By Selina Williams and Summer Said
Russia is opening a new front in its battle for a bigger share
of the global oil market: India.
Later this year, Russian state-controlled oil giant OAO Rosneft
plans to start sending its first regular deliveries of crude to
India's second largest oil refinery. That follows Rosneft's
decision to buy a big stake in India's Essar Oil, which owns the
refinery and a network of around 2,000 gas stations. The purchase
is set to be completed this year.
The deal gives Russia a small, but strategic, beachhead in what
is becoming one of the most important crude-oil markets in the
world. Saudi Arabia currently dominates the India market, supplying
about a fifth of India's imports, according to data from
consultancy FGE. But the kingdom faces growing competition from
Russia and Iran as they and other big producers, including Iraq and
Kuwait, duke it out for customers amid today's low prices.
The world's biggest oil producers have jostled to out-pump and
underprice each other to lure customers in markets around the
world. The competition has contributed to a dramatic drop in the
price of crude over nearly two years, triggered in part by rising
U.S. output.
In past periods of oversupply, the Organization of the Petroleum
Exporting Countries, a cartel that pumps a bit more than one in
three barrels produced each day around the world, stepped in to
throttle back output to buoy prices.
But in late 2014, OPEC said it wouldn't do that because it would
risk losing market share, as Russia and others continued to pump
flat out. OPEC and Russian officials are planning to meet Sunday in
Qatar to discuss a detente: a proposed freeze in production that
might help bolster prices.
No matter what happens in Qatar, India is set to rival China as
one of the world's biggest consumers of oil.
The country, which relies on imports for about three quarters of
its oil demand, is the world's third largest energy consumer,
behind China and the U.S. It imports about four million barrels of
crude a day.
India's consumption looks set to rise relatively fast.
While U.S. and European energy demand is set to stagnate or
fall, and as China shifts away from energy-intensive, heavy
manufacturing to a more consumer-focused economy, oil demand in
India is expected to grow 4.2% a year over the next five years.
That contrasts with only 3.4% growth in China.
By 2040, the International Energy Agency says that India's oil
imports could nearly double to around 7.2 million barrels a day,
spurred by a growing population and a modernizing economy.
"Everybody is trying to get a big stake in India--it is the
biggest growing market in Asia," said Amrita Sen, chief oil analyst
at London-based consultancy Energy Aspects.
Rosneft's deal to supply Essar would translate into a roughly 5%
share of import, putting it about on par with Iran, another big,
long-term India supplier.
The Russian oil company's boss, Igor Sechin, has said the deals
between Rosneft and Essar, along with recent stake sales in its
prized east Siberian oil fields to Indian companies, were
"strategic" agreements that give the Russian company access to the
Indian market and build a bridge between the two countries.
"China's role has diminished but the share of India, other Asian
countries and Africa are gradually growing," Mr. Sechin told oil
executives in a speech in London in February.
Russia has pushed hard into China, too, at the expense of Saudi
Arabia, and it is also gaining market share in South Korea and
Japan, according to FGE. Saudi Arabia, on the other hand has tried
to replace Russian crude in some European markets, though it is had
little success so far.
Executives of state-controlled Saudi oil company Saudi Arabian
Oil Co., better known as Saudi Aramco, are responding with a charm
offensive in India.
Aramco plans to open an office in India this year. Aramco
executives have also started talking to key buyers there before
issuing monthly prices for the crude they will be taking, according
a person familiar with the matter.
"Aramco is changing its attitude toward its customers," this
person said.
"Before it was a take it or leave it attitude, but now Aramco
wants to be closer to its buyers." Aramco is also looking into
investing in a new refinery in India, this person said.
Representatives of Aramco and the Saudi oil ministry didn't return
requests for comment.
Other players are eyeing expansion in India. In October, Ali
Kardor, the head of investments at the National Iranian Oil Co.,
said the state oil company was in early talks to buy a stake in an
Indian refinery of its own.
"India is the market the world is looking at in the future,"
said Dharmendra Pradhan, India's minister of state for petroleum
and natural gas, in an interview last month.
--Vibhuti Agarwal and Benoit Faucon contributed to this
article.
Write to Selina Williams at selina.williams@wsj.com and Summer
Said at summer.said@wsj.com
(END) Dow Jones Newswires
April 15, 2016 04:13 ET (08:13 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.