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As LNG Prices Fall, Long Term Deals Turn A Fiasco For Importers
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Power Sector Holds The Key To Raising Share Of Gas
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ONGC Begins Gas Production From Deep Water KG Block
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Companies
Osaka Gas Co Ltd
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Alphageo Bags Order From Oil India
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Welspun Corp Bags Offshore Pipes Supply Contract In Australia
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Press Release [FREE Access]
Petro Intelligence » Urals Gambit: Putin’s Strategy To Conquer Indian Market

By R. Sasankan

President Vladimir Putin does not like being out-thought, out-manoeuvred and outfoxed – especially by the Americans. The US under Donald Trump has been ripping up trade agreements, badgering allies to open up their markets to American products and services, and using the threat of economic sanctions to wear down resistance when charm or chutzpah does not work. America’s new-found assertiveness has started to stir things up now that it has cast aside its long-held policy of forbearance that had severely limited its role in the world of petroleum as a major energy exporter.

India – the third largest importer of crude oil in the world – has now become an obvious playground for a coarse display of vanity, cupidity and raw power. Ever since President Trump started pressuring India to import American crude oil and the first consignments started to arrive in early 2017, the Russians have found themselves edged out of a corner of the world where they had once exercised enormous influence.

Vladimir PutinPresident Putin isn’t going to give up easily as he is determined to protect and preserve the interests of Russia. After all, he has played this game before. The $ 55 billion, 3,000 km pipeline that crosses Siberia to the Chinese border in the South-East, which started gas supplies to China in the first week of December 2019, was Russian president Vladimir Putin’s response to Crimea-linked sanctions that the US and its European allies had slapped against his country.

Putin quickly realised that their next target could be the piped gas supplies to Europe, a major source of revenue for his country. Unlike other world leaders, Putin is a marketer par excellence. He swung into action and signed a major gas supply deal with China in 2014 which was dubbed as the contract of the century under which Gazprom committed to supply 38 billion cubic metres in annual gas supplies to China’s oil and gas major, CNPC.

The Russian President has now trained his sights on India. In 2017, he started to put his plan into place. The acquisition of Essar Oil by state-owned Rosneft in 2017 was part of this strategy. At one stage, Saudi Aramco had evinced interest in Essar Oil but it quietly withdrew from the scene and never formally entered the race. The Saudi leadership has very friendly relations with President Putin though Russia is not a member of OPEC. Many believe that the Saudi leadership ducked out of the bidding for Essar Oil because of this friendship. Russia and Saudi Arabia need each other to ensure stability in the crude oil market. According to highly placed sources, President Putin directly intervened and held talks with Indian leaders to ensure Rosneft got Essar Oil.

Russia is now preparing to raise its game in this high-stakes battle: the provocation for this column is the decision of Indian Oil Corporation (IOC) to enter into an agreement with Rosneft to buy 2 million tonnes of Ural crude in 2020.

Narendra ModiRussia has been producing crude oil from the Urals for many years. The suitability of the Ural crude for Indian refineries was established a long time ago. But India baulked at buying crude from the Urals ostensibly because of the great distance that it would have to travel. The distance from Urals to India hasn’t changed; the argument over high transportation costs still persists. So, why have the state-owned refiners suddenly taken a shine to the crude from the Urals?

The erstwhile Soviet Union used to supply 2 million tonnes of crude annually to India under its trade agreement. But that crude did not originate from Russia but was diverted from Iraq which paid USSR for its service in crude and not in dollars. This arrangement ended with the collapse of the Soviet Union.

The official reason that is being trotted out for the purchase of Ural crude is the desire of the two nations to raise the trade target to $ 25 billion by 2025 from the current level of $ 11 billion. “Sourcing of Russian crude oil through long-term contracts is a part of India’s strategy to diversify the country’s crude oil supplies from OPEC countries.” Fair enough; it is a noble target, no doubt.

No one can argue against the need to diversify sources of crude oil given the geopolitical uncertainty that can sway oil-producing nations to act in a manner that could hurt India’s long-term interests.

Dharmedra PradhanThis reason was also cited even in the case of the US. It is true that the price of WTI-indexed crude was quoting $ 8-10/barrel lower than Brent when Indian PSUs entered the US market two years ago to buy its crude. But the real reason for those energy deals was neither diversification of source nor the lure of lower prices but the political compulsion to reduce the trade balance between the two countries, which is a highly sensitive issue as far as President Trump is concerned. The fact remains that Indian PSU refineries do not seem to be overly happy with the US crude. Refinery circles acknowledge that the netback from US crude is not all that positive when compared with some of the Middle East crudes. But nothing has been said officially so far as the PSUs will scrupulously toe the government’s policy line.

What is the yardstick to be applied to judge IOC’s decision to buy Russia’s Ural crude? As already pointed out, Indian refineries are quite comfortable with Russian crude in terms of quality. It now appears that there was hard bargaining on both sides before a deal was struck.

Both sides have plenty to gain. In the case of India, Putin has been following a modified China strategy. India is the world’s third largest importer of crude oil and the last of the major markets left for fossil fuels. It should take at least 20 years for the electric vehicles to penetrate the vast Indian market. For Russia, crude oil and gas will continue to be its largest revenue earner and it has to tie up alternate markets before the present arrangement with a hostile Europe ends.

Prime Minister Narendra Modi and petroleum minister Dharmendra Pradhan are shrewd negotiators and realise only too well that the oil producers are under some compulsion to woo India because of the changing dynamics in the world economy.

President Putin is acting under his own compulsions. Sources say Rosneft was under instructions from the Russian President to dangle a bait before the Indians so that they would sign the term contract. Was it a discounted price to offset the higher transportation cost from the Urals or was it something else? It is now understood that the other public sector companies like Bharat Petroleum and Hindustan Petroleum will also enter the Russian market shortly. Why should these companies go all the way to Russia unless they benefit significantly from the deal? Let us remember that Iran used to offer similar benefits to Indian PSUs.

Russia is expected to move a notch up and take its present strategy to a logical conclusion by bidding for the government’s 53 per cent stake in Bharat Petroleum Corporation Ltd (BPCL). There will be others as well in the race but the main contenders will be Rosneft and Saudi Aramco. Will Rosneft withdraw in favour of Saudi Aramco?

Even though Rosneft has the Nayara Refinery in its bag along with its 5,650 retail outlets, it wants to carve out a larger share of the Indian market. This is central to Putin’s India strategy. Saudi Aramco is also keen on India’s retail market. The battle for the Indian market is poised to take an interesting turn. We have our eyes peeled.



To download the latest issue 'Volume 26 Issue 24 - March 25, 2020', click here
Petro Intelligence [FREE Access]
Putin Plays An Ace To Ruff Trump’s Hand
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Urals Gambit: Putin’s Strategy To Conquer Indian Market
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Time To Repudiate The Crooked Rasgas Deal
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Bombay High’s Tale Of Woe: Short Shrift For Local Talent
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Foreign Investment
Shell Partners With INOX
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Overseas Investment
HPCL Commissions Its First Petrol Pump In Bhutan
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Air Products To Provide LNG Technology For Mozambique Onshore Project
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Gas Scene
Capacity Utilisation of LNG Regassification Terminals
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Natural Gas Price Trends: Global and Domestic
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Sector-Wise Consumption of Natural Gas In January 2020
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Domestic Natural Gas Scene in January 2020
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Natural Gas Price: Global & Domestic (December 2019)
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LNG Import, Gas Production and Consumption Since 2007-08
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Gas - Import Dependency
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Sector-wise consumption Of Natural Gas Since FY 2016-17
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LNG is more competitive for transportation distances beyond 1,000km (offshore) and 3,000km (onshore)
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China’s Dependency On Imported Gas Trending Up As Production Lags Behind
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Natural Gas price trends: Global & Domestic
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CNPC’s shale gas target looks overly ambitious
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LNG Has Relatively High Emission Intensity In Some Cases
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Global and Domestic Natural Gas Price Trends
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Asia’s (excluding China) gas production remained flat from 2010
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Evolution of natural gas consumption in India
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Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
Price Movements In Indian Basket Of Crude In March 2020
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Automobile Sector Continued Its Dismal Performance In February 2020
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Power deficit: Region-wise position for February 2020
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Types of Crude Oil Processed by Indian Refineries during April 2019-February 2020
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LPG, Pet coke Continue To Dominate Petroleum Products Import In February
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Region wise percentage share(%) of crude oil during April 2019 -February 2020
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Domestic Oil & Gas Production Vis-Ŕ-Vis Overseas Production
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Update: Gross Refining Margins (GRM) of refineries
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Update: Coal Bed Methane (CBM) gas development
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Total subsidy/under-recovery on petroleum products & natural gas
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Operating And Under-Construction Nuclear Power Plants In India
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Indian Drilling Rig Count In January 2020
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BPCL’s E&P assets overseas and within the country
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Prices in Indian Basket of Crude In February 2020
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Role of coal in energy supply and power generation in 1971-2017
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Realignment of India’s Crude Oil Imports
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Auto Sector Continues With Dismal Performance In January 2020
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Domestic LPG Scene As On January 1, 2020
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Update: Production Vis A Vis Consumption Of Petroleum Products
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Update: Consumption Growth of Petroleum Products for the last ten years
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Power Deficit: Region-Wise Position For January 2020 (% Deficit)
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High Sulphur (HS) & Low Sulphur (LS) crude oil processing
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Tenders [FREE Access]
Petronet LNG
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ONGC
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ONGC
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