India is ‘lining up Opec alternatives’ to Iran oil
March 14 2013 02:45 AM
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 Sun sets at the Numaligarh Refinery Ltd complex in Golaghat in the north-eastern state of Assam, India. Indian refiners, which are waiting for an order from the oil ministry on whether to stop buying Iranian cargoes, are discussing annual term contracts with Saudi Arabia, Iraq and Kuwait for the year starting April 1, say sources.

 

Bloomberg/Mumbai

Opec’s biggest oil producers are in talks to supply extra crude to India as the nation prepares to halt purchases from Iran because of global sanctions, four people with knowledge of the matter said.

Indian refiners, which are waiting for an order from the oil ministry on whether to stop buying Iranian cargoes, are discussing annual term contracts with Saudi Arabia, Iraq and Kuwait for the year starting April 1, the people said this week, asking not to be identified because the information is confidential. While the volume hasn’t been set, the Indian companies have been told there is enough supply to cover the loss of Iranian crude, the people said.

The assurances reduce the risk of disruptions to oil supplies for Asia’s third-largest economy as it seeks to cut fuel subsidies and narrow its budget deficit. They are also evidence of how global penalties against Iran because of its nuclear programme are squeezing the nation’s revenues.

At current prices, Iran stands to lose about $11.5bn in sales annually if India stops buying its oil.

“This shows how pressure on Iran is increasing, and why Iran’s tone is much more conciliatory in recent times,” said Ehsan Ul-Haq, a senior market consultant at KBC Energy Economics in Walton-on-Thames, England. “Iran might be willing to accept a few more conditions now because otherwise it will find it difficult to meet its budget obligations.”

Prospects for resolving the conflict over Iran’s nuclear programme have improved following signs of “good faith” from Western powers, Iranian Foreign Minister Ali Akbar Salehi said on Sunday. The state-run Iranian Students News Agency on the same day cited an unidentified Iranian diplomat as saying world powers have offered to ease economic sanctions on Iran if it limits the enriched uranium in its possession within six months.

India’s refiners currently have contracts to receive a total of about 300,000 bpd of Iranian crude, or 110mn a year. Iran Heavy traded at $104.87 a barrel yesterday, while Brent crude settled at $109.65 in London.

Saudi Arabia, the largest producer in the Organisation of Petroleum Exporting Countries, pumped 9.1mn bpd in February, the group said in its monthly oil market report on Tuesday, citing secondary sources. Daily output was 3.1mn barrels for Iraq and 2.8mn for Kuwait.

“We are always seeking markets which have refineries and that have demand for crude, including the Indian market,” Asim Jihad, spokesman for Iraq’s Oil Ministry, said by telephone from Baghdad today. He declined to provide more details.

Iran produced 2.7mn bpd, Opec data shows. The nation’s crude shipments plunged 40% in the last nine months of 2012, the state-run Iranian Students News Agency reported on January 7. China, India and South Africa buy 70% of Iran’s oil exports, or about 910,000 bpd, the Fars news agency reported on January 14.

“Saudi Arabia pumped 10mn bpd last year, and though that’s come down, they can easily increase production again,” Ul-Haq said. “Iraq’s production is also rising. All these can replace Iranian crude, so India shouldn’t face a problem.”

India has struggled to get tankers and insurance for transporting supplies from Iran after the US and the European Union imposed sanctions to curb Iran’s nuclear programme, which they say is designed to develop an atomic weapon. Iran says its programme is for civilian purposes including electricity production and medical research.

India may cease buying Iranian crude as local insurers refuse to cover the risks for using the oil, PP Upadhya, the managing director at Mangalore Refinery & Petrochemicals Ltd, said on March 8.

Iran has offered to provide insurance cover to Indian plants if they continue purchasing Iranian crude, two of the people said this week. While the processors have been shipping crude on tankers operated and insured by Iran, they won’t agree to have their plants covered because they aren’t confident the country will be able to pay them if they make a claim, the people said.

The refiners and the Indian government plan to discuss the option of forming a fund to be run by the processors and government-owned insurers to provide cover for the plants in coming weeks, two of the people said.

The US in December renewed a waiver for India and eight other nations from a law that cuts institutions off from its banking system if they process payments for Iranian oil. The nations “significantly reduced” their purchases of Iranian crude, the State Department said. The exemption is subject to a review every 180 days.

Indian refiners planned to reduce their purchases from Iran by as much as 20% in the year starting April 1 to keep the waiver from the US, a Bloomberg News survey of five refinery officials last month showed.

India imported 171mn tonnes of crude in the year ended March 31, 2012, according to data from the Associated Chambers of Commerce and Industry of India. Iraq overtook Iran as the nation’s second-biggest supplier, after Saudi Arabia, during the period, the data show. Kuwait was third-biggest.

 

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