India eyes Canadian crude oil contracts as it looks to diversify supply sources

Source:Platts

Indian state-owned oil companies are pursuing opportunities to lift additional cargoes of Canadian crude and also enter into long-term offtake contracts.

Indian state-owned oil companies are pursuing opportunities to lift additional cargoes of Canadian crude and also enter into long-term offtake contracts, in line with efforts to reduce their dependence on the Middle East, senior government officials from New Delhi said.

"OPEC is an important club for our crude oil procurement, but simultaneously we would like to diversify our strategy and go by our economic interests and long-term relations," Indian oil minister Dharmendra Pradhan said over the weekend in Calgary, on the sidelines of an energy partnership forum hosted by ONGC Videsh Ltd

India is expanding its import base by procuring increasing volumes of crude from Latin America and West Africa and would like to include Canada too, he said.

"[State-owned refiner] Indian Oil Corp.'s 300,000 b/d new refinery at Paradip in the East Coast, which is now in the final stages of full commissioning, could process Canadian heavy crude," Pradhan said, noting that previously Indian refineries were limited in the grades of crude they could process.

"Our capability and capacity has now changed and we can process heavy, sour and lighter grades. Compared with our 2013 import of 3 million b/d, we see that figure doubling to 6 million b/d by 2030, based on current forecasts. Our appetite as an energy consumer will grow substantially and we are keen on engaging the Canadians in a bigger way," Pradhan said.

IOC last year bought about 1 million barrels of White Rose light crude produced by Husky Energy from its offshore acreage in Canada's Newfoundland and Labrador. 

KEY FACTORS

The two determining factors for lifting additional volumes of Canadian crude would be "economics" and "finding a way to deliver [the crude] to Indian shores," IOC Chairman B. Ashok said on the sidelines of the event.

"It will be difficult to say with certainty what would be a suitable price for us to lift both Canadian heavy and light grades, but IOC will look at deriving refining margins of $3-4/barrel from the Canadian grades it will import," Ashok said without indicating when IOC is likely to import the next consignment from Canada.

The Middle East currently accounts for 63.5% of IOC's total crude imports, with just 2.2% being sourced from North America including Mexico and Canada.

"The Middle East has an advantage in terms of proximity to India compared with Canada, reduced shipping time and less time for inventory blockage. However, the process of looking at other oil producers has already started and in financial year 2014-15 we added eight new grades of crudes to our import basket taking our total to 174," Ashok said.

Three Canadian grades -- Western Access Blend, Cold Lake Blend and Western Canadian Select -- were also in the list, Ashok said.

PIPELINE HURDLES

The lack of a major export pipeline from Alberta has resulted in Canadian crude facing "heavy" unfavorable discounts and has also come in the way of those volumes fetching higher prices in India, Pradhan said. "This makes us a natural ally and our ships will come to both Canada's East and West Coast for loading of crude," he added.

"We will work on the logistics of taking crude from Canada," Pradhan said, without elaborating.

Three Canadian pipeline companies are working on building export infrastructure from Alberta -- Canada's prime center for oil production -- to both the Pacific and Atlantic coasts.

While a final ruling is due in early 2016 from Canadian regulator National Energy Board on the 890,000 b/d Trans Mountain Expansion project backed by Kinder Morgan, this fall TransCanada will file additional details to the NEB for its 1.1 million b/d Energy East pipeline after it dropped a plan to build a marine export terminal in Quebec. 

Also, Enbridge is currently spending time in rebuilding further trust among stakeholders for its 525,000 b/d Northern Gateway pipeline that already received conditional NEB approval in late 2013. 

The TMX pipeline is targeted for completion in late 2018 and will open an export outlet for Canadian crude on the Pacific Coast, while Energy East will provide tanker loadings at New Brunswick on the Canadian Atlantic Coast and is due for startup in early 2020.

"Once the pipelines get built, we will be ready to start lifting more Canadian crude," Ashok said, adding that IOC had new projects for the next five years, including adding 15 million mt/year of refining capacity for which more feedstock crude will be needed.

INVESTMENT IN OFFSHORE CANADA

Meanwhile, IOC is keeping its options open to invest in Canada's upstream oil sector including a call for bids issued in late March by the Canada-Newfoundland and Labrador Offshore Petroleum Board for 11 parcels in the province's Atlantic Ocean. 

A deadline of November 12, 2015 has been set for companies to submit bids for nine-year exploration licenses for the parcels in water depths ranging from 500 meters to 3,000 meters.

"If we find the overall economics of taking our equity crude good, we could participate in the tender," Ashok said, with elaborating.

IOC has already committed to invest $4 billion by taking a 10% stake in the Petronas-backed 12 million mt/year Pacific Northwest LNG project planned in British Columbia with startup due in late 2019.



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