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Opec: India, China move to challenge Opec’s sway on oil prices

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NEW DELHI: India and China, which together accounted for 17% of world oil consumption last year, are working on combining their shopping carts with a view to challenging Opec’s capability to play havoc with crude prices and seek better bargain from the cartel of oil exporting countries, especially its West Asian members.

The two sides kicked off formal talks in Beijing on Monday for forming an oil buyer’s club, a development that is expected to weigh on Opec energy ministers who are expected to discuss a plan to end the production cut deal later this month.

The talks come within less than two months of oil minister Dharmendra Pradhan proposing an alliance between Indian and Chinese state-run oil companies for greater say in the market.

“As consumers, we have certain mutual interests. We agreed to promote B2B (business-to-business) co-operation … and we are hopeful that in future buyers will be able to dictate prices,” Pradhan had said after meeting CNPC (China National Petroleum Corporation) chairman Wang Yilin and Li Fanrong, deputy administrator of China’s National Energy Administration, on the sidelines of the 16th International Energy Forum ministerial round in April.

Pradhan, however, did acknowledge that there would be “fair competition in some areas as it happens in business”, an oblique reference to acquisition of overseas oil and gas fields.

Sources told TOI that the two are looking at working together rather than competing. “The timing is right. The boom in the US oil and gas production gives us another leverage against Opec,” an official said.

The talks are a throwback to 2005, when the then Indian oil minister, Mani Shankar Aiyar, proposed forging a common front to China’s National Development and Reforms Commission vice-chairman Zhang Xiaoqing on the sidelines of the Asian Round Table – a buyer-seller meet – hosted by India to seek reasonable oil pricing. That proposal resulted in a co-operation MoU in 2006, which was lost in the complexities of bilateral relations and faultlines within the UPA-1 government.

This time, however, the move comes when the global oil market’s centre of gravity has shifted to Asia. International Energy Agency sees India and China fuelling half of global demand growth in the next five years, with India driving incremental demand growth through the next two decades.

Monday’s talks between Sanjiv Singh, head of IndianOil, India’s largest refiner and fuel retailer, and top executives of Chinese oil companies looked at investing – either jointly or separately – in expanding US oil and gas export infrastructure, which is restricting higher exports to Asia. There was also Chinese willingness to invest in India’s gas import infrastructure.

Also on table was the idea of Indian and Chinese companies jointly negotiating oil purchase wherever possible, just like the Indian state-owned companies are doing. Besides, India could also buy oil directly from Chinese companies that have equity in projects.

“For example, China has equity Basra (a light Iraqi) crude. India buys large quantities of this crude. If Indian refiners buy directly from Chinese companies, the price will be competitive as the demand does not build into the trade. Every cent less means huge savings in oil import bill, given the volume of India’s imports — 213 million tonne in 2017-18.

Another major issue was the ‘Asian Premium’ – or a higher price – charged by West Asian oil exporters for shipments to Asian buyers, as opposed to Europe, has been the pet peeve. The hardening oil prices have amplified the effect. But exporters deny any premium, saying it is market dynamics, with each region having its own pricing norm. But how long they can stonewall world’s leading buyers is yet to be seen.

Updated: June 13, 2018 — 11:07 pm

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