Reliance turns to African crude in shale boom spin-off

Cuts dependence on the Middle East, where crude prices are costlier

Reliance Industries is boosting crude imports from Africa and cutting its dependence on the Middle East as the owner of the world's biggest refining complex seeks to benefit from shifting global oil flows caused by the US shale boom.

African and Latin American crude, which together account for about 56% of Reliance's imports now, have become cheaper as the United States slows purchases and increasingly turns to domestic shale oil, while Middle Eastern heavy crude grades are pricier due to demand from regional refinery expansions.

Reliance is making the switch as it wants to cut its crude costs to stem a decline in its refining margins that hit a four-year low of $8.1 a barrel in 2013/14.

Reliance doesn't disclose its detailed crude imports, but tanker arrival data obtained from trade sources shows purchases from Africa in the first four months of 2014 rose 5% from a year ago to about 142,800 barrels per day (bpd), making up 12% of its overall imports.

Over the same period, its imports from the Middle East fell 1.4% to about 483,800 bpd and the share of Middle Eastern grades in imports declined to 40.7%, which, on a full-year basis, will be the lowest in at least eight years, the data showed.

The front-month Brent-Dubai price spread, also known as Exchange for Swaps (EFS) , has softened over the past year and now averages near $4 a barrel, making African oil attractive at a time when freight rates have fallen.

The EFS, an approximation of the premium at which Atlantic basin light-sweet crude trades to Gulf heavy-sour grades, could ease later this year making African grades even more economical.

UK-based consultancy KBC Process Technology expects the EFS to average below $4 in the second half of this year, making tough grades from Africa that trade at a discount to Brent, attractive, said Ehsan Ul-Haq, its senior consultant.

"Reliance will probably handle heavier grades from Angola and it would also like to further raise imports of Latin American grade and some opportunity grades," said Ul-Haq.

Singapore-based consultancy FACTS Global Energy estimates the EFS will average about $3.1/ barrel in 2014, according to its senior analyst Praveen Kumar.

Despite a decline in the share of Latin American grades in Reliance's overall imports in January-April, traders and analysts expect the firm will lift its buying from the region in the months ahead due to their deep discounts to Brent.

After boosting the intake of long-haul Latin American grades, Reliance wants to diversify its crude slate by raising purchases of cheaper African oil that can reach its plant in three to four weeks depending on the size of the vessel.

"There could be a 5-10% increase in Latin American crude flow to Reliance and I think up to 20% increase in crude from Africa, especially from Angola, and a 10-20% decline in Middle East heavy as Kuwait and Saudi Arabia could use more and more in their refineries," estimates KBC's Ul-Haq.

The International Energy Agency has said OPEC members are adding about 1.8 million bpd of refining capacity over the next five years, led by Saudi Arabia, Iraq and the United Arab Emirates.

Tanker charter rates from West Africa to the west coast of India have more than halved from mid-April compared with the average daily rate for 2014, according to data from British shipping services company Clarkson.

RARE PURCHASE

Billionaire Mukesh Ambani-controlled Reliance operates two refineries at Jamnagar in western India that can process 1.2 million bpd of cheaper heavy-sour crude and export fuel.

The company made a rare purchase of Nigerian sweet light Qua Iboe grade and Equatorial Guinea's Alen condensate earlier this year and raised imports of Angolan grades, the data showed.

It has also stepped up imports of condensate from Qatar to blend with tough grades from Latin America and has halted imports of Iraq's Basrah oil since November.

Reliance has also rejigged its annual crude import deal with Saudi Aramco, replacing about 10,000 bpd of tougher grades from the neutral zone - a region whose output belongs to Saudi Arabia and Kuwait - with purchases of lighter grades from the kingdom, said a source familiar with the deal.

In 2014 Reliance will buy 185,000 bpd of lighter grades from Saudi Aramco and about 40,000 bpd of grades like Ratawi from the neutral zone, the source added.

Reliance did not respond to Reuters' requests for comments.