The lifting of sanctions on Iran at a time when the global crude oil prices have nosedived to historic lows may not be all good news for Indian companies. It would become easier for oil refiners to source crude oil from there though increasing quantities from the country could take time and might not be feasible in the short run.
Further fall in crude oil prices due to Iranian crude coming into the market could, however, add to the woes of India's oil and gas producers like Oil and Natural Gas Corporation, Oil India and Cairn India. Besides, the quality of crude would be a crucial issue. According to Platts, an estimated 65 per cent of 47-49 million barrels of Iranian oil volumes stored on ships is condensate with high sulphur content.
The sanctions were lifted late Saturday, following confirmation from the International Atomic Energy Agency that Tehran had fulfilled its obligations under an agreement last summer to limit its nuclear programme. The International Atomic Energy Agency (IAEA) report triggered Implementation Day, which will give Iran access to billions of petrodollars frozen in foreign banks and remove the constraints that have capped the country's crude exports at just one million barrels a day (b/d) over the past four years, said Platts in a report.
A senior executive from Indian Oil Corporation (IOC), the nation's largest fuel retailer, said: "Half a million barrel of additional crude in the market means prices will remain depressed at least for some time."
The benefits will take a long time to materialise. Iran crude volumes of imports have been replaced by oil from other geographies over the years as India diversified its basket. India's import of crude oil from Iran has dropped from 21 million tonne (mt) in 2008-09 to 10 mt last financial year. The share of Iranian crude in India's total crude oil imports has also slumped from more than 16 per cent to less than five per cent during this eight-year period.
A decline in crude oil price is positive for the current account deficit as India imports about 80 per cent of its crude oil requirement. According to rating agency Icra, every one dollar decline in international crude oil price reduces the import bill by about Rs 6,500 crore and the gross under-recoveries by Rs 800-900 crore. The road for refiners, however, would not be all clear. The Iranian crude was attractive for the India refiners, owing to sops that Iran offered such as concessional pricing and three-month credit period as against one-month credit period, which is the norm in the industry.
"These sops significantly buttressed the gross refining margins of Indian refineries and aided their liquidity," said Icra.
Prospects for oil block, fertilisers improve
One of the first upstream projects languishing due to imposition of sanctions on Iran is the Farzad-B block in the Farsi field, estimated to have 12.8 trillion cubic feet of recoverable gas reserves. ONGC Videsh Ltd had discovered the Farzad-B gas field in 2008 and in 2010 submitted a revised master development plan for producing 60 per cent of the 21.68 trillion cubic feet of in-place gas reserves. Geopolitics, however, came in the way of its development with a result that the block was not only surrendered by Indian companies, but Iran put it up for fresh bidding in 2014.
A consortium comprising Oil and Natural Gas Corporation, India Oil Corporation and Oil India signed an agreement with the National Iranian Oil Company in 2002. After investing $90 million in the exploration phase, the consortium quit the contract, which insiders say was because of India's fear of displeasing the US. Getting back the project could, now, prove difficult for the Indian companies.
Besides oil, the lifting of sanctions could see revival of projects for setting up fertiliser production plants in Iran, with the latter providing gas under long-term contracts.
DECODING LIFTING OF SANCTIONS ON IRAN
The lifting of sanctions on Iran, which came late Saturday, followed confirmation from the UN's International Atomic Energy Agency that Tehran had fulfilled its obligations under an agreement last summer, to limit its nuclear programme. Prior to lifting of sanctions, Iran's crude export was capped at just one million barrels a day (b/d) over the past four years.
IRAN'S OIL PLANS
Iran's oil ministry activated its planned 500,000 b/d oil output increase on Sunday. If achieved, this volume would take Iranian output to around 3.39 million b/d and exports to 1.5 million b/d
Iran has based its next budget for 2016-2017 on an oil price of $40/b and exports of 2.25 million b/d, Gholamreza Kateb, a govt spokesman said on Sunday
Iran hopes to attract top international oil companies to its upstream sector (estimated at 157 billion barrels) and gas (1,200 Tcf*). It has designed a new upstream contract model and will present it in London in February
Iran is currently pumping less than 3 million b/d. A Platts survey estimated that the country produced 2.89 million b/d in December
The International Energy Agency has said it expects Iran to be able to achieve crude output of 3.6 million b/d, similar to the 2011 level, within six months of lifting the sanctions
The immediate impact on exports is expected to come from Iran's considerable floating storage. According to latest data from cFlow, Platts trade flow software, between 47 million and 49 million barrels of Iranian crude oil and condensate is stored on ships of the state-owned National Iranian Tanker and other ship operators
- Market sources have estimated 65% of this volume to be condensate and expect some of this to trickle into the spot market in Asia. They, however, said Iranian condensate has limited outlets in Asia
Source : Platts
China, India, Japan, South Korea, Turkey and Taiwan were the only six buyers of Iranian crude - down from around 20, before sanctions were tightened in mid-2012
China, which imported an average 539,509 b/d of Iranian crude over the first 11 months of 2015, would remain Iran's top buyer
The European Union had imported nearly 600,000 b/d of Iranian crude and condensate before the tightening of sanctions in 2012. Most of this volume went to Spain, Italy and Greece. Spanish and Italian refiners have said they are interested in resuming Iranian crude imports once sanctions are lifted
- Increased supply from Iran could affect demand for West African, Russian, Caspian, North Sea and Iraqi crudes, among others, which have replaced Iranian volumes