Oil importers look at US shale as alternate to Iran supply

The US is likely to become the biggest gainer of its decision to impose sanctions on Iran with major oil importing countries, including India, looking to substantially increase crude oil imports from America if shale producers there are willing to offer good terms.

A source in the petroleum and natural gas ministry said after initial reluctance, the government has advised public sector oil refining companies to start making alternative arrangements to replace Iran oil. They have been told to engage in fresh talks with US shale producers to see if long-term supply contracts on attractive terms were available.

Indian refiners have been asked to prepare an alternative crude oil sourcing plan ahead of the snapback of US sanctions on Iran in November.
While a clear response from the government on zero imports from Tehran as suggested by the US is expected to emerge later this month, it is not taking any chances and want companies to prepare for reduction in Iranian oil imports. “The rig count in the US has risen sharply in the past few months (1062 now) indicating that oil production there is on the rise. One estimate suggests that US will pump in additional 4 million barrels of crude oil in the next couple of years. This provides ample opportunity for India to tie up long-term contracts there. Already, spot purchase contracts from US has seen a rise,” said a government official. The officer added crude oil supplies will remain unaffected till September but after that if sanction fear becomes real and there could be issues in paying for Iranian crude. While rupee payment arrangement between India-Iran is being explored again, all will depend on US stance whether it is willing offer any waiver to India as has happened during earlier US sanctions on Iran.

India imported 220.43 million tonnes of crude in FY18 out which just over 10 per cent or about 24 million tonnes is estimated for by Iran with the Islamic nation coming third in oil supplies to India after Iraq and Saudi Arabia.

In actual terms Iran supplied 18.4 million tonne of crude oil between April 2017 and Ja-nuary 2018 (first 10 mo-nths of 2017-18 fiscal).

Iran was India's second biggest supplier of crude oil after Saudi Arabia till 2010-11 but western sanctions over its suspected nuclear programme relegated it to the 7th spot in the subsequent years. In 2013-14 and 2014-15, India bought 11 million tonnes (mt) and 10.95 mt, respectively, from it.

Sourcing from Iran increased to 12.7 mt in 2015-16, giving it the sixth spot. In the following year, the Iranian supplies jumped to 27.2 mt to catapult it to the third spot.

Iranian oil is a lucrative buy for refiners as the Persian Gulf nation provides 90 days of credit for purchases, at least thrice the amount of time given by other producers. In Contrast US accounted for less than 1 per cent of country’s total imports but officials in oil marketing companies said that higher global crude prices would push more shale oil from US into the market that could be tapped by companies at attractive terms.

The shift to US would not be sudden as gas transportation company GAIL and oil marketing firm BPCL and India’s largest oil refiner IOC have sealed deals for supplies of US crude earlier too. The shale oil price there now has also become very competitive as compared to Middle-East and Gulf crude.

Subhash Narayan