An Indian buyer of liquefied petroleum gas is once again attempting to ease its dependence on Middle East shipments after some supply shocks last year stemming from drone attacks and even a trade war.
Bharat Petroleum Corp. is seeking bids from global suppliers for a fifth of its typical LPG needs in 2021, according to a tender seen by Bloomberg. Bidding is still open to Middle East producers, which already provide BPCL with the majority of its contracted needs. India’s second-biggest fuel retailer made an attempt to broaden its sources of supply earlier this year but the tender wasn’t awarded due to a lack of attractive offers, said traders.
The latest tender is aimed at getting better prices for supplies compared with those from the Middle East and to diversify sources of LPG, according to the objectives listed in the document. India’s fuel retailers get most of their LPG — typically used for cooking — from Saudi Arabia, Qatar, the U.A.E. and Kuwait, leaving them exposed to price fluctuations and supply shocks.
This was highlighted by drone attacks on Saudi Arabian processing facilities and fields, which happened just before India’s festival season, followed by curbed output from the Middle East as OPEC tried to manage the virus-driven oil supply glut. India also faced more competition for Persian Gulf LPG amid the trade war between Washington and Beijing as China stopped importing from the U.S., its main supplier.
“It’s a logical move,” said Jeslyn Chua, an analyst at industry consultant FGE, adding that almost all of India’s LPG imports in August and September were from the Middle East. If tensions between the U.S. and China escalate into another trade war, diversifying supply will be beneficial, she said.
The Middle East, however, still has the advantage of being the closest major producer to India. Other options for BPCL could include Europe and the U.S., although both alternatives face the additional cost of longer shipping times.
BPCL is seeking bids for about 800,000 tons of LPG in 2021, a fifth of its annual import requirement of about 4 million tons. To reduce freight costs, BPCL will consider taking responsibility for shipping if cargoes are sold free-on-board from the Arab Gulf region, unlike its tender earlier this year, which required the seller to deliver cargoes to India. Offers are to be based on a premium or discount to Saudi contracted prices published every month.
LPG has defied a broader demand slump for oil products in India, benefiting from authorities stocking up on supplies for lower-income people and as families spent more time cooking at home amid the world’s biggest lockdown. Imports of the fuel are expected to climb to 16.6 million tons next year, from 16 million in 2020, according to FGE’s Chua.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.