INTERVIEW: India's twin focus on Middle East, Russian oil will soften Red Sea crisis impact - FIPI chief

India is unlikely to see a major disruption to oil flows despite the escalating crisis in the Red Sea region as its twin strategy of boosting purchases from the Middle East, while keeping Russian imports largely unchanged, will help to tide it over the turbulent situation, the head of the Federation of Indian Petroleum Industry told S&P Global Commodity Insights.

Speaking on the sidelines of the India Energy Week conference in Goa, FIPI's Director General Gurmeet Singh said the global oil market feared supply diversions and higher shipping costs, but the Indian government has been monitoring developments and was confident of navigating through the issue to ensure uninterrupted flow of oil supplies to its refiners.

"Despite the recent Red Sea crisis escalating fears over supply diversions and higher shipping costs, it is unlikely to disrupt delivery of energy supplies to India," Singh said in an interview.

"India's crude oil imports sourced from Iraq, Saudi Arabia, the UAE and Kuwait have their supply routes unaffected by utilizing unobstructed passages through the Persian Gulf. In the case of Russia, India's demand for Russian crude remains resilient despite Red Sea threats," he added.

More shippers are avoiding the Red Sea and Bab al-Mandab Strait after a US-led coalition struck Iran-backed Houthi militants in northern Yemen, raising fears of further escalation which would impact key seaborne trade routes. Any new insurance issued for Red Sea routes could add about $1/b or more to voyage costs, according to S&P Global Commodity Insights data.

A different oil flow map

Singh said that prior to the Russia-Ukraine conflict, more than 60% of the Indian crude basket was made up of Middle Eastern crudes, with the remainder made up of North American crudes at around 14%, West African crudes at around 12%, and Latin American crudes at 5%, with Russian grades accounting for only about 2%.

While the African crude share in India has almost halved since the Ukraine conflict started, the share of Middle Eastern crudes had also been affected.

"Heavy discounts on Russian crudes have increased their share in India's crude basket. However, unless the deep discounts continue, their viability for Indian refineries is not going to be there. It can be reasonably expected that India's oil imports from Russia would continue to rise if their crude oil is available at economically viable discounts," Singh said.

Russia contributed over 35% of India's total crude imports in 2023, amounting to 1.7 million b/d, according to S&P Global data.

Singh, quoting OPEC data, said India's oil demand is expected to reach 5.59 million b/d in 2024, compared with 5.37 million b/d in 2023. The potential increase in demand will be mainly due to robust economic growth along with increased mobility and steady demand for distillates in manufacturing and construction.

Consumption of petroleum products during April-December 2023 was 170.62 million mt, a growth of 3.7 % compared with 164 million mt during the same period of the previous year. This growth was led by a 5.7% increase in gasoline, a 4.5% rise in diesel and 12.3% jump in aviation turbine fuel, Singh said.

"Demand for oil and gas products in India is supported by the healthy economic growth of 6.5% and easing of trade-related bottlenecks supporting both mobility and industrial sector activity," he added.

Refining growth to continue

Singh said that India emerged as a global refining hub, with an annual refining capacity of 253.9 million mt, which is the fourth largest in the world after the US, China, and Russia. India plans to almost double its oil refining capacity to 450 million-500 million mt in the next 10 years to meet rising domestic fuel demand as well as cater to the export market.

But Indian refiners, which are traditionally geared towards maximizing output of gasoil and gasoline, are increasingly widening their product slate by improving efficiency and installing petrochemical production units. The wide variety of end uses for petrochemical products such as technology, medical, packaging, automotive and construction will support robust growth in different scenarios.

"Also, hit hard by soaring oil prices, refiners have been aggressively looking for diversification towards clean energy projects. Energy players are looking to retain their profitable core, while also capturing some of the clean source of opportunities emerging in low-carbon markets, including renewable power, bioenergy, next-generation mobility, energy services, and hydrogen," Singh said.

Many companies were redrawing viable business models for sustained growth. They have been looking to strengthen their petrochemicals, renewables, alternative fuels, hydrogen as well as working in areas of refinery efficiency improvement which will help them de-risk from the effects of volatile global oil markets.

"While oil and gas will continue to play a significant role in India's energy mix, the share of new and alternate energy sources such as renewables will continue to rise," Singh said.