India seeks to use its oil thirst to drive bargains

New Delhi: India is trying to use its position as one of the world’s biggest energy consumers to strike better bargains for its companies with oil exporting nations, in a marked change of approach under Prime Minister Narendra Modi.
The oil ministry is moving beyond seeking additional barrels for import in talks with exporters. Now, the energy-deficient country wants to use its thirst for oil as a weapon to broker deals to help strengthen its economy and create jobs, oil minister Dharmendra Pradhan told Reuters in an interview.
“We are a market. The quantum that we buy is our weapon,” 45-year-old Pradhan said.
India, the world’s fourth biggest oil consumer and third biggest importer, ships in about 80% of the crude oil it consumes and fuel demand is rising with rapid economic growth.
After clocking faster growth than China in the December quarter, India’s economy grew 7.5% in the quarter through March, outstripping its larger neighbour’s 7% in the same period. Last year, India’s economy grew at 7.3%.
Consumption of petroleum products is estimated to be 166.9 million tonnes this fiscal year, and local oil output has remained almost stagnant for years.
Since taking office in May last year, Modi and his ministers have actively tried to showcase India’s growing role in international trade. The prime minister has visited 18 countries including Japan, the US and China, over the past year, promoting India as an ideal destination for investments.
Pradhan said India’s new oil diplomacy aims to further its interests on four fronts: to buy oil and gas acreage; source imports on better terms; increase investment in sectors such as pipelines and refining; and get business for engineering and construction companies with jobs for skilled Indian labour.
“South Korea lifts slightly more oil that we buy from the Middle East but its participation in engineering and construction business there is double than ours,” said Pradhan, who spoke in Hindi during the interview.
The Middle East is India’s biggest oil supplier, although the emergence of new trade routes following a decline in global crude prices and supply glut has led to an increase in supplies from central Asia to Latin America.
Limited window
India’s push comes at a time when it has become a rare bright spot for demand in the global oil market.
A senior Saudi Aramco official said on Thursday Indian oil demand is set to rise, while Chinese oil demand is likely to stabilise in the second half of this year.
India has a “limited window” of opportunity to get deals for its companies as a glut of oil is allowing buyers to call the shots, said Ehsan Ul Haq, senior consultant at UK-based consultant KBC Energy Economics.
“It is probably the best time,” Haq said.
Pradhan sees India’s fuel demand rising due to a push by the government to create a manufacturing hub and jobs.
He recently visited Colombia and Mexico, and met OPEC members in Vienna to help Indian companies grow their footprint.
ONGC Videsh Managing Director N.K. Verma, who travelled with Pradhan, said the visit helped the state-owned oil company forge new relationships and increase its visibility.
“We are getting a boost in our effort to capture equity oil and gas for the nations,” Verma said.
Pradhan said easing global oil prices have provided an opportunity to India to raise spot purchases and diversify its crude basket. But he added that New Delhi is also mindful of its long-term relationship with oil-rich nations.
“We cannot make knee-jerk decision following short-term volatility,” he said.
When asked whether India will boost imports from Iran if sanctions are lifted against the Persian Gulf nation at the end of the month, he said: “There is sufficient indication to Iran that if anything positive comes out on June 30, India is ready to go ahead.” Reuters
SOurce: Mint; 14 June 2015
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2 thoughts on “India seeks to use its oil thirst to drive bargains

  1. @Saisrinu : very well put. You hit the nail. It would certainly set-off the dollar outflow till some extent, but that is very small compared to the dollar outflow due to imports. EPC contracts can be bargained for definitely, given the level of oil imports that we do from Middle-East,in comparison to Korea but that will mainly generate jobs rather than making Dollar reserves of India stronger.

  2. It is about OIL DIPLOMACY. In the current scenario – as the article reads, India has an advantage due to its growing demand.
    1. Along with securing supply (at economical prices), there need to be focus on the EQUITY OIL (share of oil a company gets for its stake in a block).

    2. Mr. Pradhan also mentioned about korean EPC contracts – India needs to develop its petroleum services industry. This will help bring dollars home and assist in efforts of petroleum exploration. At the end of day it is all the Dollar game – how much dollar you can gain and how much you can save.

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