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Tapping into Latin America's Oil

Hari Seshasayee, November 6, 2013

India's ONGC Videsh Limited (OVL) was among 11 foreign companies in Rio de Janiero on Oct. 21 at the bid for Brazil's latest oil find, the Libra oil field. The winning consortium was made up of a Sino-European mix of four companies, with Brazil's Petrobras holding the majority stake. Although OVL didn't make the final cut, its presence in the bidding process points to India's growing energy equation with Latin America, as does the recent success of Indian oil majors in acquiring large contracts in Latin America.

Eight Indian companies—OVL, Reliance Industries, Essar Oil, BPCL, Oil India, Videocon Industries, Assam Company and Indian Oil Corporation—are part of 12 joint ventures in Venezuela, Brazil, Colombia, Ecuador, Cuba and Peru. Their approach is pragmatic: invest substantial capital with state-run oil companies and use local expertise. The national oil companies in Venezuela and Brazil, PDVSA and Petrobras, respectively, get their governments' support in procuring funding and project clearances, which further facilitates the joint ventures. As a result of the enhanced trade in oil from these countries to refineries at home, India's total oil imports from Latin America increased from 4.5 percent in 2003 to 11 percent in 2012-13.

This marks a diversification in India's energy imports policy. The reasons for the shift are two-fold. One, the drop in oil imports from Iran since 2011 has left a large gap to fill. Latin American countries like Venezuela have picked up the slack; its oil exports to India increased from $5 billion in 2010-11 to $14 billion in 2012-13. Two, India is trying to reduce its dependence on oil from West Asian countries, given the region's growing instability and a potential spillover of violence from Egypt, Libya, Syria and Iraq into the Persian Gulf—the biggest source of oil for India.

Although the oil reserves in Central Asia may be another viable alternative given the region's proximity to India, the energy race there is dominated by Russian, Chinese and U.S. conglomerates. In contrast, competition in Latin America is moderate. The United States, a long-established player in the region, is now less dependent on Latin American countries for petroleum due to the discovery of large shale gas reserves in the United States.

The U.S. Hunt Oil-led liquid natural gas (LNG) project in Peru illustrates a change over the last decade in the country's invasive policies in Latin America. Operations began in 2003 and production in 2010; Mexico soon won a contract to receive 70 percent of the LNG output, and the consortium led by Hunt Oil looked at Asia for the remaining 30 percent. By the end of 2010, India's Gujarat State Petroleum Corporation Ltd (GSPC) took advantage of the opportunity and signed a short-term deal for 10 cargoes (with roughly 150,000 cubic meters of gas per cargo) of LNG from Peru.

India's trade and investments across all sectors in Latin America may be overshadowed by the large Chinese presence—trade between China and Latin American countries is six times the trade between India and Latin America—but there is little or no conflict of interest between the Indian and Chinese companies in the region. For example, both work with Venezuela's national oil company PDVSA. In Colombia, India's OVL and China's Sinopec have jointly invested more than $1 billion to form Mansarovar Energy Colombia, which has a 24 percent market share in the country's heavy crude sector.

Now, a new dimension has been added to these economic exchanges: increased political will. There have been a number of visits, some of them first-time visits—at the level of heads of state, foreign ministers, commerce ministers—between India and every major Latin America country in the last two years, including Brazil, Venezuela, Chile, Peru, Argentina, Cuba, Colombia and Mexico.

This has been most apparent with Venezuela, India's largest trade partner in Latin America. Venezuelan Oil Minister Rafael Ramirez visited India last month, and representatives of eight Indian companies went to Caracas for the first Indo-Venezuelan Hydrocarbon Business Roundtable on Oct. 7-8. Nine MoUs were signed, including for new joint ventures, long-term contracts to supply oil and the construction of a gas plant in Venezuela. Both countries also plan to diversify bilateral trade. Venezuela is keen to export oil to non-U.S. markets and seeks sources for long-term supply; India wants to lessen its dependence on the Gulf countries (which constitute 66 percent of its oil imports).

In 2013, Venezuela became India's fourth-largest source of oil imports—after Saudi Arabia, Iraq and Kuwait. India has a 15-year contract to buy 400,000 bpd of oil from Venezuela, and five Indian companies are part of joint ventures there.

Latin America's surplus energy production and discoveries in offshore oil fields have increased the region's role in the global oil industry. Within the next decade, the region could supply an estimated 15 to 20 percent of India's total oil imports. However, with the deteriorating economy of Venezuela, India must continue to also invest in Brazil and Colombia, as well as in Mexico, which has opened up its energy sector, to maintain a diverse energy basket.

Hari Seshasayee is a researcher in the Latin American studies program at Gateway House: Indian Council on Global Relations (www.gatewayhouse.in/). This feature was written for Americas Quarterly, a journal dedicated to policy analysis in the Western Hemisphere.

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