Mumbai, Oct. 29 -- Bharat Petroleum Corporation expects its Russian crude purchases to decline in November as higher freight costs erode the price advantage of Russian grades and improve the relative economics of Middle Eastern supplies. The company said it had secured sufficient crude to sustain refinery operations despite disruptions affecting shipping routes, freight and insurance costs.

Vetsa Ramakrishna Gupta, Director (Finance), said Russian cargoes had been significantly reduced for November because of higher freight costs. Russia accounted for about 37 per cent of BPCL's crude sourcing in the July-September quarter, while procurement from the Middle East increased compared with the first quarter.

Russian crude, which carried a premium of USD 12-13 a barrel in October, had more recently narrowed to a premium of about USD 1-2. The economics of Russian supplies could improve in December, depending on freight costs and the offers available when purchases are finalised. BPCL said Middle Eastern volumes were expected to remain relatively strong in October and November.

Saudi Arabian supplies improved during the quarter, although shipments from Iraq and Kuwait had not fully returned to normal levels. The company's average landed crude cost was about USD 10-12 a barrel above its benchmark, depending on the source and delivery route. Rising crude freight costs without a comparable increase in product freight have put pressure on refining margins.

BPCL's international crude desk in Singapore, which began operations in September, has helped the company access new sourcing opportunities, including a discounted cargo from the Caspian region. Separately, the company expects to take its proposed Andhra Pradesh refinery and petrochemical complex to the board for a final investment decision in the coming weeks, subject to financing and regulatory approvals.

The proposed refinery would have capacity of 10 mn t a year and petrochemical intensity of about 32-33 per cent. BPCL's board has approved a wholly-owned subsidiary with initial share capital of up to Rs. 49 bn to support financing and lender engagement. The company is considering diluting at least 30 per cent of the project's equity as development progresses, with ownership structures still under discussion.

Published by HT Digital Content Services with permission from Construction World.