BRICS is a game changer in the oil market
The decline in oil prices is not only a shock for primary energy producers, but also the opportunity for consumers to change the game. The situation are China and India, whose aggregate consumption of hydrocarbons is 16% of the world level. The USA consume 20%.
Analysts predict that by 2040, the ninth year India and China will double its consumption. Naturally, this growing market is attracting the attention of producers of raw materials, but the excess supply allows Beijing and new Delhi choose what is more profitable for them. In the formation of new trade routes with Chinese and increasingly Indian refineries refuse to long-term contracts for the supply of raw materials in favor of individual transactions.
Ten years ago, China bought in Russia only 7% of the country's consumption of hydrocarbons, and in Saudi Arabia – 20%. Now the situation is the opposite: Russia has overtaken and surpassed the Saudis. For India Saudi Arabia also was once a major supplier of oil. Now they became Nigeria. Earlier due to high prices India could not afford to buy excellent Nigerian oil.
India imports 80% of the country's consumption of energy resources, but under the leadership of current Prime Minister Narendra modi country is moving towards energy security. Former Chairman and managing Director of Indian state oil company Oil & Natural Gas Corp. Sudhir Vasudeva says: "If we want to get closer to self-sufficiency, we must buy foreign assets".
In pursuing these goals, India looks toward Siberia. There are three Indian companies have acquired a 29.9% share in "TAAS-Yuryakh oil and gas Production" and share to 23.9% "Vankorneft". In addition, the state-owned company Oil & Natural Gas Corp. I received an offer from Rosneft to acquire 11% stake in "Vankorneft" in addition to 15%, bought last year.
Currently Siberian oil is supplied to more close lying regions, but India may decide to put their share of this oil to its own refineries. It can also start to sell this oil on the open market or to exchange it with another oil.
Managing Director of Dubai Mercantile Exchange Owen Johnson said that the Asian oil market there is a considerable redistribution of flows. As managing Director of Strong Petroleum Singapore Austin Berenstein called the Chinese oil company "the new locomotive of the oil trade."
Both China and India are using low oil prices and oversupply in the interests. Formed new partnerships, and taking steps that undermine the former power of the leading players in the oil market. Every crisis leads to change, and this leads to the transfer of power over the market from producers to consumers.
We may recall that both China and India are together with Russia in the BRICS. Switching these two largest economies in the world in the issue of energy supply on Russia means the strengthening of integration within the BRICS.
In addition, through the cooperation in production, processing and sale of oil and petroleum products we will be able to format the hydrocarbon market. So far all the issues here were decided by an all-powerful OPEC despite the apparent dominance of Saudi Arabia and the invisible hand of Washington.
Ultimately this means joint economic gains thanks to a beneficial balance of supply and demand. In conditions of excess energy supply, when producers "get in line" to customers, and not Vice versa, Russia is out of the lineup first.
Author: Evgeniy Sizov
