The Issue of Oil Imports from Venezuela

Context

Recent statements by US President Donald Trump have created a new stir in India's energy sector. President Trump indicated that India has agreed to purchase more crude oil from the US, which could include Venezuelan oil. Although not mentioned in the official joint statement, this potential change has sparked technical and economic debate among Indian oil experts and refinery operators.

Technological Challenges: Heavy Burden of Oil

• Venezuelan crude oil is known for its "heavy" nature, which presents several complications for Indian refineries. Top officials from Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL) have expressed the following concerns about the nature of this oil:
  • High Viscosity: Venezuelan oil is very thick. Refinery equipment is designed for a certain viscosity. High viscosity increases pressure in pipes and valves, increasing operational risks.
  • High Acid Number: This oil contains a high concentration of chemicals and acids. If this exceeds the system's capacity, the entire refining system (pipes, vessels, and inlets) is at risk of corrosion.
  • Impurities: It contains high amounts of metals and nitrogen. Experts believe that it cannot be processed directly. It will be necessary to blend it with at least 10-15% lighter crude oil.

Operational and Logistical Constraints

• While not impossible, recalibrating refineries for this type of oil requires time and resources. The main challenges are:
  • Catalysts: The chemicals used in the refining process depend on the type of crude oil. A sudden change in oil type makes it difficult to immediately source thousands of tons of new catalysts from the market.
  • Storage Lack: India currently lacks sufficient storage capacity to hold surplus and diverse oil.
  • Insurance and Shipping: Shipping and insurance costs for oil from Venezuela are 5 times higher than those from the Middle East and 2 times higher than those from Russia.

Economic and Strategic Benefits

• Despite these challenges, the economic aspect is quite attractive. According to SBI Research:
  • If Indian refiners are successful in obtaining discounts of $10-12 per barrel, India could save a significant $3 billion on its fuel import bill.
  • Companies like Reliance, which have advanced capacity to process heavy oil in Jamnagar, have already chartered large tankers (VLCCs).

Way Forward: Diplomacy and Market Conditions

• India's Ministry of External Affairs is ready to revive long-standing ties with Venezuela. Venezuela's share in India's oil basket, which was up to 13% in 2019-20, has now fallen to just 1-2%.
• However, investing in Venezuela is also a risky proposition. Political uncertainty and a sharp decline in production (from 2.5 million barrels in 2010 to 0.88 million barrels now) raise questions about supply continuity. Currently, Indian Oil and Hindustan Petroleum have placed orders for April delivery, which will be the first test of this new energy strategy.

Conclusion

Venezuela's oil is a double-edged sword for India. If technical limitations and shipping costs are balanced, it could prove to be a major game-changer for India's energy security and economy.