This story is from April 12, 2018

Crude reality forces India and China to consider oil alliance

India and China, which together accounted for 17 per cent of world oil consumption last year, will look for ways to leverage the combined size of their shopping baskets for a better bargain from West Asian crude producers.
Crude reality forces India and China to consider oil alliance
Representative illustration
Key Highlights
  • India and China, which together accounted for 17 per cent of world oil consumption last year
  • The two countries will look for ways to leverage the combined size of their shopping baskets for a better bargain from West Asian crude producers
NEW DELHI: India and China, which together accounted for 17 per cent of world oil consumption last year, will look for ways to leverage the combined size of their shopping baskets for a better bargain from West Asian crude producers.
This was decided at a meeting between oil minister Dharmendra Pradhan and CNPC (China National Petroleum Corporation) chairman Wang Yilin and other Chinese officials on the sidelines of the 16th International Energy Forum ministerial round that concluded on Thursday.

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“As consumers, we have certain mutual interests. Today during our fruitful talks we agreed to promote B2B (business-to-business) co-operation… and we are hopeful that in future buyers will be able to dictate prices,” Pradhan said. He, however, did admit that there will be “fair competition in some areas as it happens in business”, an oblique reference to acquisition of overseas oil and gas fields.
Pradhan’s views were echoed by Li Fanrong, deputy administrator of China’s National Energy Administration. Sanjiv Singh, chairman of India’s largest refiner-marketer, and CNPC chairman Yilin have been tasked to chart a future course.
This is a throwback to 2005, when the then Indian oil minister, Mani Shankar Aiyar, proposed forging a common front in on oil to China’s National Development and Reforms Commission vice-chairman Zhang Xiaoqing on the sidelines of the Asian Round Table – a buyer-seller meet – hosted by India to seek reasonable oil pricing. That proposal resulted in a co-operation MoU in 2006 but lost in the complexities of bilateral relations.

This time, however, the move comes when the centre of gravity of the global oil market has shifted to Asia amid an oversupplied market. China and India today are the world’s second and third largest oil consumers, respectively. International Energy Agency sees the two fuelling half of global demand growth in the next five years, with India driving incremental demand growth through the next two decades.
For both, ‘Asian Premium’ – or a higher price – charged by West Asian oil exporters for shipments to Asian buyers, as opposed to Europe, has been the pet peeve. The hardening oil prices have amplified the effect. But exporters deny any premium, saying it is market dynamics, with each region having its own pricing norm. But how long they can stonewall world’s leading buyers is yet to be seen.
But there are other challenges, apart from the border wrinkles in the relationship between India and China, to finding a common way forward. Different crude buying pattern and preference and the huge difference in quantity may slow down progress. Besides, a wider co-operation with Japan and South Korea will also have to deal with their unease with Beijing’s muscular policy in the Asia-Pacific region. But when there is a diplomatic will, there will be a way.
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