Iran is India’s friend, and geographical proximity makes it easier to source crude oil from that country. But Western economic sanctions on Iran have exposed India’s fault line—excessive dependence on any one region or country for crude oil supplies.
Those within the government and outside believe that there is an urgent need to have alternative sources of crude oil. If China can do so, why cannot India?
In fact, diversification of the source of crude was raised in the Parliamentary Standing Committee on Petroleum and Natural Gas (2012-13) report, “Long-Term Purchase Policy and Strategic Storage of Crude Oil”. It said, “Concerted efforts should be made by the Ministry for Petroleum and Natural Gas and the public sector undertakings to minimise dependence on any single country or region to ensure that [the] country’s crude oil supplies do not get adversely affected in case of geopolitical problems in any region….”
Import dependence India meets 80 per cent of its crude oil requirements through imports and is heavily dependent on West Asia for its supplies. In fiscal 2012-13, 79 per cent of the total crude oil imports came from West Asia. During this period, India imported crude oil worth more than Rs.6.7 lakh crore.
Industry observers point out that political unrest in any of the producing regions can cause supply disruptions. Considering the turmoil in West Asia and North Africa in the past three years, it has become imperative to reduce reliance on West Asian oil.
Iran advantage
Dilip Khanna, partner, oil and gas practice, Ernst & Young, says, “Iran has been offering favourable trade terms to India [given the historical trade relationship], which includes allowing Indian refiners to pay in Indian rupees for crude oil and extending 90-day interest-free credit.” The recent exchange rate volatility had resulted in savings of $2 a barrel for Indian refiners on processing Iranian crude, he said. However this benefit may end when banking restrictions on Iran are lifted.
Improved refining Diversification is the key for higher-complexity refineries, which can make better refining margins by processing heavy, sour crude oil sourced from countries such as Venezuela and Canada.
India has 22 refineries—17 under the public sector, two under the joint sector and three under the private sector. Its refining capacity has leapfrogged from a modest 62 million tonnes a year in 1998 to about 215 million tonnes now. By the end of the 12th Plan (2017), the total refining capacity is expected to touch around 271.2 million tonnes and is expected to go up to 332.9 million tonnes during the 13th Plan.
Even though domestic production of energy resources is projected to increase during the 12th Plan period, import dependence will continue at a high level. The main area of import will be crude oil--nearly 80 per cent of the demand will have to be met through imports by the end of the 12th Plan period.
The parliamentary panel has asked the Ministry to not only work towards diversifying the crude supply basket but also work on alternative plans for transportation (pipelines) of crude oil to avoid supply disruptions owing to turmoil in the importing country/region. It has also pushed for strategic caverns for storing crude oil. But, above all, it has pitched for minimising dependence on crude oil and shift the energy consumption patterns.
Minister for Petroleum & Natural Gas M. Veerappa Moily has stated that “the government will make every effort to reduce nation’s dependence on imported oil and work towards securing energy independence for India”.
(This article was updated on December 13.)
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