BPCL Expects Lower Russian Crude Purchases in November Due to Rising Freight Costs

State-run refiner Bharat Petroleum Corporation Ltd (BPCL) expects its procurement of Russian crude to decline in November. According to a senior company executive, higher freight costs have eroded the price advantage of Russian grades, making Middle Eastern supplies more commercially viable.

Speaking on an earnings call, Vetsa Ramakrishna Gupta, Director (Finance) at BPCL, stated that while the company is receiving its full contracted volumes, November cargoes have been significantly reduced due to elevated shipping expenses. During the July-September quarter, Russia accounted for approximately 37 percent of BPCL's total crude sourcing.

The price advantage for Russian crude has narrowed considerably. Gupta noted that Russian crude carried a premium of USD 12 to 13 a barrel in October, but that figure has recently dropped to about USD 1 to 2. He added that the economics for Russian supplies could improve again in December, depending on future freight costs and prevailing market offers when purchases are finalised.

Amid geopolitical tensions that continue to disrupt shipping routes and elevate insurance expenses, BPCL has diversified its procurement strategy. The company has secured sufficient crude to sustain its refinery operations. Supplies from the Middle East have increased compared to the first quarter, driven by improved Saudi Arabian shipments, though shipments from Iraq and Kuwait have yet to return fully to normal levels. BPCL expects strong Middle Eastern volumes to continue through October and November.

Additionally, BPCL's Singapore-based international crude desk, which commenced operations in September, has facilitated access to new sourcing opportunities, including a discounted cargo from the Caspian region. The company's average landed crude cost stood at about USD 10 to 12 a barrel above its benchmark, depending on the source and delivery route. Rising freight costs without a corresponding increase in product freight have put pressure on refining margins.

In corporate developments, BPCL is preparing to take its proposed Andhra Pradesh refinery and petrochemical complex to its board for a final investment decision in the coming weeks, pending financing arrangements and regulatory approvals. The project involves a 10 million tonne per year refinery with a petrochemical intensity of roughly 32 to 33 percent. The detailed feasibility report is in its final stages, and cost estimates are currently under review.

To support the project, the BPCL board has approved the creation of a wholly-owned subsidiary with an initial share capital of up to Rs 4,900 crore. This structure is intended to facilitate financing, engage lenders, and attract strategic partners. BPCL is considering diluting at least 30 percent of the project's equity as development progresses.

"Energy companies constantly navigate volatile freight markets, geopolitical shifts, and shifting supply chains to maintain operational margins. BPCL's decision to dynamically adjust its crude sourcing between Russia and the Middle East highlights the importance of agile procurement strategies in the oil and gas sector. Furthermore, advancing large-scale infrastructure projects like the Andhra Pradesh refinery through structured subsidiaries and strategic equity dilution demonstrates a calculated approach to capital management and risk mitigation." — Dr. Shishir Gupta, Founder & CEO, StartupLanes