When Saudi Arabia decided in June to raise price of crude and cut shipments to Asia and the US, it may have unwittingly provided the spark for India's maiden drive towards America for supplies and helped New Delhi to undercut Opec's sway over the world's third largest oil consumer.
The opportunity to change things came when PM Narendra Modi met Donald Trump in the White House on June 27. Modi said India had one of the world's fastest growing energy demands, in response to Trump's line about reviving American energy exports. Modi responded that India would consider it if the price was right.
The price, as it has turned out, is more than just right even after the long shipping distance, as the first US ship sails with shale oil bound for Indian markets. Indian officials say that even after factoring in the distance, US oil is working out to be cheaper than Middle East oil. India now wants to leverage its status as a major energy buyer to get a better price, but also more importantly, to make a political point to its suppliers.
Since Saudi oil prices affect cost of supplies from other West Asian producers, Saudi Aramco's decision to raise Arab Light crude price by 60 cents per barrel for Asian buyers narrowed the differential between West Asian crudes and North Sea Brent, the benchmark for most of global oil trade. The narrowed differential suddenly turned US oil, currently witnessing rising productio on the back of a fracking boom, attractive for India as a mix of West Asian supplies account for 73% of its imports and Brent making up the rest.
India's largest state-run refiner-marketer IndianOil immediately put its bet on US Eagle Ford and Mars crudes, buying consignments from trading house Trafigura. The ship with first consignment has sailed from the US for the company's latest refinery at Paradip in oil minister Dharmendra Pradhan's home state, Odisha, where it will dock next month.
With the advent of US-origin crude into its oil mix, India is making three points - first, diversifying its sources of oil (India's top suppliers are Iraq and Saudi Arabia); second, compel them to offer better prices (IOC officials observed that soon after India had secured its first US buy, Iraq decided to lower its prices); most importantly, it would help reduce the trade surplus India holds with the US, a sore point for the Trump administration. Indian officials say this could become a longer term affair, giving India greater room for manoeuvre with other tougher partners like Iran. India has recently dropped its intake of oil from Iran, peeved with Tehran's recalcitrance on a promised gas field.
IndianOil's consignment is worth only $100 million, a miniscule fraction of India's $70 billion oil import bill for 2016-17. But it has a potential to grow into a $2 billion tradeand indicates the strategic ties between India and the US are expanding beyond defence and intelligence to energy. The foundations of an energy bridge was sown by state-run gas utility GAIL by contracting nearly 6 million tonne of shale gas from Sabine Pass project in Louisiana and Cove Point project in Maryland. The shipments are to begin from January.