BPCL Prepares for Iranian Crude Return: Oil Giant Diversifies Sourcing Amid Geopolitical Uncertainty

BPCL Prepares for Iranian Crude Return: Oil Giant Diversifies Sourcing Amid Geopolitical Uncertainty​

BPCL Engages Suppliers as Iran's Sanctions Status Remains Uncertain​

Bharat Petroleum Corporation Limited (BPCL) has initiated talks with various suppliers to prepare for the potential resumption of crude oil imports from Iran. The move comes amidst continued geopolitical uncertainty regarding international sanctions. Finance Director Vetsa Ramakrishna Gupta revealed that the company is actively monitoring developments related to a definitive agreement between the United States and Iran.

The ability of BPCL to procure Iranian crude hinges on whether sanctions are officially lifted or extended. Currently, Washington has granted Iran a 60-day waiver concerning oil sanctions. This waiver permits Iran to produce, export, and sell its crude until August 21.

Gupta stated that while discussions with suppliers are underway, fresh requirements for procurement from Iranian sources can only commence from September 1. He added that buying from Iran post-August would depend on the clarity of an extended waiver and a solidified agreement between Tehran and Washington.

Reliance on Russian Crude Remains Economically Preferred​

Currently, BPCL is sourcing nearly 40 per cent of its crude requirements from Russia. The company has also increased spot market purchases to ensure a consistent supply flow. During recent periods of crisis, they reportedly paid premiums as high as $300 per barrel to secure specific cargoes.

BPCL typically maintains reserves equivalent to 21 to 23 days of crude oil and 28 days of refined products on average. Gupta highlighted that reliance on Russian Urals offers a safer and more economical option for the company right now.

This perspective is largely based on price valuation. Russian Urals are available at a discount of $6-$7 per barrel. In contrast, Iranian oil is expected to offer a lower discount of $4-$5 per barrel.

Gupta concluded that when diesel and ATF (Aviation Turbine Fuel) cracks are high, the value proposition of Russian Urals is unmatched for BPCL’s refineries. He noted that even a $4-$5 discount on Iranian crude does not provide enough competitive advantage compared to other market grades. Therefore, he asserted that Iranian crude is not currently a commercially superior option for their refinery.

Diversifying LPG Sourcing Beyond the Middle East​

In addition to crude procurement, BPCL is strategically diversifying its Liquefied Petroleum Gas (LPG) sourcing. This diversification plan was informed by lessons learned from recent instability in the Middle East.

BPCL intends to procure LPG supplies from multiple regions, including the US, Angola, Argentina, and Iran. While direct sourcing from Iran has not yet begun, BPCL views Iran as a potential future source for LPG.

For next year’s requirements, discussions can be held with Iran, the US, Angola, or Argentina. The company cautioned that they are not expecting any significant spot LPG procurement from Iran within this current year due to ongoing stability concerns.

BPCL currently holds a term contract with the US for 10 per cent of its sourcing and plans potentially expanding this commitment to around 15 per cent next year.

Call for Improved National LPG Storage Capacity​

Gupta also highlighted a critical concern regarding India's current LPG storage capacity, which stands at merely 8 to 10 days. He noted that this level is insufficient to manage the impact of major global crises.

BPCL is currently focused on addressing how to build up and strengthen LPG storage capabilities. Discussions are in progress to finalize the methodology for increased capacity.

The question remains whether this capacity building will be achieved through individual companies, a common industry effort, or if strategic reserves must be created with governmental assistance.