New vistas in India-US relationship

18/08/2017

The first shipment of American crude oil is likely to reach India in the last week of September, opening new vistas in the Indo-US ties. With this India, the world's third-largest oil importer, joins Asian countries like South Korea, Japan and China to buy American crude after production cuts by OPEC drove up prices of Middle East heavy-sour crude, or grades with a high sulphur content. The first lot of two million barrels costs USD 100 million, but given the volume being contemplated by Indian companies, this new development is expected to boost the bilateral oil trade to USD 2 billion. While the 40-year-old ban on export of American oil was lifted by the then US President Barack Obama in December 2015, the real move started during the maiden meeting between Prime Minister NarendraModi and US President Donald Trump on June 26 when the two leaders agreed to deepen the engagement in the energy sector. Soon thereafter, Indian companies started purchasing crude from the US. Two Indian oil giants, Indian Oil Corporation and Bharat Petroleum, placed orders for over four million barrels. The development was welcomed by Trump in his phone call with Modi.
During the Prime Minister's June visit to the White House, President Trump and Prime Minister Modi committed to a comprehensive review of their trade relations with the goal of creating a fair and reciprocal trading relationship and removing obstacles to growth and jobs creation, including in the energy sector. The Indian Oil Corporation Ltd placed its first order in July and the second order on August 10. Bharat Petroleum Corp made its first purchase of US oil, buying high Sulphur crudes Mars and Poseidon. BPCL has bought a cargo containing 500,000 barrels each of Mars and Poseidon for delivery from September 26 to October 10. Hindustan Petroleum Corp Ltd (HPCL) is also looking at buying US crude oil. Even after including the shipping cost, buying US crude is cost competitive to Indian refiners. Over the next 20 years, India's energy consumption growth is projected to be the fastest among all major economies. And by 2035, China and India will have the largest share of global demand (35 per cent). While this is the first crude oil import from the US, Indian companies have made significant investment in purchasing energy assets in the United States. Four Indian public and private sector companies have invested approximately USD 5 billion in shale assets in the US. Indian companies have also contracted 9 MMTPA of LNG from the US and the first shipment is expected in Jan 2018. Of this, GAIL has contracted 5.8 MMT per annum, including 3.5 MMTPA of LNG from Sabine Pass Liquefaction terminal (Louisiana) and 2.3 MMTPA from Cove Point LNG liquefaction project (Maryland).

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