Industry
IOC, HPCL, BPCL in talks with Petrobras for long-term oil deals
Summary
- India, the world’s third-largest oil importer, has a growing energy partnership with Brazil, the world's seventh-largest crude oil producer and exporter. New Delhi has been trying to diversify its energy supplies recently, by accessing non-traditional sources such as Russia and Brazil.
New Delhi: State-run Indian Oil Corp. Ltd (IOCL), Hindustan Petroleum Corp. Ltd (HPCL) and Bharat Petroleum Corp. Ltd (BPCL) are in talks with Brazilian energy major Petroleo Brasileiro SA (Petrobras) to secure guaranteed crude oil supplies over the long term, two people aware of the matter said.
India, the world’s third-largest oil importer, has been trying to diversify its energy supplies, by accessing non-traditional sources such as Russia and Brazil. India has a growing energy partnership with Brazil, the world's seventh-largest crude oil producer and exporter.
“Officials from the oil marketing companies (OMCs) visited Brazil in April. The deal with BPCL was on the table; the company is now testing the crude in its refineries. The contracts are expected to be signed soon," said one of the two persons mentioned above, adding the quantum of supplies has not been finalized as of now.
The three OMCs are holding talks as a consortium, and although separate contracts would be signed between the Indian companies and their Brazilian counterpart, the terms would largely be the same, while the quantum would change, the person added. The oil supply deals with the Indian companies are expected to be finalized soon.
“Brazil is being looked at among other countries for diversification of import sources. India is largely looking at long-term contracts. However, term contracts with shorter duration, even for five years, would be beneficial," the second person added.
Read this: India’s oil import bill could rise to $101-104 billion in FY25, says ICRA report
Diversifying basket
Companies such as IndianOil, HPCL and BPCL, which import crude oil, refine and market them, prefer term contracts as theyoffer stability amid volatile energy markets. Long-term deals are usually signed for at least 10 years.
Queries sent to IndianOil, HPCL, BPCL, Petrobras and the petroleum ministry remained unanswered till press time.
“India has been trying to diversify its import basket. This move also is on the same lines. Due to distance and logistics, West Asian countries have traditionally been favoured. But when the companies negotiate as a consortium, they have a better bargaining position and may get attractive terms and credit lines," said Prashant Vasisht, senior vice-president and co-group head, corporate ratings, ICRA Ltd.
The long-term contract negotiations come at a time when the crude oil prices have been on an upward trajectory amid conflict in West Asia and Ukraine, and supply concerns around the Strait of Hormuz. Brazil is currently not a major supplier to India, with its oil exports accounting for only $1.46 billion in FY24, out of India's total oil import bill of $139.85 billion. Russia emerged as India's largest supplier in the last fiscal, surpassing the traditional suppliers like Saudi Arabia, Iraq and others.
Also read: India’s oil imports from Russia drops 19% in February, Saudi Arabia 2nd largest supplier
The visit of the executives from the three oil marketing companies in April this year also came in the backdrop of a sharp output cut by the Organization of the Petroleum Exporting Countries (Opec) Plus grouping. In April, an OPEC+ ministerial meeting decided to keep its output policy steady.
How much oil does Brazil produce?
Brazil’s oil production has been increasing in the past few years. Data from the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP), showed that the country's crude oil production jumped nearly 13% to over 3.4 million barrels per day in 2023.
A report by S&P Global Commodities noted that Brazil is expected to continue to boost oil and natural gas production in 2024 amid the ongoing development of offshore fields; at the same time, a shift in energy policy strategy back toward a state-led model under President Luiz Inacio Lula da Silva has renewed uncertainties about future growth.
Earlier in September 2022, amid the height of the Russia-Ukraine war and volatility in the energy market, IndianOil had inked a long-term oil supply contract with Petrobras for 1.7 million metric tonne oil per annum (mmtpa). BPCL also signed a memorandum of understanding (MoU) with Petrobras to strengthen crude oil trade relationships between the two companies and explore potential crude import opportunities by BPCL, on a long-term basis. Through its fully-owned subsidiary, Bharat PetroResource Ltd, BPCL has a stake in the upstream sector in an ultra-deepwater hydrocarbon block in Brazil, owned and operated by Petrobras.
A parliamentary committee in a report in December 2023 had raised concerns about over-dependence of the oil PSUs on any one region for crude oil and gas supplies as it can impact energy security of the country, which entails getting uninterrupted supplies of crude oil and gas at reasonable prices to support its rapidly growing economy. It noted that state-run companies have started importing crude oil from the US, Canada, Russia, Australia, Brazil, Guyana, Norway, Egypt, Gabon and others as part of a diversification. It also recommended taking more concrete steps for the diversification by exploring new partners.
