16 May 2016 06:17:08 IST

India using buying power to beat down crude oil prices

It’s become a consumer market and a nation must leverage this: Oil Minister Pradhan

As one of the world’s top importers of crude oil, India is moving to leverage its buying clout and re-doing deals to take full advantage of the shift in the global oil demand-supply situation.

The country has done this successfully with Liquefied Natural Gas. Petronet LNG Limited has signed a revised contract with RasGas for its 7.5-million-tonne per annum (mtpa) long-term supply agreement. The new price for the contract, effective January 1, 2016, is less than half of what RasGas was charging in 2015.

In 2015, RasGas was selling LNG at over $12/unit (gas is measured in million British thermal units). New Delhi has, with some political intervention, re-negotiated the price to less than $5 a unit, based on prevailing crude rates. Further, Petronet has also signed an agreement for additional supply of 1 mtpa of LNG from RasGas for 12 years from January 1, 2016, at the prevailing market price.

Consumer market

Speaking to BusinessLine , Dharmendra Pradhan, Minister of State (Independent Charge), Ministry of Petroleum and Natural Gas, was emphatic that “India needs to leverage the new scenario. This is a consumer market. There is a massive change in the world oil economy.”

“Re-negotiating long-term contracts is not easy. We have already taken full advantage of our long-term contract in both price and supply terms. But with the changed global dynamics, we also needed to revisit our contract to ensure that it is win-win for both parties,” he said.

The Minister offered two more examples. “Post sanctions, we did a combined bargaining with Iran. We got good terms. In Nigeria, we negotiated a term contract for the first time. Earlier, we would get only spot purchases from there.”

Hard bargaining

“With some nations, we have renegotiated terms. We have reduced the deciding period for spot purchases. By doing this, we have already started saving. When the Saudi Crown Prince says his country should look beyond oil, it is a big thing. We should leverage this new scenario without compromising our historic relations,” Pradhan said.

The government has also allowed public sector oil marketing companies to work out their own crude sourcing mechanism by re-doing the policy for imports. This will provide a more efficient and flexible policy for crude procurement, eventually benefiting consumers.

Policy revamp

Pradhan said “the objective of the oil marketing companies is to earn more profit so that the product price is reduced for customers. To do that they are free to devise their own mechanism.”

To ensure transparency and that there are no leakages, the policy being evolved by the PSUs has to be consistent with the Central Vigilance Commission guidelines and be approved by their boards.