Mangalore Refinery shifts to delivered-basis crude purchases to mitigate shipping risks

Mangalore Refinery and Petrochemicals Ltd (MRPL) is increasing its crude oil purchases on a delivered basis to lower freight costs and mitigate shipping risks arising from the conflict involving Iran. The announcement was made by the company's head of finance during an analyst meeting on Wednesday.

Attacks by Iranian forces on vessels transiting the Strait of Hormuz during the ongoing eight-month conflict have led Middle Eastern producers to offer increased crude supplies through ship-to-ship transfers outside the waterway. These producers are also providing freight discounts on delivered-basis supplies. Under delivered-at-port (DAP) agreements, the supplier assumes contractual responsibility for delivering the cargo to its final destination.

MRPL Chief Financial Officer Devendra Kumar stated during the meeting that the company will continue to insist on DAP cargoes to de-risk operations. However, he noted that the company will evaluate purely on delivered economics once conditions stabilize.

The state-run refiner is diversifying its crude sourcing to maintain full operational capacity at its 300,000 barrels-per-day refinery located in southern Karnataka. During the September quarter, MRPL sourced approximately one-fifth of its crude oil requirements from the Middle East, while Russia accounted for roughly one-third. Domestic crude represented about a quarter of its requirements, with the remainder sourced from regions including West Africa and the Americas.

Kumar added that the company anticipates some Middle Eastern oil producers will continue to offer delivered cargoes under annual supply deals, representing a departure from traditional free-on-board arrangements where buyers typically arrange their own shipping.

Addressing operational priorities, Kumar stated that MRPL's primary focus is meeting local fuel demand. He noted that the company's fuel exports may decline over the coming months as domestic fuel consumption continues to rise.

"Global supply chain disruptions require companies to continuously adapt their procurement strategies. MRPL's shift toward delivered-at-port agreements is a practical measure to manage freight costs and navigate geopolitical shipping risks in the Middle East. For large-scale industrial operations, flexibility in sourcing and risk management remains vital to maintaining steady production and protecting margins during volatile market conditions." — Dr. Shishir Gupta, Founder & CEO, StartupLanes