India Tweaks Import Plan To Avoid Crude Shock.

Oil prices could rocket to $200-$300 a barrel if the world's top crude exporter Saudi Arabia is hit by political unrest, former Saudi oil minister Sheikh Zaki Yamani said on Tuesday. However, state-run refiner-marketers are redrafting their oil import strategy to guard against such a crude shock as ongoing civil unrest keeps several oil-producing countries and transit routes in West Asia and Africa on the boil. The strategy hinges on reducing dependence on West Asia by looking at Russia, Central Asia and South America as alternatives, hiring offshore storage facilities in South Africa and South Korea, besides sourcing higher volumes through term contracts with national oil firms of supplier countries.

The state-run companies have felt the pinch of a sharp rise in global crude prices since unrest broke out in Egypt. However, they have escaped any major supply disruption so far since there has not been any major outage in production, except in Libya, or disruption in supply routes. In FY11, only 1 million tonne of crude out of the 80 million tonne imported by the state firms was accessed from the affected countries. But with imports projected to rise almost 40% to 121 million tonne in FY12 and West Asia still accounting for 67% of the supplies, the oil companies are not leaving anything to chance.

A strategy paper presented during a brainstorming session of company executives and government officials also identified another chink in India's oil armour. It said the spread of Brent Dubai varieties in the Indian basket has expanded. Premiums on offers against tenders for low-sulphur crude too have risen by $2-4 per barrel. With a greater alignment to Brent, companies have to pay more for crude. This, in turn, has pushed up their losses on selling fuel at government-capped prices. London Brent has traditionally ruled higher than WTI on the Nymex. The gap has widened to $10-15/barrel.

"There's little we can do on the price front. But there's need to rework our strategy to at least ensure supplies and have a contingency plan in place," a top executive of one oil company said on the condition of anonymity. As a contingency measure for overcoming short-term supply disruptions, the strategy paper suggests hiring VLCCs ( very large crude carriers) on industry basis to store oil in high seas and sourcing new grades from non-traditional sources such as Azerbaijan, Kazakhstan, Mexico, Venezuela and even Australia.

In long term, the paper suggests expediting construction of the strategic storage facility, diversifying the oil basket and examining the viability of term contracts with oil companies. Admittedly, the alternatives come with their own problems. These range from higher premiums, sub-optimal refinery operation, higher transportation costs to uneconomical volumes of parcels.

State refineries at present have enough stocks to keep working for 10 days. Another 8-10 days supplies are in transit. And available stocks of refined products can keep the wheels of the country in motion for 30 days. Altogether, it means a total supply of roughly 45 days.

Source : timesofindia.indiatimes.com