First shale oil shipment to arrive later this month

India will receive its first cargo of shale oil, to be processed at an Indian Oil Corporation (IOC) refinery. This will be the second cargo of crude oil from the US, the first one was conventional crude oil bought through PetroChina.

The shale oil cargo is expected to arrive on the west coast this month. IOC had, on October 2, imported l2 million barrels of conventional crude oil, the first shipment to India since the US stopped oil exports in 1975. “The first cargo was conventional crude oil. The second cargo that will be reaching the west coast has shale oil,” said Sanjiv Singh, chairman, IOC. 

According to the company, the second cargo will land at Vadinar port in Gujarat and will include one million barrels each of Eagle Ford and Mars shale crude oil grades.

The shale oil will be refined at one of IOC’s refineries in Gujarat, Panipat, or Agra. The first cargo is being processed at the Paradeep refinery in Odisha.

Indian companies have contracted close to 8 million barrels of crude oil for about $450 million from the US. Apart from IOC, Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) are set to source 2.95 million barrels and one million barrels, respectively, for their Kochi and Visakhapatnam refineries.

Unlike the usual FOB (free on board) crude oil import by state-owned refiners, the US crude cargoes are being shipped on a cost-and-freight (C&F) arrangement where the contractor is responsible for the transportation. For this, IOC had to take special permission from the ministry of shipping. “We found the overall cost of US crude oil to be cost-effective under this arrangement,” Singh said.

India has begun to contract crude oil from the US as part of its strategy to diversify sourcing. The Trump administration believes that US crude oil imports have the potential to increase bilateral trade by at least $2 billion.

“We are extremely positive about US imports. This was absolutely a business decision. We have been trying to take US crude oil for quite some time. We found that US crude oil was becoming extremely competitive,” Singh said.

Though the two cargoes are arriving on very large crude carriers (VLCCs), some US ports do not have enough depth for these vessels.

Gas Authority of India (GAIL) will be bringing in the first cargo of liquefied natural gas from the US to India in January.

There are also reports that the Mukesh Ambani-led Reliance Industries (RIL) has bought its first crude oil cargo from the US, which includes one million barrels each of West Texas Intermediate (WTI) Midland and Eagle Ford crude oil. 

Asked about the difference between shale oil and conventional crude oil, Singh added, “They have different kinds of impurities. So the refinery should be able to handle those impurities. We use a lot of catalytic processes, those catalysts should be able to handle it.”  

Recently, Iraq surpassed Saudi Arabia as the largest exporter of crude oil to India. Iraq contributes about 23 per cent of India’s imports and Saudi Arabia supplies about 17 per cent. 

Petroleum product consumption in India has grown at a compound annual rate of 5.5 per cent in the last five years, from 14 million metric tonnes in 2011-12 to 194 million metric tonnes in 2016-17. This is an average increase of 9 million metric tonnes in consumption every year.

India’s refining capacity has expanded from 213 million metric tonnes in 2011-12 to 235 million metric tonnes by the end of 2016-17.

“Since India is reportedly getting at a discount of around $2 per barrel on the landed cost, US crude oil is becoming lucrative for Indian consumers. Moreover, since it is light crude, the product yield will also increase,” said Dhaval Joshi, an analyst with Emkay Global Financial Services.

RIL and GAIL both had made $5 billion investments in US shale oil assets. RIL last month sold one of its shale oil assets for $126 million, a third of the price it paid seven years ago, amid a downturn in global oil prices.