At a time when oil and gas investors have been celebrating the latest oil rally after OPEC+ pledged to maintain strict production discipline, not everybody is pleased with the direction things have been taking.
Just a month ago, U.S. oil exporters were licking their chops at the prospects of nabbing more business from a key customer: India. In April, reports emerged that New Delhi was looking to dramatically cut imports from Saudi Arabia, blaming the OPEC kingpin and other leading producers for driving up oil prices at a time when the country is grappling with one of the worst Covid-19 waves in the world.
But maybe they popped the champagne corks prematurely: Indian state refiners have now reversed the steep cuts in some quid pro quo after receiving critical medical aid from the Arabian oil giant.
The refiners—Bharat Petroleum Corp (BPCL.NS), Indian Oil Corp (IOC.NS), Hindustan Petroleum Corp (HPCL.NS), and Mangalore Refinery and Petrochemicals Ltd (MRPL.NS)—have reversed their decision to buy only 9.5 million barrels of oil from Saudi Arabia in May from the previously planned 10.8 million barrels after Saudi Arabia and other Middle Eastern oil producers supplied liquid medical oxygen (LMO) to India.
In a series of tweets last week, Indian oil minister Dharmendra Pradhan welcomed offers by Saudi Arabia, UAE, and Qatar and assurance of a steady supply of LMO and cryogenic tanks to India. The country's daily deaths from the second wave recently crossed the 4k mark, the highest anywhere on the globe, with Modi's government blamed for handling the pandemic poorly.
However, that's still a far cry from the 14.8 million barrels of Saudi oil they typically order in a month, underlining just how strained the relationship between the two countries has grown.
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In February, India's oil imports from Saudi declined sharply by 42% to 445,200 barrels per day while the United States' share climbed to 545,300 barrels per day, thus making it the second-largest oil exporter to the country behind only Iraq.
India is the world's third-biggest oil importer, buying 85% of its oil needs with the majority sourced from the Middle East.
Source: India Times
Diversification drive
The sharp drop in oil imports from Saudi Arabia can also be blamed squarely on the country's diversification drive and, of course, the adverse effects of the pandemic. India's crude oil imports in February fell 18.3% Y/Y to 15.24 million tonnes, marking the biggest year-on-year decline since October 2020.
The oil ministry has been urging domestic refiners to diversify their crude resources and lessen dependency on the Middle East. They have responded by curbing reliance on the Middle East from more than 64% of imports back in 2016 to 60% in 2019.
Meanwhile, the United States has seen its share of oil business with India expand rapidly over the timeframe.
Source: India Times
India, South Asia's regional dominant actor with more than 1 billion citizens, has emerged as increasingly vital to core U.S. foreign policy interests. India is often characterized as an "indispensable partner" of the United States and a nascent great power that Washington views as a potential counterweight to China's growing clout. Related: Oil And Gas Rig Count Climbs Amid Price Rally
Over the past 15 years, Washington and New Delhi have increasingly pursued a "strategic partnership" based on shared values, including economic, security, civilian nuclear cooperation, and lately, energy interests.
After the four-decade ban on U.S. oil exports, India started sourcing LNG and crude oil from the U.S. in 2016, with India's exports of U.S. crude growing 10-fold over a 4-year span.
The Energy Bridge
Energy has indeed emerged as the new bridge in the U.S.-India bilateral relations.
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India is a developing nation that has been trying to become less dependent on OPEC for its energy imports and while also looking to diversify its energy mix. The country has increasingly shifted its attention to the United States, ramping up its oil imports from 26,000 barrels/day in 2017 to 545,000 barrels currently. Iraq, however, remains India's top crude supplier, managing to ship 867,500 barrels per day.
But even more importantly, India is seeking to clean up its act by moving away from dirty coal to cleaner natural gas in electricity generation. And it's pulling all stops to achieve its goal: Last year, India's oil minister Dharmendra Pradhan announced that the country plans to invest a whopping $60 billion in natural gas to increase the share of natural gas in its energy mix from 6.5% currently to 15% by 2030.
And those dollars are beginning to flow into the U.S. shale gas sector.
Last year, state-run PetroNet LNG Ltd signed a memorandum of understanding (MoU) with Houston-based LNG developer Tellurian Inc. for $2.5 billion for rights of up to 5 million tonnes per year of LNG over the lifespan of the project marking the largest investment by an Indian company in U.S. LNG.
The money will go to the Driftwood LNG project for natural gas production, gathering, processing, and transportation facilities, as well as a proposed 27.6 mtpa liquefaction export facility that will be built near Lake Charles, Louisiana, on the U.S. Gulf Coast.
This brings India's total LNG investments in the U.S. to $4 billion to date, with the Asian nation having contracted a total of 9 million metric tonnes per annum of LNG from U.S. shale producers, making it the 6th largest buyer of U.S. LNG.
By Alex Kimani for Oilprice.com
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