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Russian naphtha is gaining traction in India as a low-cost feedstock for refineries and petrochemical plants, amid price caps imposed by Western nations. The Group of Seven nations, the European Union, and Australia have implemented a price cap of $45 a barrel on refined products like naphtha and fuel oil, in a bid to prevent Moscow from funding its war against Ukraine. This has led to Indian companies looking towards Russia for crude oil supplies, especially after the country became Moscow’s top oil client after China, due to the West shunning supplies from Moscow.
Reliance Industries Ltd., the owner of the world’s largest refining complex, has ramped up its Russian naphtha imports in February, with ship tracking data from Refinitiv showing imports of about 222,000 tonnes. This comes after Reliance began importing Russian naphtha in September and shipped in about 217,000 tonnes by the end of January. Reliance, already India’s largest buyer of Russian naphtha and fuel oil, is reportedly considering increasing its imports further.
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State-owned refiners Bharat Petroleum Corp. and Indian Oil Corp. are also looking for opportunities to buy Russian naphtha, according to sources. Haldia Petrochemicals Ltd would also consider purchasing Russian naphtha if the quality and cost are suitable for its plants. However, none of the companies responded to emails seeking comment.
The G7 price caps prohibit Western insurance, shipping, and other companies from financing, insuring, trading, brokering, or carrying cargoes of Russian crude and oil products unless they were bought at or below the set price caps. While Indian refiners are unlikely to purchase Russian diesel as import costs are high, they could benefit from purchasing naphtha as it could shave costs and boost margins.
India is self-sufficient in diesel production as most refiners are traditionally geared to maximize gasoil output. Unlike naphtha, which is imported by some refiners and petrochemical makers, Indian refiners are unlikely to purchase Russian diesel as import costs are high after adding $10-$15 per barrel in freight and insurance costs to the $100 price cap for the fuel. Additionally, there is a windfall tax on diesel exports, making re-exports uneconomical.
According to a refinery executive, any diesel imports from Russia would boost India’s exports, and exports would be charged with the windfall tax. Due to its proximity to both Russia and Europe, the Middle East is considered the best region for Russian diesel imports.
With the price caps imposed by Western nations, India’s interest in ramping up Russian oil products imports has increased. As India’s largest buyer of Russian naphtha and fuel oil, Reliance Industries Ltd. is considering increasing its imports further, and state-owned refiners Bharat Petroleum Corp. and Indian Oil Corp. are also looking for opportunities to buy Russian naphtha. However, Indian refiners are unlikely to purchase Russian diesel due to high import costs and a windfall tax on exports.