Indian refiners look beyond Iran for oil

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, July 20 -- Indian refiners, faced with Iran’s uncertain ability to provide adequate levels of oil supplies, say they are now looking to Kuwait, Saudi Arabia and the UAE for increased shipments of crude oil.

Mangalore Refinery & Petrochemicals Ltd., India’s biggest buyer of Iranian oil, said the availability of Iranian crude “may be difficult” and that supply “may not continue” indefinitely.

MRPL attributed potential disruptions in supplies from Iran as due largely to the continuing sanctions regimes imposed on Tehran by the US, the European Union, and the United Nations.

MRPL said it also is facing difficulty in remitting the payments against import of Iranian oil due to EU sanctions and the dismantling of the Asian Clearing Union (ACU) by the Reserve Bank of India.

India's debt to Iran for unpaid oil has mounted to more than $5 billion after RBI last December stopped using the ACU, winning praise from the US which is using sanctions to force Tehran to halt its nuclear program (OGJ Online, July 19, 2011).

But the failure to pay Iran has resulted in threats by Tehran to cut supplies of oil to India as early as next month. Iran provides 400,000 b/d of oil to India, about 12% of the country’s import total.

With just 11 days until the end of July, Iran has yet to tell Indian refiners what shipments—if any—will load in August.

As a result of the uncertainty, India's Bharat Petroleum, Hindustan Petroleum and Essar Oil each are reported to have asked for 1 million bbl of extra oil from Saudi Arabia for August.

However, a US official accompanying US Sec. of State Hillary Clinton to India this week said a solution to the payment problem is in the offing and that US Treasury officials were working with India to end the impasse.

"Our Treasury is working with the relevant Indian officials. We're not there yet but I think that a solution is in sight," the official said.

Meanwhile, looking farther ahead, MRPL said it is seeking additional supplies from other producers, and that it has already finalized negotiations to purchase crude from Kuwait, which it described as a “new source” of supply, from 2011.

MRPL also said it has had “some success” in its discussions with its other term oil suppliers, namely Abu Dhabi National Oil Co. and Saudi Aramco.

“These will reduce the dependency on few sources of supply and reduce the crude supply risk,” MRPL said in its latest company report.

“Accordingly, it has been decided to finalize the term contracts for crude oil import for the year 2012-13 well in advance by September 2011, in order to have more suppliers,” MRPL said.

The Indian firm added that “it is also envisaged to import crude oil in [very large crude carriers] from far-flung areas and discharge through lighterage [until the] SPM becomes operational.”

MRPL last year proposed setting up a single-point mooring facility in the Mangalore Port area aimed at receiving oil in VLCCs. As of May, MRPL said construction of the facility was about 16% complete.

Contact Eric Watkins at hippalus@yahoo.com.

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