The
Oil Race is On: China Signs Multi-Billion Dollar Oil Contract
with Venezuela, But India Also Wants Latin American Oil
By
Alex Sánchez
It is no revelation to say that India, as it begins to bloom
as a global power, is adopting a China-like posture in its
search for new oil suppliers. New Delhi’s quest for
energy supplies, as well as other extracted resources, has
brought the Asian powerhouse to the Western Hemisphere, and
to Washington’s attention. India is befriending potential
oil suppliers, be it Mexico or Venezuela, Cuba or Canada.
Even more interesting are New Delhi’s approaches to
Cuba regarding the island’s possible oil reserves.
It seems clear that India is hungry for guaranteed oil sources
in order to maintain its booming economy’s momentum
and its growing geopolitical influence, and in Latin America
it is finding these potential suppliers and new friends.
Indian Oil Hunger
On July
2nd, the Financial Express published an article predicting
that the Indian government will send the Indian Navy to fly
the flag throughout the hemisphere in oil-rich zones, especially
locations where the state-owned oil company, ONGC Videsh Ltd
(OVL), has invested in oil and gas exploration. Pranab Mukherjee,
external affairs minister, said that maritime diplomacy has
become an essential component of India’s overseas foreign
policy and that it must fulfill its necessities outside the
immediate geographical area. “We have to look at the
investments ONGC Videsh is making in energy rich areas such
as Sakhalin, Sudan, Nigeria and Venezuela and extend our maritime
interests through maritime diplomacy,” Mukherjee said.
Furthermore,
a senior member of the Confederation of Indian Industry (CII)
said the obvious when he noted that “oil
is the need of the hour and India has to focus on new markets
to get the momentum going. We have to go beyond Europe and
build economic cooperation.” According to a report issued
by the Indian news agency PTI, the growth of oil imports in
the first four months of 2006-07 came to 43 percent, 32 percent
in 2005-06 and 62 percent in 2004-05. India is importing crude
oil not only to meet domestic demand of petroleum products,
but also for export of value-added products. The report mentions
that Indian oil imports, mostly comprised of crude oil, were
valued at $19.87 billion between April 2007 and July 2008.
India also has plans to have as much as 5 million tons of oil
in reserve for emergency use. The country currently imports
around 70% of the oil it consumes.
It is only natural that India will soon have to turn in a
major way to areas with reliable sources of oil, like Latin
America, which presently is the second-largest source of oil
reserves after the Middle East.
Venezuela
Last September,
as reported by the Caracas daily El Nacional, Venezuela’s Hugo Chávez was quoted as saying: “India
needs more oil each day. Venezuela wants to become and will
become India’s oil supplier.” Not long after that,
in January 2007, there were reports that Venezuela’s
state oil company, Petróleos de Venezuela SA, or PDVSA,
was looking at the possibility of setting up a refinery in
India and establishing a petroleum retailing venture there.
An Associated Press article elaborated that the proposed refinery
would process the Venezuelan crude from the San Cristobal block,
where India’s ONGC Videsh Ltd., an arm of ONGC, has been
offered a 30 percent stake. The block has the potential to
produce 900,000 to 1 million barrels of oil daily. On February
16, AFX International Focus reported that President Chávez
said he is ready to divert oil exports from their current markets
to other countries like China and India, although his ability
to find an immediate alternative market is complicated because
most refineries capable of processing Venezuela’s heavy
crude are located in the United States.
Recently,
Chávez ran into trouble with foreign oil
companies regarding the nationalization of oil production ventures
in the South American country. As a result, oil companies like
Exxon and Conoco operating in the country decided to liquidate
their stakes in Venezuela and seek just compensation. It is
unclear if this nationalization would also affect Indian companies,
but it seems clear that, regardless of whatever decisions Chávez
carries out, New Delhi intends to go well out of its way to
obtain a share of Venezuelan oil rights. This is particularly
true after the recent $10-billion deal signed between Beijing
and Caracas. China already is India’s direct competitor
in Asian energy markets, and New Delhi cannot afford to be
left out of the race for dwindling global oil supplies.
As important as Venezuela is, due to its vast oil reserves,
it is noteworthy that India is also looking for oil suppliers
elsewhere in the region.
Brazil
A March
29 article by Business Times Singapore provides the example
of Brazil as an untapped oil giant. The article explains
that with almost 12 billion barrels, Brazil ranks third in
proven oil reserves in the region, after Mexico and Venezuela;
it also has much unexploited potential reserves. Sixteen per
cent of Latin America’s oil supply in 2005 came from
Brazil and the country’s market share is scheduled to
expand to 21.5 per cent by end-2010, with 2.5 million barrels
per day in production.
Brazil’s major oil reserves are certainly of interest
to India. A June 4 AP Financial Wire article reported that
India’s state-run Oil and Natural Gas Corporation (ONGC)
and the Brazilian state-run oil leader Petróleo Brasileiro,
or Petrobras, “agreed to swap interests in oil exploration
blocks, as part of efforts to boost economic cooperation between
the two countries.” The blocks are located in Maranhão,
in the Sergipe-Alagoas Basin and in the Santos Basin. Last
year, the Indian company bought a 15-percent stake in a Brazilian
offshore oil field for about US$170 million from Royal Dutch
Shell PLC, after Petrobras agreed to waive its first right
to buy that stake once it became available. Under the latest
agreement, Petrobras plans to offer 25- to 30-percent stakes
to ONGC in three exploration blocks in Brazil.
Mexico
A September
10 Deutsche Presse-Agentur article explains that in 2006
crude oil accounted for 90 percent of Mexico’s
exports to India, which makes petroleum the cornerstone, at
this time, of Indian-Mexican relations. In addition, the Mexican
Energy Secretary has released a press statement announcing
that four companies—the Colombian state oil company Ecopetrol,
Japan’s Itochu, India’s Reliance, and the U.S.
company Valero—have shown interest in building a refinery
in Central America. The members of the Plan Puebla Panama (PPP)
co-operation scheme back the project, with four countries (Costa
Rica, Guatemala, Honduras and Panama) interested in being considered
as the location for the new refinery.
The idea
of building this type of oil facility was first announced
by former Mexican president Vicente Fox at the Summit of the
Americas, held at Mar del Plata in November 2005. According
to a July 9 article which ran on the AP Financial Wire, Mexico
has promised to supply the plant with 80,000 barrels of heavy
crude daily from the state-owned oil company, Petróleos
de Mexico. The company that wins the construction bid will
also be committed to supplying 55,000 barrels a day of gasoline
and diesel stock (36 percent of regional demand) at a preferential
price.
The aforementioned
Business Times article regarding Mexico mentions that the
country is stepping up oil production, and
is expected to produce 3.8 million barrels of oil per day by
2010, which adds up in total to about 33 percent of Latin America’s
supply. Mexico’s share of regional refining capacity,
at almost 21 percent in 2005, is likely to expand to almost
23 percent. The country has six refineries with a total capacity
of about 1.5 million barrels per day.
It will
be interesting to see how the recent bombings around a dozen
oil and gas pipelines in the Gulf Coast state of Veracruz
affect, it at all, Indian-Mexican relations and oil-related
projects. The People’s Revolutionary Army (ERP) has claimed
responsibility for these attacks. President Felipe Calderon
was actually on a visit to India when the incident occurred.
He declared that “there is no room for such criminal
acts in a democratic Mexico.”
Cuba & the
Caribbean
In September
2006, India’s Oil & Natural Gas Corp.
announced they will explore oil deposits in the N-34 and N-35
blocs of Cuba’s economic exclusion zone in the Gulf of
Mexico. Cuban President Fidel Castro partly opened the oil
sector to foreign investment in June 1999, in order to cut
dependence on oil imports after years of power blackouts and
fuel shortages. The blocs have an estimated size of about 1,660
square miles and are located in western Cuba. This is a six-year
agreement through which the Indian oil giant will explore an
area of 4,300 square kilometers (1,544 square miles) of Cuban
waters. \
When the
decision was announced, Florida’s daily St.
Petersburg Times published an article explaining that: “exploring
for oil ninety miles off the coast of Florida has set off a
political debate over whether U.S. companies, sidelined by
sanctions, should be allowed to explore there. Some Florida
lawmakers say they are worried about environmental damage and
the potential threat to Florida’s tourism industry, and
want companies exploring with Cuba punished.” U.S. companies
are barred from oil exploration in Cuba’s offshore due
to executive-mandated trade sanctions enforced against Havana
since 1962.
It is noteworthy
that Cuba is not the only country that India is courting
in the Caribbean, nor is it only oil on India’s
mind. An April 24 article by Business Line explained how relations
are improving between Trinidad and Tobago and India. The article
explains that there have been on the Caribbean island, with
its large Hindu population, a total of $3 billion in Indian
investments. Mittal Steel has invested $1.8 billion, while
Essar Steel is setting up another steel plant costing $1.2
billion. The island also possesses abundant oil reserves. Finally,
the article notes that a delegation from Reliance Industries
Ltd (RIL) was in Suriname last month looking at the possibility
of oil exploration and production as well as mining projects.
Colombia, Peru and Bolivia
Meanwhile,
with respect to Colombia, a key South American player, New
Delhi is also making its presence felt. Last September,
the Press Trust of India reported that the Indian Oil company
paid about $425 million dollars to acquire 50 percent stake
in the Colombian oil firm, Omimex de Colombia. The article
explains that India’s state-owned ONGC Videsh Ltd, the
overseas arm of ONGC, and the Chinese firm Sinopec are paying
$850 million dollars to acquire Omimex de Colombia, which currently
produces 20,000 barrels of oil per day.
With regards to Peru, the Indian company Reliance is at an
advanced stage of closing contracts on two oil blocks in the
Andean country.
Finally,
as a side note but of equal importance, even if it is not
oil-related, is a recent deal between New Delhi and
La Paz, regarding El Mutún in Bolivia, the world’s
largest undeveloped iron deposit, which is estimated to contain
more than 40 billion tons of ore. Jindal Steel & Power
Limited (JSPL) along with its subsidiary Jindal Steel Bolivia
(JSB), signed a contract with the Bolivian government, through
which JSPL will invest US$2.1 billion over eight years to develop
an integrated steel plant in the country. A JSPL press release
explains that “this is the largest investment by an Indian
company in Latin America and the largest foreign investment
in a single project so far in Bolivia.”
Oil and Friends for New Delhi
Along with
China, India is one of the world’s growing
superpowers. With this new position comes a demand for energy
to supply its accelerating economy and its increasingly diversified
industries. By entering the Western Hemisphere, India is expressing
interest in Washington’s backyard; even more interesting
is New Delhi’s approach to Cuba. This must be of major
concern for Washington as it refuses to loosen its trade barrier
on the Caribbean island. What’s worse for the U.S., it
is hardly in a position to exercise pressure on its vital newfound
Asian ally. Washington seems to be caught between a rock and
a hard place, while Indian influence, in its quest for oil,
continues to expand throughout the Western Hemisphere, unencumbered
by ideological considerations or historic political animosities.
Alex
Sánchez is
a The Council on Hemispheric Affairs (COHA) Research Fellow.
Petroleumworld not necessarily share these views.
Editor's
Note: This
article originally published on Sept. 17, 2007, by The Council
on Hemispheric Affairs (COHA).The Council on Hemispheric Affairs,
founded in 1975, is an independent, non-profit, non-partisan,
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