Rosneft deal to open new oil routes for India.

NEW DELHI: Rosneft's takeover of Essar Oil has the potential to redraw India's oil routes, particularly for Russian-owned crude, to reduce dependence on supplies from Middle East and pitchfork the country into a regional products marketing war with China in the next three years.

Rosneft, the world's largest publicly traded oil company , and two other investors on Saturday bought 98% of Essar Oil's 20 million-tonne-per-annum refinery , associated port and fuel retail network for $13 billion. Rosneft will be in the driver's seat with 49% stake.

The deal indicates Rosneft's thrust on expanding refining capacity outside Russia to ensure a captive market for its rising portfolio of producing assets at home and abroad as well as providing a hedge against fresh Western sanctions hitting its crude sales. The Essar refinery alone would add 21% of Rosneft's total capacity in Russia, making India the fulcrum of its refining empire.

Rosneft has already said it intends to process crude from its Venezuela asset in India. Venezuela now accounts for roughly 12% of India's oil supplies, with imports by Essar, Reliance Industries and state-run refiners.

Venezuelan crude can be processed only by refineries with high level of sophistication, which somewhat limits its market to mostly Asian region even though it is cheaper than global benchmarks.

Rosneft is expected to le verage the high level of sophistication of Indian refineries, especially those being modernised in state sector, to raise the flow of Venezuelan crude to India.

The company is also likely to go for swaps with South Korean, Japanese and European buyers that may see oil from new sources flowing to India. Such developments will only hasten the ongoing churning in India's oil shopping, which saw Iraq replacing Saudi Arabia in June as the top supplier and South America raising its share.But it is doubtful whether Rosneft's entry will result in a price war with Middle East suppliers since the latter have the advantage of lower transportation costs.

Source : economictimes.indiatimes.com