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Rakesh Upadhyay

Rakesh Upadhyay

Rakesh Upadhyay is a writer for US-based Divergente LLC consulting firm.

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China And India Rewrite The Rules Of The Oil And Gas Game

As the current oil price crisis leads to some game-changing upheavals in the global energy market, Asia’s two powerhouses, China and India, are taking advantage of the supply glut to rewrite the long-established rules of business.

India and China have seen exponential growth in oil demand over the past 25 years. Combined, they consume 16 percent of the world’s oil--second only to the U.S. at 20 percent. And analysts expect that by 2040, these two growing economies will double their combined consumption to 30 percent. These are game-changing numbers that have all major producers seeking inroads to this territory.

Most spectacularly, new trade routes are being established and Indian refiners are moving away from long-term contracts with Middle East nations, favouring African spot purchases, reports Reuters. Related: $40 Billion LNG Project In Australia Cancelled Amid Low Prices

At the start of the decade, Russia supplied about 7 percent of total imports to China, compared to 20 percent supplied to China by Saudi Arabia. However, Russia has overtaken the Saudis as the largest supplier to China four times in 2015, which is significant because Saudi Arabia had lost the top spot only six times in the preceding five years, according to data from RBC Capital markets.

RBC Capital Markets' commodity strategist Michael Tran pointed out that seven countries have beaten the growth rate achieved by Saudi Arabia in the past five years, as shown in the chart above. Related: Brussel’s Terror Attack Drives Europe Further Into Terrorism Rabbit Hole

“Meanwhile, Saudi Arabia is losing its crown as its selling prices in Asia haven’t been attractive enough,” claimed Gao Jian, an analyst at SCI International, a Shandong-based energy consultant, to Bloomberg in June 2015.

On the other hand, Nigeria overtook Saudi Arabia as the largest supplier to India back in 2015, as reported by Reuters. As the premium of the Nigerian crude over Brent reduced, large Indian complex refiners, such as Reliance, used the opportunity to load up on the superior quality Nigerian crude at discounted rates.

Both China and India are using their size to grab sweet deals—and the suppliers are ready to accommodate them thanks to the ongoing oil glut.

India imports 80 percent of its oil requirements, and under current Prime Minister Narendra Modi, India is progressively moving towards energy security. “If we want to go anywhere close to self-sufficiency we have to go for assets abroad,” said Sudhir Vasudeva, former chairman and managing director of Indian state-run explorer Oil & Natural Gas Corp., reports Bloomberg.

That brings us to Russian Siberia. Here, three Indian companies will purchase a 29.9-percent share in Taas-Yuriakh Neftegazodobycha and a 23.9-percent stake in Vankorneft. Oil & Natural Gas Corp., a government-run Indian refiner, was offered additional 11 percent stake (from Russian Rosneft) in Vankorneft to its existing 15 percent stake purchased in September 2015, according to Sunjay Sudhir, joint secretary for international cooperation at India’s oil ministry, as reported by Bloomberg.

Currently, Siberian oil is supplied to closer regions; however, India can decide to ship its share from these fields to the domestic refineries, it can also sell the oil in the open market or use to barter it for oil from elsewhere. Related: Is This The Most Intricate Oil Theft Operation Yet?

"Asian oil markets are in a tremendous period of flux," said Owain Johnson, managing director of Dubai Mercantile Exchange (DME), reports Reuters.

"Chinese oil companies have become the new powerhouses in oil trading," said Oystein Berentsen, managing director of crude at Strong Petroleum in Singapore.

China is planning for Shanghai crude futures to have a greater say in crude pricing.

Both China and India are using the drop in oil prices and the existing oil gut to their advantage. New partnerships are being formed and steps are being taken, which undermine the erstwhile major players. Each crisis brings about a change, and the current one is shifting the power from the suppliers to the consumers.

By Rakesh Upadhyay of Oilprice.com

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  • Brett on March 24 2016 said:
    It strikes me that exporting oil that can't be refined in this country is one thing, but if we are to take the long view for a change, maybe we should start looking at building some refineries and maybe, just maybe, keep the Saudis from owning refineries in Port Arthur. If we increase the ability to refine our own, we have already proven we can produce our own. So when the day comes that the zombies start moving in we will have our own source of crude, our own ability to refine what we need, and the devil take the hindmost.
  • Russian Jew on March 24 2016 said:
    Looks like many countries are investing in Russia. Next decade Western oil grands will blame their governments for missing good opportunities in Russia. LOL

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