* Latam supplies abundant as shale curbs U.S. demand
* Upgrades mean Indian refiners can handle heavier crudes
* MRPL is first Indian refiner to buy Argentina's Escalante
* Freight costs often shared by buyer and seller
By Nidhi Verma
NEW DELHI, Jan 29 India's state-run refiners are
snapping up Latin American oil after upgrading their plants,
reaping the benefit of cheap prices for crudes that have lost
their market in the United States to shale oil.
Decades-old crude trading routes are being redrawn as the
United States cuts its dependence on imports through a boom in
shale oil, forcing Latin American exporters to tap buyers as far
away as China and India - markets growing enough to soak up
their surplus supplies.
These Latin American crudes are often heavy grades, which,
without elaborate refining, tend to produce higher quantities of
low-value products such as fuel oil, used to run ships' engines.
For Indian buyers, these crudes offer the chance to earn a
return on the billions of dollars spent in improving their
plants, enabling profits to be boosted in a regime which makes
them sell products at state-capped prices.
India is the world's fourth-biggest buyer of crude and 80
percent of its needs are met by imports, making cheap supplies
crucial as its economy gropes with power shortages and it spends
billions subsidising fuel for millions of its poor.
In the last few years, India has already had to find
replacement crude for barrels lost when sanctions on nuclear
operations hit Iran, once its second-largest supplier.
Up to now, much of the switching by state refiners has been
to other Middle East sources, such as Saudi Arabia and Iraq,
which are now the top two suppliers as Iran slips to number six.
Clear signs of a change, though, emerged earlier this month
when Mangalore Refinery and Petrochemicals (MRPL)
became the first Indian refiner to buy Argentina's medium-sweet
"In 2007, we first thought of buying Latin American oil but
we were not prepared," said MRPL Managing Director P.P. Upadhya.
"I visited Venezuela. A team of officials visited some Latin
American countries in 2011. They did not have spare oil," he
added. "Now, the market dynamics have changed and I got my first
high acid oil cargo from the region in a tender."
And more complex facilities are coming up in the country
that will further the trend.
Indian Oil Corp's (IOC) 300,000 barrels per day
(bpd) Paradip refinery will start operations in June. By 2016,
Chennai Petroleum's coker unit will be commissioned and a
120,000 bpd expansion of Bharat Petroleum Corp's (BPCL)
Kochi refinery is set to be completed.
CHANGING CRUDE BASKET
The United States has reined in buying from Latin America as
its own shale oil output takes off. North America added 1
million bpd to global supply in 2013 alone, the Energy
Information Agency says, and crossed the threshold to be a net
exporter late last year, putting more supplies on the market.
In 2005/06, Latin American oil accounted for a scant 2.3
percent, or 46,200 bpd, of India's crude imports but by 2012/13
that had jumped to about a fifth, or 672,400 bpd. Just under
half of that - 300,000 bpd - was under a long-term deal between
Venezuela and privately-owned Reliance Industries,
that has a huge, world-class refinery on India's west coast.
Over the same seven-year period, Middle East imports slipped
to some 62 percent of India's basket from 73.5 percent while
West African grades dipped to 16 percent from 20 percent.
That shift will continue, as state-run refiners join private
players Reliance and Essar Oil in the race to improve
"Like private (ones), state-run refiners will widen their
crude slate to leverage the discount on Latin American grades
versus West African and Middle East grades because of a surge in
U.S. output," said Praveen Kumar at consultancy FACTS.
The state refiners - IOC, MRPL, BPCL and Hindustan Petroleum
Corp - own about 55 percent of India's 4.3 million bpd
"India has some of the most competitive refineries capable
of capturing ... cheaper crudes from far-flung places like Latin
America," said Mike Muller, vice-president for crude oil trading
Freight rates are also low at the moment - and in some
cases, being included in the deal.
"In many supply contracts (for example, with Colombia's
Ecopetrol and Mexico's PEMEX), freights are being shared (with
the seller)," said a trader involved in India purchases.
IOC plans to buy 10,000 bpd from Colombia in 2014/15 and
wants to buy oil from Venezuela, its executive director, G. K.
Satish, said. It has been buying Mexican oil since 2012 and aims
to get a trial cargo of Brazilian crude next month.
MRPL targets as much as 40,000 bpd - about 15 percent of its
overall needs - from Latin America in the next fiscal year
beginning April 1 as it is in the process of starting a
3-million-tonne-a-year coker unit, Managing Director Upadhya
"After Iran I realised we have to have a survival strategy,
which is diversification. Also, because of depressing margins I
realised we have to test new grades and buy opportunity crude."
(Additional Reporting by Krishna Das in NEW DELHI, Chen Aizhu
in BEIJING, Marianna Parraga in HOUSTON; Writing by Jo
Winterbottom; Editing by Muralikumar Anantharaman)