Latin America and India connect through energy
by Nirmala Harrylal
India is emerging as a leading exporter of petroleum products. Provisional data for production of petroleum products
for the year 2004-05 was placed at 120.47 mm tons, up from the previous year’s 115.78 mm tons.
Middle distillates, such as kerosene, high-speed diesel and aviation turbine fuel accounted for the largest chunk of
total production, followed by light distillates. Provisional figures of exports of petroleum products in 2004-05
stood at $ 6.8 bn.
The exports of petroleum products have increased by more than 90 % in 2004-05, over the previous year. As a result,
petroleum products increased its ranking in India’s exports from eighth position in 2000-01 to fifth position
in 2004-05.
In short, India has transformed itself into a surplus petroleum producing nation in the last three years, thanks to
additional refining capacities created in this sector. Its major export destinations for petroleum products include
Singapore (25.5 %), Iran (9.8 %), United Arab Emirates (7.4 %), the Netherlands (5.1 %), Sri Lanka (4.5 %), Indonesia
(4.4 %), Brazil (4.3 %), Nepal (3.1 %), South Africa (3.1 %), and Togo (3 %). These ten countries together account
for over 70 % of India’s total petroleum products exports.
High-speed diesel (39.4 %), light oils and preparations (19.5 %), aviation turbine oil (13.8 %) and fuel oil (eight
%) are the major petroleum products being exported from India. And India is still keen to secure more resources in
order to meet its accelerating energy demands.
Latin America, however, is emerging as one of the prominent destinations of exports for Indian petrochemicals
products. Though the proximity to the US markets allows for US-based petroleum products to flood the Latin American
markets, India’s contribution of exports has increased over the years.
With the steadying of the economic growth in Latin America and the emerging currency stability across Latin American
countries, petroleum is emerging as an important industry. The supply trend of crude oil has increased steadily over
the last five years and is slated to increase substantially in the next few years, given the economic stability in
the region.
Central and South America have an estimated 98.848 bn barrels of crude oil reserves, spread across the continent with
Venezuela accounting for around 78 % of the total crude oil reserves.
India has a tremendous opportunity to increase its stake in Latin America and its exports in the energy sector to
that region. India’s largest export market for petroleum products in Latin America is Brazil. The most
important commodity exported in terms of value to the Brazilian market is petroleum oils and extracts of petroleum
oils.
Exports in 2004-05 to the Brazilian market earned a whopping $ 295.62 mm, compared to the $ 22.84 mm earned in the
previous year.
By virtue of economies of scale, the United States is the leading exporter of petroleum products to the Latin
American region. Free trade agreements (FTAs) and regional trade agreements (RTAs) between the US and the Latin
American countries have also contributed to this trend. Trade between the Latin American countries is also
significant with oil economies like Venezuela finding ready export markets within the Latin American continent.
According to the India Brand Equity Forum Web site, Reliance Industries Ltd (RIL) is in advanced negotiations with
Mexican oil giant Petroleos Mexicanos (Pemex) for co-operation in exploration and development of oil and gas fields
in shallow and deep waters off the Gulf of Mexico.
In September 2004, the Venezuelan foreign minister, accompanied by a high level delegation, visited India to revive
both political and trade relations. The highlight of the visit was Venezuela’s offer to India of five oil
fields -- three for discovery and two for exploration.
As a result of negotiations at the highest level of the Government, India has begun investments in Venezuela. The
single largest Indian investment in Latin America is the $ 50 mm project as a result of a Memorandum of Understanding
(MoU) signed between ONGC Videsh Ltd (OVL), a subsidiary of Oil and Natural Gas Corporation (ONGC) and Petroleos de
Venezuela (PdVSA), the Venezuelan State oil firm.
India has also signed a preferential trade agreement (PTA) with Chile on January 20, 2005. According to the
agreement, India has offered to provide fixed tariff preferences ranging from 10 % to 50 % on 178 tariff lines at the
eight digit level. Similarly, Chile has offered tariff preferences on 296 lines at the eight-digit level.
The products covered in the agreement account for more than 90 % of the value of total bilateral trade amounting to $
447.54 mm during 2004-05. Though the products covered under this PTA are not specifically linked to petroleum, the
possibility of extending this PTA to cover petroleum products will facilitate Indian petroleum exports to Chile.
One of the most important preferential trade agreements that India has signed is with Mercosur. A framework agreement
was signed on June 17, 2003 and, as a follow up, a PTA was signed on January 25, 2004. The region holds significant
potential for Indian exports of petroleum products, as our share is just 0.83 % of the global imports of
Mercosur.
In conclusion, as India continues to grow so, too, will her demand for energy. Undoubtedly, this will call for
enhanced exploration and development activity to ensure greater self-reliance. Latin America is well poised to
capitalise on the opportunities that will come its way.
Nirmala Harrylal is senior associate, Centre for Leadership Assessment and Development, Arthur Lok Jack Graduate School of Business. PetroleumWorld not necessarily share these views.