Indian state refiners set to join forces to bolster Venezuelan crude buying

Indian state-owned refiners have 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.

According to analysts, rising interest in Venezuelan crude by Indian companies is setting the stage for increased competition with China, where independent refiners have traditionally been the most active buyers of the South American crude.

Oil ministry officials said state-run ONGC Videsh is awaiting formal dates to lift crude oil from Venezuela to offset dividend dues of $600 million accrued for its investment in an upstream project in the eastern part of the Latin American nation.

OVL, the overseas arm of domestic state-run explorer ONGC, picked up a 40% stake in the San Cristobal Field in Venezuela in 2008. Venezuelan state-owned PDVSA holds the remaining 60% stake in the project. OVL holds the stake in the San Cristobal project via ONGC Nile Ganga (San Cristobal) BV, a wholly-owned local subsidiary.

"Venezuelan authorities have agreed to give crude oil to India against OVL's accrued dividend," said an oil ministry official.

In 2017-18 (April-March), Venezuela owed OVL around $441 million in equity oil payments. The total dues to OVL included components, such as interest payments.

"We are awaiting the dates to lift crude cargoes from Venezuela," Pankaj Jain, India's petroleum secretary, said recently.

Officials said refiners like IOC's Paradip refinery and Reliance have specially designed capability to process heavy sulfur grades of Latin American origin. As a result, some India refiners have started contracting Venezuelan crude for delivery in the Jan-March quarter.

Pre-sanctions era

India was an active buyer of Venezuelan crude until the US sanctions were imposed. However, China's independent refiners have continued to buy those crudes even during the sanctions era.

In late-October last year, the US Department of the Treasury eased oil, trade and financial sanctions on Venezuela for a six-month period, which could be renewed if the Nicolás Maduro government follows through on its political and electoral commitments.

Analysts and sources said Venezuelan supply to Indian refiners is increasing with appealing refining economics, with some refiners having already secured crude from there for processing at end-January and in February.

"To accommodate Venezuelan grades, refiners may need to substitute crude from their existing sources, potentially opting for lower-margin options, especially sour grades from the Middle East, the US, and other Latin American regions," said Sumit Ritolia, refinery economics analyst at S&P Global Commodity Insights.

"With Venezuelan crude available in the market and some Indian refiners expressing interest in purchasing discounted Venezuelan crude to diversify their imports and capitalize on refining margins at the expense of some sour Middle Eastern grades, India's crude import strategy is at a crucial and intriguing phase," he added.

According to S&P Global Commodities at Sea, a VLCC from Venezuela is set to reach Sikka port, while a Suezmax is expected to arrive from the same origin at Paradip port in early February.

"Indian refiners, including private and state-owned, are continuously looking at alternative sources to diversify their feedstock procurement. Venezuelan crude is quite competitive and suitable for most refineries and hence will definitely attract Indian refiners," said Tushar Bansal, senior director at consultancy EY Parthenon, based in Munich.

Crude oil futures edged lower in midmorning Asian trade Jan. 16. At 11:12 am Singapore time (0312 GMT), the ICE March Brent futures contract was down 23 cents/b (0.29%) from the previous close at $77.92/b, while the NYMEX February light sweet crude contract fell 48 cents/b (0.66%) at $72.20/b from the Jan. 12 settlement.

Changing equation

During the years just before the sanctions were imposed, India imported approximately 300,000 b/d of Venezuelan crude grades, with the bulk of the volumes being bought by Reliance Industries. Venezuelan crudes imported by Indian refiners, such as Merey-16 and Hamaca, are typically heavy, with high sulfur and high asphaltene content, producing a higher percentage of residue.

"With discounts decreasing for Russian crude and some payment and shipping related issues emerging, India is exploring imports beyond the traditional Middle East and Russia, making Venezuelan crude an appealing choice for refiners," Ritolia added.

A series of attacks on shipping in the Red Sea has compelled traders and suppliers to explore alternative routes via the Cape of Good Hope. Despite this, India's crude imports from Russia remain unaffected so far.

Russia emerged as the biggest crude supplier to India in 2023, accounting for more than one-third of its imports.

According to S&P Global data, Russia contributed over 35% of India's total crude imports in 2023, amounting to 1.7 million b/d. In December, Indian imports of Russian crude oil averaged 1.43 million b/d, reflecting a decrease of 150,000 b/d compared with November and a significant drop of 620,000 b/d from the peak in May, which marked India's highest monthly imports from Russia.

A recent slowdown in Russian flows in recent months may do little to dent the overall trend, as Indian refiners had got used to many grades of the feedstock from the largest non-OPEC supplier, according to S&P Global.