Saudi revives India investment plans amid shrinking market share

Move aimed at ensuring a major captive market for its crude oil, even as Indian refiners mull reducing the share of expensive Saudi grades sourced under term contracts

Saudi Arabia is reviving plans of investing in grassroot Indian refineries after Indian state-run refiners began evaluating proposals to reduce the share of expensive Saudi grades sourced under term contracts and substitute them with cheaper Russian oil, refining sources and government officials said, and ship tracking data showed.

 

The move by Saudis to consider investments in new Indian refineries, proposed by both Bharat Petroleum and Hindustan Petroleum, is to ensure a captive market for their crude oil, and regain dwindling market share in India — after their proposed investments in Ratnagiri refinery and Reliance Industries soured. Saudi Aramco declined comments on the story in an email.

Indian state-run refiners may cut volumes under existing term contracts by at least 10 per cent, with the level of reductions differing across companies based on their refinery configurations, two senior refining sources said. New term contracts with Saudi Arabia will start next April for FY26 —shipments in FY25 between April and October averaged 592,000 bpd. That places the cuts to average at least 60,000 bpd. Simultaneously, Indian state-run refiners led by Indian Oil are also in talks with Russian state oil companies led by Rosneft for term contracts. Indian Oil's term contract with Rosneft for around 490,000 bpd expired in March and is up for renewal, industry officials said. 

 

While the Saudi contracts comprise a fixed, committed volume and optional quantities on a financial year basis, Iraqi contracts are on a calendar year term. The cuts in Indian term contracts with Gulf suppliers will largely affect Saudi Arabia, which charges higher prices for its oil while Iraq's Basrah oil volumes will be maintained, refining officials said. Iraqi state oil company Somo offers competitive rates for its oil, including occasional discounts, refining sources said. Basrah medium and heavy grades offer a better yield to Indian state-run refineries than other oils. 

Over the past few months, Saudi official selling prices have been coming on the higher side of market expectations, said Singapore-based energy expert Vandana Hari, founder of Vanda Insights. That must have prompted Indian refiners to seek more competitively priced supplies, such as Russian oil, she said. 

Contract renewals are typically finalised in January-February, following a certain procedure, sources said. Each PSU is assigned one national oil company (NOC) for coordination. Invitation is sent by the respective PSU to the assigned NOC for joint negotiation meetings, usually held in Delhi. The PSU delegation is headed by the joint secretary concerned of the oil ministry, and consists of senior officers from the trade desks of state refiners. 

Saudi Arabia had avoided investing in India and chosen to commit to Chinese refining and petrochemical plants, after a $44 billion project for a 1.2 million bpd refinery-cum-chemical plant in Maharashtra was shelved for delays in allocating land, and a 20 per cent stake buy in Reliance Industries’ O2C (oil-to-chemicals) business for an estimated $15 billion collapsed. 

But Indian officials led by oil secretary Pankaj Jain met Saudi officials recently and pitched investments in grassroot refineries, a senior official said. New Delhi is in talks with Riyadh for investing in two grassroot refineries helmed by Bharat Petroleum in Andhra Pradesh and state-run explorer ONGC in Uttar Pradesh, industry sources said. ONGC chairman Arun Kumar Singh declined to confirm or deny the developments, while top Bharat Petroleum officials said that an investment in Andhra Pradesh was under consideration. 

Saudi supplies 

Saudi Arabia’s crude oil supplies at 647,000 bpd in October declined by 11 per cent from 726,000 bpd in September, and was lower from 883,000 bpd a year earlier. That compares with Russia’s 1.73 million bpd of crude oil in October, down by 9 per cent from 1.9 million bpd in September but higher from 1.58 million bpd a year earlier, according to exclusive data from market intelligence agency Kpler. Iraq was the second-biggest supplier in October at 836,000 bpd. 

Saudi Arabia had an 18.5 per cent share of the Indian crude oil market in 2019, second to Iraq, with Russia’s share at less than 3 per cent, according to calculations based on ship tracking data. Russia’s share has since surged to around 39 per cent this year while Saudi Arabia has lost nearly 5 percentage points at 13.7 per cent. Iraq holds a fifth of India’s crude supply market.

Iraq, Saudi Arabia and the UAE, India’s top three crude suppliers, had a combined 50 per cent share of India’s market in pre-pandemic, pre-Ukraine 2019, which has shrunk to 41 per cent in calendar 2024. That’s not far from Russia’s 38.6 per cent share this year, which was achieved in just a little over two years. 

Russia’s hegemony over India's crude market continues despite discounts on a delivered basis shrinking to around $3-$4/bbl from over $20/bbl in early 2023, according to top refining officials. Saudi oil is still priced higher. In 2023, the gap between Saudi oil and Russian oil on a delivered basis was over $15/bbl, according to calculations based on customs data. That gap has shrunk by more than half this year to around $6.5/bbl as Russian discounts shrunk, but still substantial for Indian refiners, which have struggled to stay profitable in the July-September quarter. But for Russian crude, Indian state-run refiners would be bleeding, industry sources said.