India's move to expand oil ties with Guyana reflects diversification push

India is aiming to strengthen its oil ties with Guyana, both in the upstream and downstream segments -- a move that would not only help diversify its crude import basket at a time of escalating geopolitical tensions but also boost its global upstream presence.

Government officials in New Delhi said that the country's refiners would be exploring crude import deals with Guyana over the next five years and beyond, while also looking for opportunities to take stake in Guyana's upstream sector.

"In its quest to diversify supply and acquire crude at discounted prices to improve gross refinery margins, India is exploring opportunities with Guyana," said Sumit Ritolia, refinery economics analyst at S&P Global Commodity Insights.

According to Ritolia, Guyana offers mainly three grades of crude oil: Liza, with API of 32 and sulfur content of 0.6; Unity Gold, with API of 33.5 and sulfur 0.42; and Payara Gold, with API of 28 and sulfur of 0.58. "Indian refiners possess the technical capabilities to process these grades efficiently," he said.

Currently, India imports nearly 85%-90% of its crude oil, and the deal with Guyana would help secure supplies, he added.

"The collaboration between India and Guyana is mutually beneficial. India is positioned as the leading growth sector for oil and gas consumption in the next 5-10 years. With India's ambitious plans to expand its refinery capacity, aiming for 6.2 million b/d by 2028 through both brownfield and greenfield expansions, Guyana stands to gain from this increased demand," Ritolia said.

Five-year initial agreement

In January, the union cabinet approved the signing of an agreement between India's petroleum ministry and Guyana's ministry of natural resources to enhance cooperation in the hydrocarbon sector.

The proposed agreement will cover the complete value chain of hydrocarbon sector, including sourcing of crude oil from Guyana, participation of Indian companies in the E&P sector of Guyana, as well as cooperation in the areas of crude oil refining and capacity building.

"This dilutes dependencies on a single geographical and economic unit and increases India's strategic maneuverability," the Indian government said in a recent statement.

The agreement will remain in force for a period of five years and shall be automatically renewed thereafter unless either side gives the other side a written notice three months in advance of its intention to terminate the agreement, the statement added.

Guyana has gained significant importance in the oil and gas sector by becoming the world's newest oil producer. The new discoveries of 11.2 billion barrels of oil equivalent, amounts to 18% of total global oil and gas discoveries and 32% of discovered oil.

As per OPEC World Oil Outlook 2022, Guyana is projected to see a significant ramp-up in production, with liquids supply growing to 0.9 million b/d in 2027 from 0.1 million b/d in 2021.

"With some of the most prolific discoveries in recent years, Guyana presents a great opportunity for diversification of crude sources, and offers a great upstream investment opportunity at the same time," said Tushar Bansal, senior director at consultancy EY Parthenon, based in Munich.

"The existing projects such as Liza and Payara Gold are being brought to successful commercial production by ExxonMobil, which demonstrates the positive investment climate in Guyana," he added.

An Indian government official said that domestic companies could also explore picking up a 20% stake from ExxonMobil in the Stabroek offshore oil block in Guyana. "The tie-up will open up opportunities for Indian companies to tap potentials in both upstream and downstream sectors in Guyana."

Diversification spree

The renewed momentum in Guyana's oil and gas sector has given India the opportunity to boost oil and gas ties, the government statement noted.

"We believe this is a step in the right direction, given ongoing geo-political issues and a long-term positive development for meeting India's energy demand," said Sumit Pokharna, vice president at Kotak Securities Ltd.

India's crude imports rose 2.4% on the year to 233.38 million mt, or 4.7 million b/d, the latest provisional data from the country's Petroleum Planning and Analysis Cell showed.

Russia emerged as the biggest crude supplier to India in 2023, a trend likely to remain intact in early 2024 despite the recent Red Sea attacks causing diversions and higher shipping costs, according to S&P Global. Russia contributed over 35% of India's total crude imports in 2023, amounting to 1.7 million b/d, S&P Global data showed.

As demand rises, India has been scouting for alternative crude sources amid geopolitical tensions in Europe and the Middle East.

Indian state-owned refiners have also started negotiations to lift robust volumes of Venezuelan crude in coming months, joining the country's private refiners who have already snapped up multiple cargoes since the sanctions were lifted in October 2023.

"The 2023 saw Russia becoming India's largest crude supplier, as well as the resumption of Venezuelan crude imports. 2024 may well see further diversification with Import volumes from Guyana adding to the country's crude mix," said Rajat Kapoor, managing director for oil and gas at Synergy Consulting.