Policy
Indian Companies In A Fix Over Developments In Venezuela
more...


Will International Oil Market Favour Prime Minister Modi?
more...


Transnational Gas Pipelines Continue To Elude India
more...


Inevitable Confusion: Gas vs Electricity As Transportation Fuels
more...


Petroleum Subsidy Set For Big Jump In Next Fiscal
more...

Regulation
ONGC: From Vision 2030 To Strategic Roadmap 2040
more...


India’s Gas Hydrate Program Entering Crucial Phase
more...


High Speed Diesel Flash Point Needs To Be Reviewed
more...


Tenth CGD Round Poised For Big Success
more...

Alternative Energy / Fuel
Trend Of Renewable Energy Capacity in India
more...

New Projects
IndianOil To Set Up Monoethylene Glycol Plant At Paradip Refinery
more...


IndianOil To Set Up LPG Import Terminal At Paradip
more...


GAIL Cancels IL&FS’ Contract To Construct Bokaro–Durgapur Pipeline Project
more...

Market Watch
India Becomes The World’s Second Largest Importer Of LPG
more...


Over 400,000 Applications Received For 78,500 Petrol Pump Dealerships
more...

Companies
Jindal Drilling & Industries Limited
more...


Scientific Design To Provide Process Technology To IndianOil MEG Plant
more...


L&T Hydrocarbon Engineering Bags Two Orders From IOC
more...


Asian Oilfield Services Ltd Reports Financial Performance
more...

Press Release [FREE Access]
Petro Intelligence » IOC Mulls Options To Break Logjam Over Iran Stake In Chennai Refinery

by R. Sasankan

President Donald Trump’s threat of looming US sanctions against Iran appears to have had one unforeseen consequence: it has blighted the prospect of Iran’s investment in state-owned Chennai Petroleum Corporation’s new refinery project in Tamil Nadu. The US sanctions – expected to kick in sometime in November – will stall Iranian crude oil exports and block its access to global banking channels, thereby scuppering Iran’s investments in projects around the world.

Sanjiv SinghIndia has maintained an ambivalent stand on the US threat of sanctions against Iran, which is designed to arm twist Tehran into signing a new nuclear agreement and circumscribe its influence over the Middle East. India is not supporting the sanctions that President Trump intends to re-impose on Iran but at the same time it is not in a position to defy them. That places India in a peculiar position vis-à-vis Iran. Not very long ago, in an article in this column I wrote: “Never too close, never too distant: that is how one could characterise the relations between India and Iran.” This attitude will continue to permeate India’s relations with Tehran even after President Trump pulls the trigger. India will attempt to seek some waiver to blunt the full effects of the US sanctions on crude purchases from Iran but it may not be able to extract a significant concession this time round.

The National Iranian Oil Company (NIOC) and Indian Oil Corporation (IOC) have been wrangling over the terms and conditions for investing in a 9 million tonne per annum (MTPA) refinery project that Chennai Petroleum Corporation Ltd (CPCL) has proposed to establish at Nagapattanam in the south Indian state of Tamil Nadu. At one stage, the talks had reached an impasse and the differences seemed unbridgeable. Back then, neither Saudi Arabia nor United Arab Emirates (UAE) had made any overtures to invest in India’s refinery sector. As soon as these two Gulf nations announced their intentions, the differences between IOC and NIOC quickly evaporated and the latter agreed to invest in the project.

Ali KardorAmong the Middle-Eastern oil-rich countries, Iran was the first to invest in a refinery in India. Back in the 1960s, National Iranian Oil Company (NI0C) picked up a 15 per cent equity stake in the government of India-promoted Madras Refineries Ltd (MRL). AMOCO also invested in the project. While AMOCO pulled out in late 1970s, NIOC opted to stay invested. Later, the government of India sold its stake in MRL to IOC which rechristened MRL as Chennai Petroleum Corporation Ltd (CPCL) and turned it into a subsidiary.

CPCL was designed to process Iranian crudes like Iranian heavy and the Lavan blend which are known to have high sulphur content and are highly acidic. Although the listed price of Iranian crude is above the Arab Heavy, it is cheap in the international markets as many refiners are not able to process this crude. This forces Iran to sell its crude at a cheaper price. Indian companies such as RIL and erstwhile Essar Oil had struck long-term deals for Iranian crude at a very favourable price which included partial rupee payment and long-term credit. These deals were struck before the earlier US sanctions, imposed by former President Barrack Obama in late 2011.

NIOC did not participate in the expansions that CPCL undertook. This was understandable considering Tehran’s running battle with the US. The negotiations between NIOC and IOC began after the Obama administration lifted the sanctions against Iran in January 2016. The proposed 9 million tons per annum refinery was estimated to cost Rs 270 billion, which has now escalated to Rs 300 billion. The refinery capacity could later be expanded to 15 million tons. CPCL already has a 1 million ton refinery in that location in addition to its 10.5 million ton per annum refinery at Manali near Chennai.

IOC is India’s largest refining and marketing company which is expanding its capacity very aggressively. The management of IOC has always enjoyed a very good equation with NIOC. However, this could now become complicated by the fact that IOC, in collaboration with BPCL and HPCL, intends to partner Saudi Aramco and ADNOC in the proposed mega refinery project in the state of Maharashtra.

The Indian PSUs have nursed a grouse ever since Iran stopped them from developing the Farzad-B field in that country which they had discovered in the first place. It is natural that Saudi Aramco and ADNOC will try to consolidate their positions in India as Iran goes through another phase of agony created by the sanctions.

In view of the sanctions, NIOC’s investment cannot reach India through normal banking channels. IOC, therefore, cannot accommodate NIOC for the time being in CPCL’s new refinery project. Industry circles, however, do not rule out the possibility of IOC finding a way out of the mess.

IOC can always agree to dilute its stake in the new refinery at an appropriate time in favour of NIOC. The contentious issue will be at what price and on which date. This can be handled in any number of ways. IOC could levy a carrying cost at an agreed rate (say 12-15 per cent). Or, the price could be based on an independent valuation at the time of the sale or the market price of the shares of the proposed refinery.

Being an equity partner in CPCL, NIOC will have a say in the new refinery project. Iran is now weak, but Iranian crude will always remain an attraction for Indian refiners. The IOC management is trying to ensure that it does not wreck that relationship with its Iranian counterpart. 



To download the latest issue 'Volume 25 Issue 21 - February 10, 2019', click here
Petro Intelligence [FREE Access]
War Of Words On Wisdom Of Subsidizing Refinery Exports
more...

Refinery Exports: A Bane And A Burden On Indian Consumers
more...

Clash Of Egos Bedevil Mega Refinery Project
more...

Saudi Tweet Stokes A Storm Of Speculatio
more...

Foreign Investment
Six Foreign Companies Bid In Second Auction
more...

Overseas Investment
Essar Acquires Stakes In BP’s Oil Terminals, Pipeline To Expand In UK
more...


OVL Awaits Overdue Dividends From Crisis Hit Venezuela
more...

Gas Scene
Domestic Gas Scene in December 2018
more...


Capacity Utilization of Gas Pipelines
more...


Update: PNG Connections
more...


LNG Import Projection By Industry Group
more...


Status Of Gas Pipelines Under Construction
more...


Trends In Domestic Natural Gas Price & International Bench Marks
more...


Capacity Utilization of LNG Regasification Terminals
more...


Story Of Two LNG Terminals Of Petronet LNG Ltd
more...


CNG Growth Over The Years & CNG Sales as on 1st April, 2018
more...


LNG Terminals in India
more...


CGD Factsheet As Of Sept 2018
more...


A total picture about Natural Gas scene including CBM in India
more...


State-Wise Share In CGD Business
more...


Update: Sectoral Consumption of Natural Gas, LNG Import and Total Net Available Gas for Sale
more...


Declining Rate Of Gas Flaring In ONGC’s Fields
more...

Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
Merger & Acquisitions In The Indian Oil And Gas Sector
more...


Company-wise Length & Capacity of Product and Crude Pipelines in India
more...


Energy Transition Index for India
more...


Energy Architecture Performance Index for India
more...


Estimated Basin-wise Hydrocarbon Resources in India
more...


Categories of Indian Sedimentary Basins
more...


Forward Path for India-Economic Growth, Energy and Climate Change - Some Introspection
more...


India’s Declining Self- Sufficiency In Petroleum Products
more...


India: Per-capita Energy Consumption & Energy Intensity
more...


Increasing Share of High Sulphur Crude in Indian Refineries
more...


Energy Trilemma Index
more...


Power Availability Improves In December 2018
more...


Petroleum Products Import Falls In December 2018
more...


Share of Imports From OPEC Declined In December 2018
more...


Vedanta’s Oil & Gas Production Marginally Down In 2018
more...


Oil Import - Volume And Value
more...


Major End use of petroleum products in India
more...


Fuel & Loss In Indian Refineries: An Update
more...


Update: Distillate Yield of PSU refineries
more...


Bharat Petroleum Corporation’s Impressive Refining Coverage
more...


Update: Specific Energy Consumption of PSU Refineries
more...


India Imports Less Petroleum Products In November 2018
more...


OIL’s In-House Capabilities & Infrastructure to support E&P Activities
more...

Tenders [FREE Access]
BPCL
more...


IndianOil
more...