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.