Rosneft’s takeover of Essar Oil has the potential to redraw India’s oil routes, particularly for Russian-owned crude, to reduce dependence on supplies from Middle East and pitchfork the country into a regional products marketing war with China in the next three years.
Rosneft, the world’s largest publicly traded oil company, and two other investors on Saturday bought 98% of Essar Oil’s 20 million-tonne-per-annum refinery, associated port and fuel retail network for $13 billion. Rosneft will be in the driver’s seat with 49% stake.
The deal indicates Rosneft’s thrust on expanding refining capacity outside Russia to ensure a captive market for its rising portfolio of producing assets at home and abroad as well as providing a hedge against fresh Western sanctions hitting its crude sales. The Essar refinery alone would add 21% of Rosneft’s total capacity in Russia, making India the fulcrum of its refining empire.
Rosneft has already said it intends to process crude from its Venezuela asset in India. Venezuela now accounts for roughly 12% of India’s oil supplies, with imports by Essar, Reliance Industries and state-run refiners.
Venezuelan crude can be processed only by refineries with high level of sophistication, which somewhat limits its market to mostly Asian region even though it is cheaper than global benchmarks.
Rosneft is expected to leverage the high level of sophistication of Indian refineries, especially those being modernised in state sector, to raise the flow of Venezuelan crude to India. The company is also likely to go for swaps with South Korean, Japanese and European buyers that may see oil from new sources flowing to India.
Such developments will only hasten the ongoing churning in India’s oil shopping, which saw Iraq replacing Saudi Arabia in June as the top supplier and South America raising its share of supplies. But it is doubtful whether Rosneft’s entry will result in a price war with Middle East suppliers since the latter have the advantage of lower transportation costs.
But it will be the regional bulk market for products that the impact of Rosneft’s entry in India, projected to maintain the fastest growth in oil consumption till 2040, will be tested since the company has stakes in substantial refining capacity in China. The company definitely has plans to export products, particularly in the Southeast Asian region, from the Essar refinery- and perhaps also from units in China. This may put Rosneft in an unenviable situation where it sees Essar unit pitted against the Chin plants for a pie of the regional products market.