For energy security, look to Latin America

Latin America has become a regular new source for India’s imports of crude oil in the last 15 years. In 2014-15 (April to March), the region supplied 36 million tonnes (mt) out of India’s global imports of 189 mt and held a 19 per cent share.

Out of the 700,000 bpd imported from the region, typically 400,000 bpd comes from Venezuela, 100,000 bpd each from Mexico and Brazil, and about 50,000 bpd each from Colombia and Ecuador, depending on prices and availability.

It was Reliance that opened up Latin America as an import source in 2000. Before that, Indian oil companies did not have the capacity to refine Latin American crude. The refinery established by Reliance in 1999 was the first to use the Latam crude since it has the versatility to refine crude varieties from around the world. Later, Essar set up a similar refinery and public sector oil firms follow this model now.

Before 2000, Indian business was deterred by distance and high freight cost. Reliance found a solution by making use of the VLCCs (very large crude carriers) coming empty from the US after discharging West Asian crude. The freight through this arrangement works out to just $2.5-3 a barrel in comparison to $0.5-1 from West Asia in regular oil tankers.

Reliance continues to be the leading importer of crude from Latin America with 400,000 bpd while Essar and public sector oil companies import about 150,000 bpd each. It is interesting to note that Reliance exports diesel to Brazil which amounted to $3.1 billion in 2014-15.

India’s import of crude is projected to reach 7.2 mbpd in 2040 from 3.7 mbpd in 2014, according to the November 2015 ‘World Energy Outlook’ of the International Energy Agency. It should be in India’s strategic interest to reduce the over-dependence on West Asia.

Latin America can be counted as a reliable long-term source for about 20 per cent or more of our crude imports. Latin America has the potential to increase exports from its current 4.5 million bpd to over 7 million. The Venezuelans will be able to raise their production and exports when the political situation stabilises. Brazil has the capacity to increase production and will increase exports when it gets over its Petrobras corruption scandal. Mexico has opened its oil sector to private sector participation after the 2013 energy reforms.

The time’s right

The region has discovered more new reserves in the last decade and its current total is 334 billion barrels, which is one-fifth the total global reserves of 1.4 trillion barrels. Venezuela has the world’s largest reserves of 298 billion barrels and has overtaken Saudi Arabia which has 266 billion barrels.

Besides conventional oil, the region has 58 billion barrels of shale oil. Argentina has the fourth largest shale oil reserves of 27 billion barrels. Chevron has just started production in a joint venture with the Argentine national oil company, YPF. Unlike the shale reserves near cities in the US and the consequent controversies, the Argentine reserves are in the remote and sparsely populated Patagonia region.

The US, which was the principal market for Latin American crude, has halved its global imports and doubled its domestic production, thanks to the shale revolution. Canada has eaten into the Latin American share of the US market by steadily increasing its supplies to the US market.

So, the Latin American crude exporters are desperate for new markets and are targeting India along with China. The Latin Americans are willing to give extra discounts to increase their market share. Indian companies have invested about $3 billion in oil fields in Venezuela, Brazil and Colombia. OVL is the major investor with $2.5 billion and the balance is by public sector oil companies, Videocon, Gammon India and Assam Oil Company.

It is a good time for more acquisitions and investment especially in Venezuela, Argentina (in shale) and Mexico.

The writer was India’s ambassador to Argentina and Venezuela

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