Emergency plan to bypass the Strait of Hormuz will be a template for future crude emergencies, says Indian Oil chief

Mint

5 days ago

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NEW DELHI :India's new playbook of having its West Asian oil suppliers on board during the Israel-Iran conflict to bypass the Strait of Hormuz blockade will come into play during future emergencies, said Arvinder Singh Sahney, chairman, Indian Oil Corp. Ltd (IOCL), in an interview.
India's new playbook of having its West Asian oil suppliers on board during the Israel-Iran conflict to bypass the Strait of Hormuz blockade will come into play during future emergencies, said Arvinder Singh Sahney, chairman, Indian Oil Corp. Ltd (IOCL), in an interview.
The national oil companies of Saudi Arabia and the United Arab Emirates (UAE) assured India of uninterrupted supplies through all possible options during the June conflict-led uncertainty in the global oil market, he added.
On 25 June, Mint reported the Centre was activating an emergency strategy to ensure uninterrupted oil supplies. This included a plan to bypass the critical Strait of Hormuz in Iranian waters through two pipelines—Abu Dhabi National Oil Co. (Adnoc)-operated Habshan-Fujairah strategic oil pipeline and Saudi Arabian Oil Co. (Saudi Aramco)-operated East-West crude oil pipeline—and tap into the global reserves and portfolios of Adnoc and Saudi Aramco.
India also explored options to increase supplies from other countries and regions, including Russia, Brazil, Latin America, Canada, and the US.
The new manual is of immense significance to India, given that West Asian supplies comprise nearly 40% of its oil imports.
Sahney said during the 10-day Israel-Iran conflict, not a single cargo was delayed, deferred or cancelled. And, the way India and the oil marketing companies (OMCs) navigated the conflict, the IOCL was now confident of navigating any exigency to meet India's growing energy demand.
On shrinking discounts on Russian oil, he said the fall in discounts comes amid the decline in international oil prices.
In the interview, he also discussed IOCL's green-energy expansion plans, saying the company would consider acquisitions, albeit smaller ones. Given that the world has gone through an interesting episode of late with the conflict in West Asia, how well prepared is India and also Indian Oil?
Actually, whatever happened reaffirmed our belief in ourselves as IOCL and India as a whole that we can manage the situation. If this had resulted in blockages on the strait, it could have had some impact, but at the same time, I will say that we were fully prepared for it.
Today, approximately 40% of India's crude needs are being met from the Middle East (West Asia), which could have been impacted to a certain extent. At the same time, I can confidently say to myself and to customers that we have a very diversified crude basket today.
We have another 20-25 countries, which are supplying to us. Russia is there, West African countries are there, Latin American countries are there, Mexico is there, Brazil is there. The US itself is there, and then Canada is there. So, there are so many other sources, and we had alerted, or we had started talking, or we are already in talks with most of these other suppliers, and they were ready to step up. They were ready to supply crude to us at a very short notice, if at all, the situation arose. Also Read | Indian Oil draws up green hydrogen fuel retail network plan
But we were very comfortable, and it gave a lot of confidence to us also... and I should mention the leadership of our ministry of petroleum and natural gas, especially the special mention goes to the cabinet minister, Hardeep Singh Puri. Under his leadership, the whole OMC group, the whole oil and gas sector, was fully geared up, keeping a very close watch on the situation. Almost every day, we had briefings with him, and we had a consolidated approach. But luckily, the conflict subsided. What we could garner was that a plan B was already ready. The strategy involved two pipelines—the Aramco-led pipeline and the Adnoc-led pipeline—giving you access to the Gulf of Oman and the Red Sea. It also involved global reserves, be it in South Korea or Japan, of Adnoc and Aramco. So, even if their production or supply got impacted, they could have supplied you with oil from their reserves. Now, these are strategic pipelines, and the respective governments need to allow the crude to pass to a specific customer. How were you able to do this?
I must say you are extraordinarily informed about these things because we have not discussed these things in public as of now. I am not saying you are saying, but most of it makes sense. But, I should say we have a company-to-company relationship, and those have come good, and we have gained confidence. We got promises from these companies that they will do whatever is required to be done. I will not mention in those many words that you are saying that from here, or from there, or those things, but they gave us confidence that they will also be pitching in, and we had another plan also for increasing the inputs from other sources, other than the Middle East.
Most of it was company-to-company. Prime Minister Narendra Modi is in Brazil as part of his five-nation tour. How important is Brazil to our strategy?
Brazil is a brotherly country, I will say. It's very close to us economically and in the process of growth. They are also part of Brics (an intergovernmental organization comprising ten countries: Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran, and the UAE). And there, we have a very close relationship with them, and we have a lot of things to learn from Brazil.
Not only in fossil fuel, considering it is one of the 40 countries that will be giving us an alternative source of fuel. But what we are learning from them is the strides that they have made in the biofuel industry, how they have converted their strength in agriculture into replacing it with their dependence on imported oil. That is what we are following. I should not be shy about saying that we are following their pathway. The 20% ethanol blending in MS (motor spirit or petrol). We are following in their footsteps. And then, they are already at 27%, and now they have given a mandate to go up to 34%. So, we are learning from their institutions.
We are learning from their intelligentsia. How they are doing it, what possible approaches they are taking, and those things are helping us. And today, they are leaders. They are the leaders using bio-energy as a replacement for fossil fuel. That helps in transition, net zero, and reducing the dependence of a country like us and Brazil on imported oil. Also, just to take you back to West Asia, will this plan B, which was put in place, be the template to be followed in the case of any such exigency happening in the future?
More or less, yes, because in normal conditions, we are very close to our West Asian friends. We are not going to en masse change something. In a normal condition, we will continue to source most of our energy from West Asia. That continues to be the template, and at the same time, we have already diversified our sources, so that will continue.
They are the natural suppliers of energy to us. And they have been with us through thick and thin for the last 40-50 years. Our supply from Russia, which was less than 2%, has gone up to 37%, and it keeps on fluctuating depending on what kind of discount they give us. There are two parts to this question. One part is obviously that during a crisis like this, supplies get taken care of. Then comes the question of pricing. The discounts that the Russians were giving us have come down. Also, why are we not getting any long-term supplies from Russia?
Earlier, we had a long-term deal with them. Now, some of other Indian refiners have those long-term deals with them. So there's a limited amount of crude for which they have done a long-term deal with somebody else. Then, it is obviously not possible... Do we have long-term deals with Russia today?
Some of them. From the grapevine, I can say that... What about Indian Oil?
No, Indian Oil doesn't have. Have talks with Rosneft—a Russian state-run oil and gas company—resumed for a long-term contract?
In this crude business, there is no stoppage or starting of dialogue because we are constantly in touch with all of them. We are in touch with all of them, and they are in touch with us because it is a constantly evolving business. Where else will you sell, and where else will we source from? It is a good relationship between suppliers and buyers, and it continues. So, regarding Russian crude oil discounts coming down, how do you deal with that?
It's a natural thing to happen. Because the international prices have also come down. Brent itself has come down, so they have to allow them to follow their own price gaps and those price gaps in the international market, if there is a huge difference, then there can be a potential for discounts. If those two gaps come down, then naturally the discount comes down. The split between long-term and spot used to be 70 to 30. Today, 60 is long-term, and 40 is spot. Do you think the long-term split will come down further? Will it be an equal split between long-term and spot?
Opportunities are immense, and the appetite is limited for risk. So long-term and short-term are very dynamic kinds of things that are going to happen. Each company will have its own different strategy, even amongst our OMCs, we have different strategies and let alone the private sector. All of them have their own strategies, whether they get a good deal in the long term, whether they are not getting a good deal in the long term in that particular year, that all depends on what is good commercially. Also Read | India eyes storing its oil in Japan, South Korea, Singapore
How I can source, how I can use my intelligence, my market knowledge, and my opportunistic stance at that point in time will dictate how much long-term I can secure and how much I have to go for spot. This is all driven by commercial (interest). Currently, some insurance contracts do not include war in their force majeure provision. After this recent conflict, do you think the insurance contracts will start reflecting this?
I don't think so. This was a blip that has happened. I don't think that every day this war is going to erupt, and this is not going to change how things have operated for so many decades. I don't think so. I am a personal believer that the status quo will be restored, and anyway, we were not at all affected that much, I can ensure that during these whole 10 days, not a single cargo was delayed, deferred, cancelled or anything. Nothing of that sort happened. Everything went smoothly. They also want business to happen, not be affected by war. We also want businesses not to be affected by war. And that is what we have learned from these standards that if we have reached this condition without any disturbance, then I think we can manage the situation in the future also, with this kind of situation. How steep was the learning curve, both for Indian Oil and the country's oil and gas industry?
As an organization and for India, this was taken care of because we have very mature, learned, and experienced people in the ministry and in our OMCs. But personally, yes, it was a good learning curve. And yes, there were some butterflies in the stomach, but it all came good. It gives confidence, and now I can give confidence to customers that we are in good shape. With hopes of India-US energy trade reaching $20 billion as talks on the bilateral trade agreement are underway, should we expect more long-term deals, both in terms of crude and LNG?
Long-term deal... I am not very sure as of now, but the spot cargoes keep coming. They have already been coming. If they are competitive, more numbers will come here, and because of these situations that are going around in the tariff war and these things, whatever energy was getting transferred from the US to China, if that needs a different home, or needs a different market, then India is an obvious choice. So, if they want to come here on a competitive basis, if they want to give us better deals than what we have on our plate, we are willing to do that. You have a long-standing relationship with Rosneft. Will you be interested in taking over their stake in Nayara? Has that offer come to you?
No. It's an open offer; it's in the market... I am totally not interested. So, we have not inquired about it. You have a play in the green hydrogen space as well. There are several companies now looking to have a presence further down the line in the green hydrogen space. What kind of competition do they present to you?
It's okay. This play has to come, and with India's energy needs, you are aware that in the next 15 years, we are going to at least double our energy requirements. We are at around 800-900 million tonnes of oil equivalent today, and that is going to be at least 1,800 to 1,900 million tonnes of oil equivalent going further into 2040-45.
So, if energy is doubling by itself, then it is enough for everyone. In India, it is not going to be either, or it is not going to be replaced by something if a new form of energy comes in and starts developing. It doesn't mean that it is going to hurt my oil and gas sector, or if some renewable energy or hydrogen comes, it is not going to hurt us. The cohort that you belong to, like the ONGCs and NTPCs of the world, has made acquisitions in renewable energy space. Is that something that you will be looking at?
Yes, we will also. We are also on the lookout, and we will be going forward. We will not go for big; we will go for smaller ones. With Trump's decision of pulling out of the Paris Agreement and focus on fossil fuels, there are several large consulting firms that have absolutely shut down the ESG (environmental, social, and governance) consulting practices in Europe and elsewhere. Does that take away our focus from ESG?
When you talk of the US, particularly, or countries, which are, I'll say, not the US, but I'll bracket them into countries that are rich in natural resources in terms of fossil fuel, in terms of oil and gas. So they had a choice of converting their energy sources from fossil fuels to sustainable ones for the cleaning of the environment, or for addressing climate change, or those things. So that focus a government can come and change, and the government can come and again reinforce this. That is a choice that they have, but for us, it is not a choice. For us it is an imperative, for us it is a window of opportunity that we have that today when we are funding $130 billion per year for importing the crude oil, then this is a great opportunity that has come to us in form of the renewables in form of the bio-developments in form of green hydrogen, in form of all kinds of renewable and sustainable energy sources. These are going to reduce my dependence on imported oil. Nuclear power is a major focus area now. Indian Oil already has a tie-up with Nuclear Power Corporation of India Ltd, signed in 2011. Several companies are now looking to enter this space. What will be your play in the nuclear and SMR (small modular reactors) space? Did you participate in the request for proposal (RFP) process floated by NPCIL?
We have not participated in the RFP process, but we are looking into it in a renewed manner…It was 10 years ago when we tied up with NPCIL. But now there is a renewed energy to it... These are Bharat SMRs, (with) 220MW (capacity). This is a decent play. People will get into it, and we are also seriously looking into either these ones or the bigger ones... We are looking at both. Because our refineries typically consume that much of the amount given in one of the BSRs. Our bigger refineries are captive consumers for that much amount. So, that is there, but we are looking at both options. We are looking at these ones also, and we are looking at the bigger ones. Topics You May Be Interested In