A sharp fall in global crude oil demand caused by the Covid-19 pandemic may fuel further cooperation between India and China, the world’s third and second-largest oil importers respectively.
Chinese oil giants are keen to offload their share of so-called equity oil to Indian refiners as the viral outbreak has squeezed demand in their home market, said two people with knowledge of the developments.
The development assumes significance as state-run China National Petroleum Corp.’s (CNPC) overseas equity oil and gas production is expected to touch 100 million tonnes by 2020. It also comes in the backdrop of India and China pitted in a geopolitical race in recent years to sew up as much of the world’s natural resources and energy assets to meet surging needs for their economies. The rivalry of the two countries has also inflated acquisition costs for these assets in regions such as Africa and South America.
The possibility of India purchasing Chinese equity oil was first discussed by China and India during meetings to form a buyers’ bloc to bargain collectively for oil supplies with producers in West Asia. This comes in the latest backdrop of Russia and Saudi Arabia set to flood the global market with cheap oil.
Mint earlier reported that Indian firms are on bargain hunts for diverted cargoes of crude oil and liquefied natural gas (LNG), with Chinese energy firms declaring force majeure to avoid taking delivery of some cargoes.
“If there was something that was available as stressed cargo, we just can’t go to the market and pick that. Suppose it is PetroChina, that is registered with us. Now, they were procuring a lot of cargoes and committed themselves to procure something. They also have their own equity crude, which probably they are unable to consume in China, they may try to sell its,” said Sanjiv Singh, chairman of state-run Indian Oil Corp. Ltd in a recent interview.
Singh and CNPC chairman Wang Yilin were tasked in 2018 by their respective governments to explore a collaboration,which may include joint sourcing of energy supplies, including crude oil.
PetroChina Co. Ltd is a listed arm of state-owned CNPC. IOC is India’s largest refiner and oil marketing company with a majority share in the domestic fuel retail market. It processes 80 million tonnes of crude oil annually and pays around ₹3 trillion to procure the supplies.
“China, India, Korea, Japan—we are the four large importers. So, we are exploring whether there is a possibility of working together? As I said earlier, PetroChina is a large trading company. China has a lot of equity oil overseas. They use their own oil, they trade their own oil,” Singh said.
In line with efforts to establish a buyers’ bloc to bargain collectively for crude purchases, Li Fanrong, former deputy administrator of China’s National Energy Administration, visited New Delhi last year as part of a high-level Chinese delegation to take part in the 6th India-China Strategic Economic Dialogue. Li had visited New Delhi in March last year, following India’s petroleum secretary M.M. Kutty’s visit to Beijing in October 2018.
India is also trying to stitch a wider alliance with Japan and South Korea—the world’s fourth and fifth-largest oil importers respectively. “So, we were exploring opportunities of working together including taking China’s equity oil because you know very well that in spite of whatever we see, we believe that the Asian countries still are affected by the Asian premium although the sellers may not agree to that concept,” Singh said.
News Source: Livemint.