Shale gas import

Click here to know about Shale Gas

Why in news?

India will receive its first cargo of shale oil from the US, to be processed at an Indian Oil Corporation (IOC) refinery.

What are the recent developments?

• IOC had earlier received the first shipment to India, since the US stopped oil exports in 1975. Click here to know more.
• The first cargo was conventional crude oil which is being processed at the Paradeep refinery in Odisha.
• The second cargo has shale oil and will be landing at Vadinar port in Gujarat.
• The shale oil will be refined at one of IOC’s refineries in Gujarat, Panipat, or Agra.
• Indian companies have contracted close to 8 million barrels of crude oil from the US.
• Besides oil, Gas Authority of India (GAIL) will be bringing in the first cargo of liquefied natural gas from the US to India early next year.

What is the significance?

• Petroleum product consumption in India has been growing consistently in the last few years.
• India has begun to contract crude oil from the US as part of its strategy to diversify oil sourcing.
• India finds US crude oil to be relatively competitive in terms of price.
• The Trump administration also believes that oil and gas trade has the potential to increase bilateral trade between the two countries.

How does the trade work?

• Crude oil import by state-owned refiners follow the usual FOB (free on board) import pattern.
• However, the US crude cargoes are being shipped on a cost-and-freight (C&F) arrangement.
• Under this, the contractor i.e. the Indian companies are responsible for the transportation.
• And for this, they have to take special permission from the Ministry of Shipping.
• The overall cost of US crude oil is found to be cost-effective under this arrangement.

Quick Facts

Cost, Insurance and Freight (CIF) and Free on Board (FOB)

• These are international shipping agreements used in the transportation of goods between a buyer and a seller and differ in who assumes liability for the goods during transit.
• In CIF agreements, insurance and other costs are assumed by the seller;  goods are not considered to be delivered until they are in the buyer's possession.
• FOB contracts relieve the seller of responsibility once the goods are shipped; the buyer then assumes all liability.

Source: Business Standard