India’s BPCL Nears First Term Crude Deal with Iran

A02207014.jpgIran is set to further boost its rising crude oil exports to Asia, as OPEC’s second-biggest producer is close to concluding its first term contract with Bharat Petroleum Corp Ltd (BPCL). National Iranian Oil Co (NIOC) is discussing a four-month deal with BPCL, the only Indian refiner so far not to lift term Iranian crude, as the Indian state firm looks to replace imports of costly Yemeni Masila crude, a BPCL official said on Tuesday.

The proposed deal comes at a time when Iran is increasing its crude exports to Asia this year. Latest data showed that Iranian crude exports to North Asia — Japan, China and South Korea — in second-quarter 2007 are up 25 per cent from a year ago, at 1.165 million barrels per day (bpd).

“We were buying some Soroush grade from the spot market, but that’s marginal. We are now looking at a 0.5 million tons mini contract for the remaining four months of September-December,” the official, who did not wish to be identified, said.

BPCL is also hoping to marginally raise its imports of Saudi Arab Medium crude, he said. The official said BPCL received assurance from Saudi Arabia for additional supplies of 250,000 tons on top of the 3.5 million tons supplied under a term deal this year.

“We will use Saudi crude on a case-to-case basis,” he said. If the two deals are concluded, BPCL’s term crude imports for 2007 will rise to 9.6 million tons, up from around 8.25 million tons last year, reducing its reliance on the spot market.

BPCL is trying to cut its dependence on Masila crude, whose price rose earlier this year to levels not seen in almost five years on strong demand and dwindling supplies, affecting the refiner’s gross processing margins. “Our board has yet to approve the (Iranian) proposal.

The price of Iranian crude is OK, better than earlier,” the official said. “We were hoping to get Masila, but it outpriced everything, as too many people are using it. Last year, we did lots of Masila, but it is expensive now.” Masila crude, which contains less sulphur than Iranian grades and is lighter, is more expensive but easier to process.

Asked if the deal with Iran would become a full-year term contract later, the official said, “We will review our term contracts in October and a decision will then be taken”.

Strong demand from India helped push up the Masila official selling price (OSP) to a discount of 20 cents a barrel to Dated Brent for June and July-loading crude, the Yemeni grade’s strongest official differential in almost five years.

Iran, whose main crudes are Iran Heavy, Forozan and Iran Light, supplies a mix to Indian refiners. India’s largest state-run refiner, IndianOil Corp, and Hindustan Petroleum Corp have term deals with Iran to each lift 1 million tons of crude a year.

Mangalore Refinery and Petrochemicals Ltd buys a hefty 5-6 million tons each year. Private refiner Reliance Industries Ltd also has a term deal with Iran, but the volume lifted is unclear.

The Iranian term supplies will be processed at BPCL’s Kochi refinery in southern India, run by its subsidiary Kochi Refineries Ltd, the official said.

On top of the term deals under discussion for Iranian and Saudi crude, BPCL lifts some 750,000 tons a year of Malaysian and 250,000 tons of Bruneian crude, he said. BPCL excluded Tapis from its basket of crude imports from Malaysia, as its margins are lower than for Labuan and Miri Light grades when processed at its Mumbai and Kochi refineries, a company official had said earlier.

The refiner also contracted to lift term crude this year from Libya and Qatar for a total of 1 million tons, he said. In addition, BPCL has term deals to buy 2 million tons of crude from Kuwait Petroleum Corp and 1.5 million tons from Abu Dhabi.

On the domestic front, the refiner is assured of 7.1 million tons of Mumbai High crude supplies. BPCL aims to process 21 million tons of crude in the current financial year at its 150,000 bpd Kochi and 240,000 bpd Mumbai refineries.

It also owns a majority stake in a 60,000-bpd refinery in northeast India, run by Numaligarh Refinery Ltd, and buys Assam crude from Oil India Ltd and Oil and Natural Gas Corp Ltd.

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