships for ferrying the oil.
Shipping Ministry has given us permission to import one cargo from U.S. on delivered ex-ship basisAK Sharma, Director - Finance, IOC
DES means the seller makes arrangement to deliver the goods to the buyer at the named port of destination. The seller has to bear all costs and risks involved in bringing the goods to the named port of destination.
As per present policy, when a domestic refiner tenders to buy a crude from foreign nation, Indian shipping lines get the first right of refusal by virtue of they being allowed to match any lowest bidder for transportation of crude oil.
Only when they waive their right can the oil firms use a foreign line.
Transporting U.S. crude needs very large crude carriers (VLCCs) and can be done only by foreign shipping lines. And to do that, oil companies have to obtain permission of the shipping ministry.
Bharat Petroleum Corp Ltd. (BPCL) has bought two of the U.S. cargoes. A few days ago it bought one million barrels of U.S. WTI Midland sweet crude for delivery in October - its first purchase of the sweet variety from the U.S..
In July, it bought 5,00,000 barrels each of Mars and Poseidon varieties of medium-to-high-sulphur crude for delivery to its Kochi refinery between September 26 and October 15.
Hindustan Petroleum Corp Ltd. (HPCL) is also looking at buying U.S. crude oil.
Sharma said buying U.S. 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) has narrowed.
Even after including the shipping cost, buying U.S. crude is cost competitive to Indian refiners, he said.
We are not looking at any term (or fixed quantity) deal from U.S. as of now. We will tender to buy crude and if the U.S. crude is competitive as compared to others, we will buy it.AK Sharma, Director - Finance, IOC
The deals by IOC and BPCL came within weeks of Prime Minister Narendra Modi’s visit to the U.S. when President Donald Trump talked of his country looking to export more energy products to India.
An oil ministry official had last week stated that Indian shipping lines do not have vessels to match the demand. They account for only 22 percent of the total oil transportation and bulk of this is coastal shipping