Russian discount for oil halves since Feb

After hitting a fresh all-time high of 87.8% in FY24, the country’s reliance on crude imports is set to increase yet again in the current financial year as the demand for petroleum products continues to grow amid a stagnant domestic production.

In April, India imported 21.4 million tonnes of crude oil, up 7% from 20.0 million tonnes in the corresponding period last fiscal year taking its dependency on crude oil imports to 88.4% for the month, latest data from the oil ministry’s Petroleum Planning & Analysis Cell (PPAC) showed.

Moreover, the country’s crude oil import bill, which witnessed a significant decline in FY24 owing to huge Russian discounts on its oil exports, saw an increase of 19% in April at $13 billion from last year.

Apart from growing volumes, the increase in import bill can be attributed to the narrowing discounts by Russia which has become the top supplier of crude oil to Indian refiners post the outbreak of conflict between Russia and Ukraine. According to the industry, Russian discounts on its consignments have reduced to $3-4 per barrel against $8-10 per barrel it offered earlier.

Discounts on Russian oil narrowed sharply to around 8% during September to February against 23% in the first five months of FY24, as per ICRA. Consequently, the estimated savings on account of discounted Russian crude have reduced to $2.0 billion in Sep-Feb period of FY24 from $5.8 billion in Apr-Aug.

The country saved around $5.1 billion in FY23 and $7.9 billion in the first eleven months of FY24 on its oil import bill due to Russian discounts, as per the rating agency.

The agency now sees India’s net crude oil import bill reaching $101-104 billion in the current financial year 2024-25 from $96.1 billion in FY24 provided the discounts on Russian crude purchase remain at prevailing lower levels amid rising import dependency.

The narrowing discounts also come against the prospects of state-owned oil marketing companies weakening their refining margins. Lower than expected Russian crude discounts have already hit the refining margins of OMCs in the last quarter of FY24.

The government intends to reduce India’s dependence on oil imports while boosting domestic production and transitioning into green energy but the targets have remained tall. In 2015, the government had set a target to reduce reliance on oil imports to 67% by 2022 from 77% back in 2013-14. However, the dependency has only grown since.

The government, from 2016 has brought in several changes to enhance exploration of oil and gas blocks in the country and auction it by launching Hydrocarbon Exploration and Licensing Policy. Under HELP, Open Acreage Licensing Programme has been launched which provides investors the freedom to carve out blocks of their choice through submission of Expression of Interest (EoI).

The first bidding round under OALP was launched in January 2018 wherein 55 blocks were awarded. As per the government, since 2017, seven OALP round have been successfully concluded with award of 134 exploration blocks covering 2,07,691 sq. km. area for exploration and production activities.

Despite the measures, oil production has remained stagnant. The country’s upstream companies cumulatively produced 2.4 million tonnes of crude oil in April, unchanged from the last fiscal while the demand for petroleum products rose by 6%.

The country’s consumption of petroleum products including gasoline, diesel, and jet fuel among others increased to 19.9 million tonnes last month from 18.7 million tonnes in April 2023. Imports of petroleum products last month stood at 4.3 million tonnes against 3.2 million tonnes in the same period of FY24.

In FY24, the domestic oil production stood at 29.4 million tonnes, only marginally up from 29.2 million tonnes in FY23.

It won’t be wrong to say that deepwater exploration has gained momentum in the country especially with the much delayed Krishna-Godavari basin starting its oil production recently. The block, situated off the coast of Bay of Bengal is likely to increase Oil and Natural Gas Corporation’s total oil and gas production by 11% and 15%, respectively. However, the target of cutting down on imports may still be a far-fetched target as the country’s demand for oil grows.