India, Russia initiate talks for long-term oil supply
India and Russia have begun negotiations on an agreement for long-term assured supplies of crude oil, especially from Russia’s Far East region, as New Delhi looks to diversify its energy sources and do away with over-dependence on the Middle East, people familiar with developments said.
The negotiations are being handled by Rosneft, the largest global public oil and gas corporation, and by India’s petroleum ministry. The two sides are also eyeing an agreement on liquefied natural gas (LNG) supplies from Russia after the agreement on crude oil is concluded, said people on both sides familiar with the negotiations.
“The talks have focused on long-term assured supplies of oil that will not be affected by developments in other parts of the world, such as West Asia,” said a person who declined to be identified.
A second person said on condition of anonymity that the Indian government is working on an easier and economical sea transport route from Russia to India. “Transportation of energy [from Russia] is one of the key concerns, but we are working on a solution,” the person said.
The Russian side, the people said, is looking at tapping reserves in its Far East region, which stretches from Siberia to the Pacific Ocean and is estimated to have 10 to 14 billion tonnes of oil and 14 to 15 trillion cubic meters of gas.
The negotiations on oil and gas supplies are part of the five-year roadmap for cooperation in the hydrocarbons sector that was signed during Prime Minister Narendra Modi’s visit to Vladivostok last September for the Eastern Economic Forum and the annual summit with Russian President Vladimir Putin.
Russian gas producer Novatek also signed an agreement with Indian energy firm Petronet LNG Ltd (PLL) for LNG supply and joint development of downstream LNG business.
A joint statement issued after the Modi-Putin summit said the two sides would cooperate in geological exploration and joint development of oil and gas fields in Russia and India, and develop ways of delivering Russian energy resources to India, “including a long-term agreement for sourcing Russian crude oil”.
The second person said, India imports more than 80% of the crude it processes. It imports almost half of its crude oil requirements from the Gulf region, which is prone to disruptions because of geo-political reasons. “This often threatens our energy security, both in terms of price and supply volatilities. Energy import from Russia is, therefore, a reliable alternative,” the person said.
Though India has a refining capacity of 249.4 MT, annual capacity utilisation has been often more than 100%. In 2018-19 domestic refiners processed 257.2 MT of crude in 2018-19. Out of that more than 88% (226.5 MT) was imported crude, and more than 63% of that (142.9 MT) came from the Middle East.
“India is looking for reliable and economical alternatives; especially after the US embargo against Iran that has now reduced Iranian crude import to almost zero. Russia could be one such alternative,” the person said.
Oil and gas imports have figured in petroleum and natural gas minister Dharmendra Pradhan’s meetings and visits to Russia since last year. During a visit to Russia last August, Pradhan met top Rosneft officials and energy minister Alexander Novak and discussed collaboration in oil and gas. He also welcomed Rosneft’s proposal for new investments in refining and petrochemical operations.
The two ministers also met more than 20 CEOs and representatives of Indian and Russian oil and gas companies and discussed Indian investments in energy assets in Russia, and Russian investments in new initiatives to make India a gas-based economy, including use of natural gas in transportation.
During Rosenoft CEO Igor Sechin’s visit to New Delhi last September, an Indian consortium of Bharat PetroResources, Indian Oil Corp, ONGC Videsh Ltd and Oil India Ltd and the Russian behemoth signed a “non-binding cooperation agreement” on the Indian firms taking stakes in oilfields in Russia’s Far East.
During another visit by Pradhan to Russia last October, he met Sergey Tyrtsev, first deputy minister for development of the Far East and Arctic, and discussed energy cooperation. Pradhan also met deputy prime minister and presidential envoy for the Far East, Yury Trutnev, and discussed the sourcing of crude oil and potential Indian investments in the oil and gas sectors.
RS Sharma, former chairman and managing director of Oil and Natural Gas Corporation (ONGC), said transportation of crude and LNG from Russia has to be cost effective to make commercial sense. “India must explore long-term, reliable and cost effective options. Russia has potential,” he said.