16 May 2022
As the West ramps down its consumption of Russian energy supplies due to the invasion of Ukraine, markets in the developing world stand to benefit from discounted, sanctioned supplies. India is already stepping up imports of affordable Russian oil, and it is expected to begin accepting cargoes of Russian coal at scale.
According to BIMCO, Russian coal could help India plug a persistent feedstock shortfall in the monthts to come. Indian production is not sufficient to meet domestic power demand, and the monsoon season - beginning next month - usually interferes with mining operations. Amidst a growing heatwave and high air-conditioning demand, stocks of coal are running critically low at nearly two thirds of all Indian coal-fired powerplants, leading to widespread power outages. In response, the Indian government has ordered powerplant operators 4-10 percent more coal, stockpiling it to offset the impact of high demand and lower domestic supply.
The majority of India's imported coal comes from Australia and Indonesia, but there are limitations to how much these two exporting nations can supply. Heavy rainfall has cut into Australian east coast production, according to BIMCO chief shipping analyst Niels Rasmussen, and Indonesia has implemented a requirement for its producers to reserve 25 percent of their output for domestic consumption. Earlier this year, the Indonesian government even imposed a brief ban on coal exports to encourage compliance.
Instead, "India may instead look towards Russia, especially from mid-August when the EU’s ban of Russian coal is fully implemented," Rasmussen said in a research note.
India is already ramping up its purchasing of Russian oil, providing Russian upstream companies with a new market as European and North American buyers shun their products. Based on data from S&P Global, India received nearly one million barrels of Russian oil per day over the first nine days of May, and it is set to receive roughly 450,000 barrels per day over the course of the next month - about five percent of all Russian export volume.
According to Bloomberg, Indian refiners are negotiating for heavily-discounted prices under $70 per barrel. The long transport distances add to the delivered price, and there may be challenges coming for cargo insurance, but a discount approaching $40 below Brent would provide a powerful motive to accept the inconvenience.
The White House has
repeatedly warned the Indian government - which owns
a large share of the nation's refining capacity - not to take advantage of
discounted Russian energy. India's purchases do not directly violate current
NATO sanctions on Russia, but they reduce the effectiveness of existing
restrictions by providing Russia with an alternative market