HPCL relies less on spot market for crude purchase

Vol 7, PW 8 (02 Jul 03) Midstream & Downstream

HINDUSTAN PETROLEUM, India's second largest refiner, is doing all it can to comply with new ministry guidelines to import more crude through term contracts and rely less on the volatile spot market.

Early last month, Shastri Bhawan approved a request by Hindustan Petroleum to sign a crude oil import term contract with Petronas of Malaysia for 240,000 tonnes of crude from 1st July to 31st March 2004. The contract allows a 10% fluctuation in supply upward or downward at Petronas' option (discretion).

Also at Petronas' option are the grades of oil it will export to HPCL though it is widely expected that Tapis Blend, Miri Light and Labuan will figure among the crudes. Delivery will be FOB at the Petronas Term Price that is effective for the date of bill of lading.

Talks between Hindustan Petroleum and Petronas for this contract began in April as part of the Indian refiner's efforts to diversify crude oil sources and shift the balance of its imports to term contracts over spot contracts. In March, the oil ministry issued Indian state refiners new guidelines to try to import 80% of their crude oil requirement through term contracts.

With 240,000 tonnes of Malaysian crude, Hindustan Petroleum is in a comfortable position to fulfil its government-imposed term contract requirement for this financial year. Consider the following: HPCL requires 13.6m tonnes crude oil this year.

Of this, 5.1m tonnes will be domestic crude from ONGC and the Cairn Energy-operated Ravva oilfield. The balance 8.5m tonnes needs to be imported.

Out of the total imports - if the Malaysian deal is accounted for - 6.25m tonnes will be through term contracts and the remaining 2.25m tonnes will be from the spot market. Calculate the term to spot ratio and it works out at 73% term contracts and 27% spot contracts.

Happy, ministry officials write that the split "seems to be in order."