Buy ships to transport energy: Govt to oil cos

Buy ships to transport energy: Govt to oil cos

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  • September 18, 2023
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NEW DELHI : India’s public sector oil and gas companies are looking at purchasing ships to transport oil and gas following a Union government directive aimed to ensure energy security, two people aware of the development said.

The move comes at a time of rising crude prices, a price cap on Russian oil, and a bar on the use of Russian ships for transporting oil and gas.

“The government has been asking oil companies to buy ships….But where are the ships available,” said one of the two people, adding that despite poor availability, large oil companies are likely to locate and procure them.

Freight charges are key in terms of retail price calculation of petrol and diesel, which have remained elevated and unchanged for over a year now.

The second person said the suggestion is largely based on the pretext of the volatility in the energy market witnessed in the past year after Russia’s invasion of Ukraine. Sanctions on transport through Russian ships by the West resulted in a lack of ships and the emergence of several new transporters to move oil from Russia, which has become the top supplier of oil to India over the past year.

The volatility in the oil market and elevated prices do not augur well for the Indian economy, which imports 85% of its energy requirement. Retail fuel prices have been high, and petrol has been sold at over 100 per litre in some cities since May last year.

Although international oil prices have eased from the multi-year highs reached last year, prices have started to pick up again over the past two months. The price of India’s crude basket, which averaged $74.93 per barrel in June, stood at $94.17 per barrel as of 14 September.

Queries mailed to the petroleum ministry, Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd, and Hindustan Petroleum Corp. Ltd remained unanswered till press time. The spokesperson of ONGC Videsh Ltd said the company is not aware of any such development.

The second person said the cost of retail fuel depends on several factors, including the price of crude, the expenses incurred on freight and insurance and who the operator is, for which the Union government has asked energy companies, including the oil marketing companies (OMC) to purchase their own ships.

Freight rates soared last year due to the Russia-Ukraine conflict and the eventual blockade of the Black Sea route. Freight rates, however, have eased in the past year, and the Drewry’s composite World Container Index as of last week stood at $1,561.30 per 40ft container, compared to the year-ago period when it was around $4,500 per 40ft container.

“Although the prices have declined, they are still elevated than the pre-pandemic level,” said a shipping industry participant. The Drewry’s composite World Container Index showed that the index currently remains 10% higher than average 2019 (pre-pandemic) rates of $1,420.

The move to purchase ships by state-run oil companies comes at a time when India is diversifying its oil import sources.

Russian oil, which constituted only 2% of India’s imported oil, made up around one-fourth of the 235.52 million tonnes of crude oil imported by India. Further, oil imports from Russia rose nearly three-fold in the first quarter of this fiscal compared to the same period of FY23 at $12.36 billion. The rise in imports from Russia coincides with a decline in the share of oil imports from West Asia, the traditional major oil supplier to India.

The value of imports from Iraq, which has traditionally been the top supplier to India, declined 38% to $6.55 billion from $10.55 billion during Q1FY23. Imports from Saudi Arabia declined 24% to $5.49 billion while those from the UAE slumped 63.11% to $1.71 billion.

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Updated: 18 Sep 2023, 12:16 AM IST

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