India to work with China on OPEC's Asian Premium issue

India is coordinating with China and other Asian countries to raise voice against Asian premium charged by Organisation of the Petroleum Exporting Countries (OPEC). Indian Oil Corporation Chairman Sanjiv Singh will coordinate with head of China National Petroleum Corporation (CNPC) to chalk out strategy that will result in getting better price from OPEC countries.

Asian Premium

Asian Premium is extra charge being collected by OPEC countries from Asian countries when selling oil in comparison to western countries. For example, production cost of one barrel of crude oil is Rs. 100 in OPEC countries. These countries want to make profit of Rs. 100 so they ideally should sell one barrel for Rs. 200. But under Asian Premium pricing mechanism, OPEC countries gives discriminatory treatment to Asian countries (though being largest importer of OPEC produced oil) by charging them Rs. 220 per barrel and on other side giving discount to western countries by selling them at Rs.180 or below one 180 per barrel. The discriminatory Asian Premium is mainly used by OPEC countries to subsidised western buyers at cost of Asian buyers

India’s concern

India sources about 86% of crude oil, 75% of natural gas and 95% of LPG from OPEC member nations. It has been voicing its dissent against this discriminatory practice and has called for replacing Asian Premium with Asian Discount (dividend). India has emphasized implementation of ‘Responsible and Reasonable Pricing’ by oil producing countries, given importance of Asian markets for OPEC, particularly fast growing energy markets in the region as they are reliable and continued customer. The removal of discriminatory Asian Premium will allow poor Asian countries including India to provide energy to people who have been deprived of energy so far.

Organization of the Petroleum Exporting Countries (OPEC)

The OPEC is an intergovernmental organization (or cartel) of 14 oil-exporting developing nations that coordinates and unifies the petroleum policies of its member countries. It was established in 1960 in Baghdad, Iraq by the first five members. Its headquarters are in Vienna, Austria.
OPEC Members are Iran, Iraq, Saudi Arabia (de facto leader of OPEC), Kuwait, Qatar, United Arab Emirates (from Asia and Middle East); Algeria, Angola, Libya, Nigeria, Equatorial Guinea and Gabon (from Africa); Ecuador and Venezuela (from South/Latin America).
As of 2015, these 14 OPEC member countries accounted for an estimated 43% of global oil production and 73% of the “proven” world’s oil reserves. Two-thirds of OPEC’s oil production and reserves are in its six Middle Eastern (west Asian) countries that surround the oil-rich Persian Gulf.

Month: Current Affairs - April, 2018