Next stop Guyana: India takes its oil diplomacy far and wide

Indian Prime Minister Narendra Modi's maiden visit to Guyana has bolstered expectations that the country's refiners are moving closer to signing long-term crude oil import deals with the relatively new South American supplier, as New Delhi intensifies its efforts to diversify its supply sources.

Government officials, refining sources and analysts told S&P Global Commodity Insights that the bilateral talks between the two countries -- concluded recently -- have opened the possibility for India to expand its crude oil purchases from Guyana, which supplied a couple of trial crude cargoes to Indian refiners in 2021.

"We would like to have long-term contracts -- government-to-government commitments -- that would bring greater predictability in supplies," said an Indian foreign ministry official. "The volume of the term contracts will have to be decided by the Guyanese government, as well as the timing -- when they are comfortable in offering volumes under term contracts."

Modi, who visited Guyana from Nov. 19 to Nov. 21, said there was immense potential for strengthening ties in energy and other areas, such as trade, fintech and agriculture.

Guyana's engagement with India has been limited since it began crude production in late 2019.

The initial significant steps toward establishing a trading relationship were taken in 2021 when HPCL-Mittal Energy Ltd. and Indian Oil Corp. each purchased 1 million barrels of Liza crude, a medium, low-sulfur oil. However, following these initial "trial cargoes," trade between the two countries did not advance, even though India continued its search for a reliable long-term crude supplier to bolster its energy security.

Challenges ahead

Analysts and industry sources said strong competition from European buyers for crude oil cargoes from Guyana, along with the flexibility and willingness of Indian refiners, who are largely accustomed to sour and heavier crudes -- to import sweeter crudes from Guyana, will be significant factors when the two sides negotiate long-term contracts.

"Despite production advancements and strengthening of the bilateral relationship, challenges persist for Guyanese crude in the Indian market," said Abhishek Ranjan, South Asia oil research lead at Commodity Insights. "Currently, Europe holds a significant share of Guyana's crude exports, while Russia has established itself as a key supplier to India."

Moreover, Indian refineries are equipped with sufficient hydrotreating capacity to process more sour crude, making the sweeter Liza crude from Guyana a less obvious choice, said Ranjan. "Consequently, for Guyana to secure a long-term crude oil supply contract with India, it will need to offer terms as 'sweet' as its crude."

The differential for Guyana's Liza crude against Dated Brent fell to its widest discount since December 2023 on Nov. 21, with industry sources attributing the decline to weakening European demand and increased competition from Brazilian and North Sea grades.

Platts, part of Commodity Insights, assessed Liza crude at a discount of $1.80/b to the 30-60 day forward Latin American Dated Brent strip, down 35 cents on the day, based on a trade at that level during the Platts Market on Close assessment process. On Nov. 22, the crude's discount was unchanged at $1.80/b.

"Indian refiners are surely open to testing out more and more cargoes from Guyana. The logistics have to work. And so does the price," said an Indian refining source. "If we can get uninterrupted flows from Guyana, that should be good news for us," considering geopolitical tensions.

India's share of crude imports from the Middle East fell to 45% over January-October, with volumes reaching 2.2 million b/d, compared with 59% in 2021, when the volumes amounted to 2.5 million b/d, according to CAS.

Indian refiners snapping up discounted Russian barrels since the start of the Russia-Ukraine war in 2022 has been a key factor in the reduction in the Middle East's market share, with the biggest non-OPEC supplier now claiming the top spot among India's crude oil suppliers.

Upstream developments

The dynamics of India's energy ties started shifting in January when it signed a five-year initial agreement with Guyana. Under this agreement, Indian companies agreed to participate in the exploration and production of crude oil in the South American country.

As part of the deal, ONGC Videsh, the overseas arm of India's state-owned Oil and Natural Gas Corp., has tabled bids for several oil blocks offshore Guyana.

This collaboration in the upstream segment between India and Guyana is significant, considering Guyana's substantial reserves of 12 billion barrels of recoverable oil equivalent resources. According to Commodity Insights, Guyana's crude oil production could reach 1 million b/d by the end of 2026.

"Guyana has proven and estimated oil and gas reserves, which are very promising," the Indian foreign ministry official said. "We would be interested in participating in the exploration and production phase."

"Our oil companies are certainly looking at this. And if they do get an opportunity, they would be willing to invest, as we have invested in many countries of the world far from the shores of India -- that is in the segment of offshore oil concessions," the official said.