Indian energy investors in Russia warily watch sanctions unfold
Premium- The firms are also keeping a watch on the likely impact on dividend payouts from energy ventures in Russia
NEW DELHI : India’s state-run oil firms are closely tracking the severe sanctions imposed on Russia by Western nations over its invasion of Ukraine as they seek to secure investments of $16 billion made in the Russian energy sector so far from any potential fallout, said two government officials.
The companies are also keeping a watch on the likely impact on dividend payouts from energy ventures in Russia and potential investment opportunities in projects there amid the hit to payment channels post the sanctions that intensified on Tuesday with the US imposing a ban on Russian energy imports. “Today I’m announcing the US is targeting the main artery of Russia’s economy," US President Joe Biden said. “We’re banning all imports of Russian oil and gas and energy."
India’s state-owned companies have invested in the Far East and East Siberia, in oil and gas assets such as Sakhalin-1, Vankor and Taas-Yuryakh. ONGC Videsh Ltd (OVL) owns a 20% stake in the Sakhalin-1 hydrocarbon block and had acquired Imperial Energy Corp. Plc’s Siberian deposits. OVL, Oil India Ltd (OIL), Indian Oil Corp. Ltd (IOCL), and Bharat Petroresources Ltd own a combined 49.9% in Vankorneft Subsidiary, while a consortium comprising OIL, IOC, and BPL, owns 29.9% in Taas-Yuryakh Neftegazodobycha.
“The ban announced by the US for crude oil and product imports does not have an impact on OVL investments in Russia, as no US company has directly bought crude from OVL share of production in the recent past," a OVL spokesperson said in an emailed response to queries. “OVL is keeping a close watch on the developing situation," the spokesperson added.
Emailed queries to spokespersons of OIL, IOCL, BPCL, Russia’s Rosneft, and India’s oil ministry on Wednesday morning did not elicit any response till press time. Global crude prices moderated on Wednesday with the benchmark Brent trading at $124.2 a barrel and West Texas Intermediate at $119.8 a barrel at press time. The cost of the Indian basket of crude, comprising Oman, Dubai, and Brent crude, was at $126.55 per barrel on Tuesday.
Any increase in oil prices is a worry for India which imports 85% of its oil and 55% of natural gas needs. Mint reported that OIL had no ‘near-term’ plans to acquire energy assets in Russia following the sanctions.
Russia has warned that oil prices could breach the $300 per barrel mark. While Russian energy supplies to India are low, Russian crude and liquefied natural gas (LNG) will be off-market for the US, which may further cause a spike in prices. It also raises concerns over India’s and Russia’s multi-pronged energy ties that includes sourcing and supply, upstream investments, and collaborating in petrochemicals.
India, the world’s third largest oil importer, has been leaning on its old energy partner and eyeing more long-term crude oil contracts through preferential pricing. New Delhi signed the first term contract for crude oil sourcing from Russia in February 2020, with IOCL and Rosneft inking the deal for 2 million metric tonnes of Urals grade crude. Also, Rosneft-owned Nayara Energy runs a 20 million metric tonne per annum refinery at Vadinar in Gujarat. Given the sanctions, credit rating agency CARE Ratings on Monday put Nayara Energy under credit watch. “Our refinery is situated on the West coast of India through which we source crude from around the world, majorly from Middle East. Owing to the favourable location of the refinery, sourcing crude has not been a challenge," a Nayara Energy spokesperson said in an emailed statement.
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The unfolding events come in the backdrop of a consortium of OVL, IOCL, and OIL seeking to invest jointly in the massive Vostok project of Rosneft. India has also been looking to invest in Novatek’ Arctic LNG-2 project as part of its energy security playbook. Meanwhile, a high-level inter-ministerial task force of senior Indian government officials is working to finalize measures to limit the impact of the current rise in global oil prices on retail prices of petroleum products as reported by Mint on Wednesday.
The International Energy Agency (IEA) members maintain emergency oil reserves equivalent to at least 90 days of net imports. IEA countries hold 1.55 billion barrels of public emergency oil stocks. In addition, 650 million barrels are held by industry under government obligations and can be released as needed.
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