Russia opens a new front in their struggle for a greater share in the world oil market, and this front became India.
Later this year, the Russian state company “Rosneft” plans to start regular shipments of oil to the second largest Indian oil refinery. Earlier this year it became known about the decision of “Rosneft” to acquire major stake in Indian company Essar Oil, which owns the refinery and about 2 thousand petrol stations. The deal should be completed later this year.
This deal provides Russia a small but strategically important foothold in one of the most important oil markets in the world. Currently the dominating position in the Indian market is Saudi Arabia, which provides about 20% of India’s oil imports, according to data provided by the consulting firm FGE. But now the Kingdom is faced with increasing competition from Russia and Iran, which along with other oil-producing countries such as Iraq and Kuwait, are actively fighting for customers amid low oil prices.
The leading countries-exporters of oil trying to win each other’s clients in markets around the world, increasing production and lowering prices. This competition led to a sharp drop in prices due to the growth of oil production in the United States, which has lasted nearly two years.
In the past, when there were problems with oversaturation of the market, the Organization of countries-exporters of oil, which accounts for more than one-third of all oil produced in the world every day, intervened and limited the production to support prices.
But at the end of 2014, OPEC announced that it will not interfere because he is afraid to lose its market share because Russia and other countries will not want to change the volume of production. Representatives of the OPEC and Russian officials plan to meet on Sunday, April 17, in Qatar, to discuss possible ways out of this impasse, namely, the proposal to freeze production, which can contribute to higher prices.
Regardless of what happens in Qatar, India will become one of the world’s leading oil consumers, which already is China.
India, which imports about three-quarters of total oil consumption, ranked third in the world on its consumption, after China and the United States. India imports about 4 million barrels of oil per day.
And the level of oil consumption in India is likely to grow quite quickly.
While the demand for energy in the U.S. and in Europe will remain at current levels or to fall, and China is shifting away from energy-intensive heavy industry in favor of the economy, more oriented towards consumption, demand in India is expected to grow by 4.2% per year over the next five years. Meanwhile, demand in China will grow by 3.4%.
According to the International energy Agency (IEA), by the year 2040, oil imports to India could rise twice and to be 7.2 million barrels per day, boosted by the population growth and economic modernization.
“Everyone wants to get their share in the Indian market, as it is the fastest growing market in Asia,” says Amrita sen, senior analyst at London consulting firm Energy Aspects.
The deal with Rosneft to supply oil company Essar will result in an approximate 5% share of imports, which is comparable with the share of Iran, another proven supplier in India.
Igor Sechin, head of Russian oil company Rosneft, said that the deal between her company and Essar, along with the recent sale of shares in oil fields in Eastern Siberia to the Indian companies, strategic agreements, which grant the Russian company access to the Indian market and help to establish cooperation between the two countries.
“China’s role decreased, but the share of India, other Asian countries and Africa is gradually growing”, — said Sechin in his speech held in London in February.
Russia has actively penetrated the Chinese market at the expense of Saudi Arabia, and it is also gaining market share in South Korea and Japan, according to FGE. On the other hand, Saudi Arabia is trying to replace Russia on some European markets, although with varying degrees of success.
The leaders of the Saudi state oil company Saudi Arabian Oil, often called Aramco, react to this by applying methods of “diplomacy of smiles” in India.
Aramco plans to open branches in India this year. According to a source familiar with the situation, the Saudi leadership, the company has begun negotiations with key oil importers in this country, and soon it will tell them the price of their oil.
“Aramco’s changing attitude to its customers,” added this source.
“Before the company forced its customers to make a choice between acceptance of all conditions and a complete refusal to cooperate, however, Aramco has now become closer to the buyers of its oil,” continued the source. In addition, according to him, the Saudi company plans to invest in new oil refinery in India. Representatives of Aramco and the Ministry of oil of Saudi Arabia were unavailable for comment on the matter.
Other players of the oil industry are also planning expansion in India. In October Kardar Ali (Ali Kardor), head of investments by state-owned Iranian oil company National Iranian Oil, said that it is conducting preliminary negotiations to buy a stake in Indian refinery.
“India — the oil market of the future”, — noted in the past month, Dharmendra Pradhan (Dharmendra Pradhan), Minister of oil and natural gas of India.
