INTERVIEW: India's crude diversification push won't impact Middle Eastern term contracts

India is looking to widen its crude import basket with more non-OPEC crudes, but the diversification strategy is unlikely to impact term contracts with Middle Eastern suppliers, as energy security takes center stage, DLN Sastri, director for oil refining and marketing at the Federation of Indian Petroleum Industry, said in an interview.

In addition, expanding strategic reserves and building a fleet of oil tankers will figure in the future oil strategy for India, which imports more than 80% of its crude oil needs, Sastri told Platts, part of S&P Global Commodity Insights.

"The long-term diversification plan won't alter the majority of the term contracts with Middle Eastern producers. State-refiners will not like term volumes for Middle Eastern crude to fall below 50%," he added.

Russian imports accounted for about 35% of India's total crude requirements in 2024, which was nearly 4.9 million b/d. The Middle East and Russia together accounted for nearly 80% of India's crude imports, according to data from S&P Global Commodities at Sea.

"For India, security of supply is as important as affordability. The configuration of many Indian refiners is being built keeping in mind the crude specifications of Middle Eastern supplies, such as Kuwait and Iraqi crudes," Sastri added.

He added that India has been buying large volumes of Russian crude since the start of the Russia-Ukraine conflict because of attractive discounts, and this would continue as long as the price remains attractive. "India continues to buy Russian crude, but there is no binding agreement, and it is being driven purely on commercial considerations."

Russian crude shipments averaged 3.68 million b/d in May, up 165,000 b/d, or 5%, from April levels to the highest since October and above average 2024 flows of 3.54 million b/d, according to CAS data.

Russia's crude exports to its biggest customers, India and China, were little changed at 1.67 million b/d and 1.11 million b/d, respectively.

Russia's flagship crude export grade, Urals, has traded below the price cap of $60/b on a free-on-board Primorsk basis in recent months, according to Platts assessments, which in principle allows G7-based tanker firms to lift those Russian barrels legally. The EU and UK also pushed to lower the price cap to $50/b for Russian crude in a recent G7 meeting, a measure that has so far been resisted by Washington, according to media reports.

Footprint of non-OPEC crudes

Sastri said India would witness higher volumes of crude from non-OPEC suppliers, but most of the volumes will come via spot deals. "US crude volumes are rising, but most refiners will be blending those with crude from other origins to get the desired configuration," he added.

Indian imports of US crude have averaged 247,000 b/d over January-April, nearly 100% higher than 124,000 b/d in the same four-month period in 2024, CAS data showed.

"In addition to US crude, diplomatic efforts are going on to boost crude purchases from Guyana. I am hopeful as Prime Minister Narendra Modi's visit to Guyana in November has bolstered expectations," Sastri said.

The initial significant steps toward establishing a trading relationship were taken in 2021 when HPCL-Mittal Energy Ltd. and Indian Oil Corp. each purchased 1 million barrels of Liza crude, a medium, low-sulfur oil. However, following these initial "trial cargoes," trade between the two countries has not advanced.

However, with Indian refineries being equipped with sufficient hydrotreating capacity to process more sour crude, it makes the sweeter Liza crude from Guyana a less obvious choice, according to analysts at Commodity Insights.

"India is also aiming to boost its strategic petroleum reserves as well as build a tanker fleet, measures which should help in achieving energy security. Current SPR capacity is low, and there are always resource constraints and challenges to overcome in this segment. We have also heard that details about building a tanker fleet are being worked out," Sastri said.

In its first phase, India set up SPRs at three locations with a combined capacity of 5.33 million mt. In the second phase, India is looking to augment storage capacity further by creating an additional 6.5 million mt of SPRs.

Refining expansion, petrochemicals

Commenting on the refinery expansion outlook, Sastri said India would continue to pursue refining expansions but with a tilt toward petrochemicals. With per capita consumption of petrochemicals at 10-12 kg in India, compared with the world average of 33-35 kg, it is imperative for Indian refiners to focus on increasing the petrochemical intensity of the refineries.

"At the same time, we are not expecting peak oil demand in India anytime soon. As a result, most refiners are pursuing their expansion plans," he said.

India's refining capacity currently stands at 256.8 million mt, and efforts are underway to expand it to 310 million mt by 2030. Commodity Insights estimates that close to 58% of the refinery capacity increase would come from brownfield expansions, while the remaining growth will come from greenfield projects.

In addition, BPCL is finalizing plans to build a new refinery in the southern state of Andhra Pradesh, and ONGC is planning to build one in the western state of Gujarat. Details of the refineries are still being worked out. This has revived Saudi Aramco's interest in investing in at least one of them and expanding its footprint in a growing market.

"But the sticking point is the volume of crude. Aramco is keen for a commitment for very high volumes. But Indian refiners want to keep the flexibility since they know that they will be able to source attractively from all over the place," he said.