BPCL To Cut Russian Crude Purchases As Freight Costs Erode Price Advantage

New Delhi: Bharat Petroleum Corporation Ltd (BPCL) expects Russian crude purchases to decline in November as higher freight costs erode the grades’ price advantage, while Middle Eastern grades have become more commercially viable, a senior company executive said Monday.

“We are getting the full volume, but there are challenges,” Director (Finance) Vetsa Ramakrishna Gupta told analysts on an earnings call, adding Russian cargoes were “significantly reduced” for November ​because of higher freight costs.

BPCL, which sourced about 37 per cent of its crude from Russia in the July-September quarter, has continued to diversify its procurement as geopolitical tensions disrupt shipping routes and push up freight and insurance costs. The company has nevertheless secured sufficient crude to sustain refinery operations, he said.

Russian crude prices, which carried a premium of USD 12-13 a barrel in October, have more recently narrowed to a premium of about USD 1-2, he said. The economics could therefore improve for Russian supplies in December, depending on freight costs and the offers available when purchases are finalised.

Gupta said supplies from the Middle East had become more commercially viable than Russian supplies and had increased compared with the first quarter. Going forward, higher volumes from the region are expected ​in October and November.

“Certain cargoes are available at a discount, at times crude is available at a premium. So it’s a mix,” Gupta said, describing the market as volatile and noting that procurement economics vary by cargo, freight, insurance and delivery terms.

BPCL’s average landed crude cost was about USD 10-12 a barrel above its benchmark, depending on the source and delivery route, he said. Freight costs for crude have risen without a commensurate increase in product freight, putting pressure on refining margins.

The company has expanded sourcing from the Middle East as Saudi Arabian supplies improved during the quarter. Shipments from Iraq and Kuwait, however, had yet to return fully to normal levels, Gupta said. BPCL expects Middle Eastern volumes to remain relatively strong in October and November.

The company also said its Singapore-based international crude desk, which began operations in September, had helped it access new sourcing opportunities, including a cargo from the Caspian region at a discount.

ANDHRA REFINERY PROJECT ADVANCES

BPCL expects to take its proposed Andhra Pradesh refinery and petrochemical complex to its board for a final investment decision in the coming weeks, subject to financing arrangements and regulatory approvals.

The company is evaluating a refinery with a capacity of 10 million tonne a year and petrochemical intensity of about 32-33 per cent, Gupta said. The detailed feasibility report is in its final stages, with cost estimates undergoing review.

The board has approved the creation of a wholly-owned subsidiary to serve as the project company, with initial share capital of up to Rs 4,900 crore, subject to applicable approvals. The structure is intended to facilitate financing, lender engagement and the induction of strategic partners.

BPCL is considering diluting at least 30 per cent of the project’s equity as development progresses, with potential ownership structures still under discussion.

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