Traditionally a net exporter of gasoil, India’s aggressive push to implement sweeping upgrades to its refineries in an effort to extend the Euro-4 norms, has led to an elevated level of maintenance-related closures, which may trigger unusually high gasoil imports in the near term, traders and analysts said.
“We do think gasoil imports will continue,” said Sri Paravaikkarasu, head of oil, East of Suez, at Facts Global Energy.
In April, India fully rolled out the Bharat Stage IV vehicle emission and fuel standards for diesel, capping the sulfur limit at 50 ppm across the country. Previously, the country had both BS III specifications, with a maximum sulfur content of 350 ppm, as well BS IV standards, in operation.
Since then, India’s demand for imported gasoil has been robust.
“Refinery upgrades at IOC [Indian Oil Corp. Ltd.] and CPC [Chennai Petroleum Corp. Ltd.], aimed to meet the Bharat-IV fuel standards implemented on April 1, coincided with a recovery in gasoil consumption, as the impact of demonetization eases,” Facts said in a note.
“This, together with summer demand, called for gasoil imports in recent months. Looking ahead, the early arrival of monsoon in several parts of the country would seasonally weaken gasoil consumption. But, we believe imports should continue, as IOC has scheduled for heavy turnarounds,” it added.
State-run IOC plans to shut its 150,000 b/d Haldia refinery in the Purba Medinipur district of West Bengal for three weeks during November-December. The maintenance shutdown plans are part of the state-owned company’s plan to synchronize its refineries to upgrade production capabilities for higher-grade and lower-emission fuels.
In addition, IOC plans to shut its 160,000 b/d Mathura refinery in Uttar Pradesh for 15 days in mid-August, and half of the the 150,000 b/d refining capacity at its Panipat refinery for planned turnaround in July. It also plans to shut its 120,000 b/d Barauni Refinery in Bihar for five weeks during July-August.
“There is pretty high probability that there will be heavier-than-average maintenance for IOC refineries in 2017, going by the assumption that refineries typically undergo major maintenance every four-five years and the historical frequency of shutdowns,” Platts Analytics said in a note.
Domestic demand for diesel from India tends to peak just before the monsoon season to meet higher consumption during the harvesting season.
MARKET IMPACT
Tenders by India to import gasoil so far has totaled 595,000 mt for delivery over the May-July period, data from S&P Global Platts showed.
Gasoil import tenders were mainly from IOC and state-run Hindustan Petroleum Corp. Ltd., with both refiners seeking 40-ppm sulfur gasoil into terminals, such as Chennai, Visakhapatnam, JNPT, and Kandla and Mundra.
Robust appetite for 40-ppm sulfur gasoil from India has triggered an upward movement in the FOB Arab Gulf 10-ppm gasoil cash differential between late-May and June, data from S&P Global Platts showed.
On May 29, the 10-ppm gasoil cash differential hit a 10-month high of $1.76/barrel to the Mean of Platts Arab Gulf Gasoil assessment, climbing 46% from May 24, when it stood at a premium of $1.30/b. However, the cash differential has since eased from the lofty levels to $1.70/b on June 6.
The 10-ppm gasoil cash differential was last assessed higher on July 19, 2016, at a premium of $1.80/b to MOPAG Gasoil assessment.
Cash differentials for physical gasoil represent the price buyers are willing to pay for the product, below or above the benchmark prices published around the day a cargo loads.
Recent purchases of 40-ppm sulfur gasoil made by IOC were concluded at premiums in the range of $2.70-$3.20/b to the Mean of Platts Arab Gulf 0.005% sulfur gasoil assessments, CFR basis. IOC then bought two cargoes — 40,000 mt each — of 40-ppm sulfur diesel for delivery over the second half of June. The seller could not be confirmed.
In addition, IOC’s most recent buy tender was for two parcels — of up to 40,000 mt each — for 40-ppm sulfur diesel, for delivery over the first half of July.
EXPORTS CONTINUE
Even as the country’s oil marketing companies seek to buy gasoil from the international market, outflows of gasoil from the country are continuing.
According to the latest data from IE Singapore, as much as 141,993 mt of gasoil moved into Singapore from India in the week ended June 7.
The bulk of gasoil exports from India are mainly by private refineries such as Reliance and Essar Oil. The cargoes are shipped directly by the refiners or sold to traders on FOB basis, which are then shipped to the oil-trading hub of Singapore.
In May, Singapore’s gasoil import from India reached 499,945 mt, almost double of April’s import level of 254,173 mt. In May 2016, gasoil imports to the city-state from India was 270,701 mt, the same data showed.
According to Platts Analytics, India’s overall export of oil products is estimated to trend lower in 2017, with gasoline and gasoil outflows reducing by about 6% and 3% year on year, respectively.
It added that the impact of India’s demonetization would diminish by the third quarter of 2017, resulting in India’s overall projected oil demand growth for 2017 outpacing refinery capacity additions. HPCL-Mittal Energy Ltd.’s Bathinda refinery’s expansion from 180,000 b/d to 225,000 b/d is the only one expected this year.
Source: Platts