Like India, China is also dependent on crude oil imports to meet growing demand. However, while India is moving at a slow pace, China is aggressive and has taken several strategic initiatives to diversify its supply portfolio to develop its resilience to crude supply shocks.
“China, like India, also has high import dependence on crude oil. Its initiatives to acquire oil equity across the globe, create strategic reserves, and its recent move on market-linked energy pricing, are applicable in the Indian context, too,” said Dilip Khanna, Partner — Oil & Gas practice, EY.
India’s vulnerability
The recent incident of Iran detaining a Shipping Corporation of India vessel carrying crude oil from Iraq exposed India’s vulnerability as far as crude imports are concerned.
Though India is looking at increasing supplies from Iran, which it had cut significantly following Western sanctions, this may be difficult now, say Government sources. Iran would also tread cautiously now. In fact, it is understood to have expressed its unwillingness to trade in rupee.
Now, take China’s example. To diversify its crude sourcing portfolio, Chinese National Oil Companies (NOC) are investing in overseas upstream assets and signing long-term supply contracts. According to data provider Dealogic, Chinese companies have invested $17 billion since 2010 in North America alone.
Furthermore, Africa, with its significant reserves, holds strategic importance in China’s portfolio. Chinese NOCs are making investments in Angola, Mozambique and Nigeria, among others, the EY team tracking China told Business Line.
Cautious player
Though Indian NOCs are also acquiring assets overseas, they are far more cautious and the time taken is longer. An official said the moment competitors learn that Indian NOCs are interested in a particular asset, they get aggressive, as India is known to be a cautious player.
Also, China is dependent on West Asia, with around 41 per cent of its total crude imports coming from there. Saudi Arabia alone constitutes around 20 per cent, followed by Angola and Iran.
But, in addition to the West Asian region, the former Soviet Union (16.8 per cent) and West Africa (14.6 per cent) form a sizeable share of China’s crude basket. Asia Pacific and Americas together account for around 23 per cent.
As far as India is concerned, over 60 per cent of its crude requirement is met from West Asia. About 80 per cent is met through imports. Refinery configurations and guidelines that public sector refiners have to follow for imports can prove to be a restriction, say observers.
To lower the risk of supply disruptions, China plans to boost its total strategic petroleum reserves capacity to approximately 500 million barrels by 2020.
It is building emergency oil reserves equivalent to 100 days of net imports through a three-phase project, which it is likely to complete by 2020.
In India, Indian Strategic Petroleum Reserves is implementing projects at three locations — Visakhapatnam (1.33 million tonnes), Mangalore (1.5 million tonnes) and Padur (2.5 million tonnes). The projects are expected to be commissioned from 2014.
regulatory reforms
China is set to undergo regulatory reforms wherein the State Council of China's cabinet will grant crude oil import quotas to “qualified” refineries. This move is mainly targeted to promote imports, as previously the crude import rights were only vested with five state-owned companies including China National Petroleum Corporation and Sinopec. However, granting licenses to other refiners might help to increase the import opportunities.
Also, China plans to deregulate energy prices and link it directly to market supply and demand.
The oil product pricing mechanism has been modified (effective March-end 2013) from an adjustment made in tariffs after every 22 working days to every 10 working days. However, no adjustment is made if the resulting price change is less than $1 a barrel. In case of lesser-than-required changes, the adjustment is to be rolled over and included with the next price change.
Finally, even as India has deregulated petrol pricing, the other fuels — diesel and cooking gas — are still sold at subsidised rates, as pricing petro-products in India is a politically sensitive matter.