New Delhi
India’s diesel exports slipped to a multi-year low in January 2024, after registering a 17-month high in December 2023, as more transporters and refiners, including Reliance Industries (RIL), are avoiding the Red Sea.
According to energy intelligence firm Kpler, India shipped around 3,02,000 barrels per day (b/d) of diesel last month compared to almost 5,51,000 b/d in December 2023, a decline of more than 45 per cent.
Kpler data shows that clean petroleum product (CPP) exports from India to the US fell to around 47,226 b/d in January 2024 from 85,620 b/d in December 2023. Similarly, cumulative shipments to the UK plus nine countries, including France, Netherlands and Spain, fell to 1,52,010 b/d from 4,25,193 b/d.
Analysts and trade sources point out that since January 12—when the US and the UK carried air strikes on Houthi rebel positions along the Red Sea—more refiners are avoiding Bab-el-Mandeb that connects Red Sea to Gulf of Aden and accounts for 12 per cent of seaborne crude oil and 8 per cent of LNG trade. Cape of Good Hope (COGH) is fast emerging as the preferred route.
Refiners cautious
The US EIA in a February 1 report said “Major oil and natural gas companies that are avoiding the Red Sea include Equinor, which operates mostly natural gas carriers, and bp, which operates both oil and natural gas carriers. As of January 23, 2024, other major energy companies pausing Red Sea transits include Euronav, QatarEnergy, Torm, Shell, and Reliance.”
S&P Global Commodity Insights in a January 16 report said “S&P Global Commodities at Sea data showed that Indian refiner Reliance, a key diesel/ gasoil supplier to Europe, had loaded no product for export to the continent in the first two weeks of January.”
Vortexa’s Head of APAC Analysis, Serena Huang told businessline, “Several tankers that loaded from India and headed for Europe and the US are transiting via the COGH instead of the Suez Canal.”
Vortexa data shows that 12 vessels carrying refined products to the US and Europe are using the COGH.
Freight dynamics
US EIA said vessels avoiding the Suez Canal can go around southern Africa via the COGH. A typical voyage from the Persian Gulf to the Amsterdam-Rotterdam-Antwerp petroleum trading hub (ARA) via the Suez Canal takes 19 days, which increases to nearly 35 days sailing through the COGH.
CPP flows through the Bab el-Mandeb Strait were 30 per cent lower in December than the rest of 2023. The majority of petroleum product trade leaves Saudi Arabia and India bound for Europe and leaves Russia bound for Asia, it added.
A trade source said that shippers are passing on the elevated risk insurance premium for vessels transiting via the Red Sea to the buyers.
Vortexa’s Freight Analyst Mary Melton in a January 30 commentary said northbound CPP tanker transits slightly recovered going into the New Year but declined precipitously following the US/UK-led strikes on January 12.
“The flow most affected by these northbound diversions are middle distillates from West Coast (WC) India or the Middle East heading to Europe,” she added. Middle distillate cargoes from the Middle East and WC India are traditionally carried on bigger long range (LR) tankers. Freight rates from India-to-UK Continent (TC8 for LR1s and TC20 for LR2s) for these vessel classes have increased 87 per cent and 95 per cent, respectively, since US/UK strikes, Melton pointed out.
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“The transit via COGH instead of via Red Sea adds around 75 per cent in tonne-miles to a voyage from Sikka (Jamnagar in Gujarat) to Europe for both LR1s and LR2s. If all LRs carrying middle distillates from WC India/MEG to Europe were diverted, this would add 8 per cent to global LR1 tonne-miles per month and 18 per cent to global LR2 tonne-miles per month, significantly increasing global fleet requirements,” she said.
“LR tankers traveling from the western coast of India to the UK Continent increased the most (23 per cent),” US EIA said.