Nayara Energy Ltd., a major player in India's refining sector, has been forced to adapt its operations following European Union (EU) sanctions imposed a month ago. The company, partly owned by Russian oil giant Rosneft PJSC, has turned to alternative methods to maintain its operations and ensure energy security.

Shift to Dark Fleet Tankers

In response to the sanctions, Nayara Energy has begun utilizing dark-fleet tankers for transporting its products. This move comes as traditional trade partners have distanced themselves from the company, compelling it to seek alternative logistics solutions.

Reliance on Russian Crude

The refiner has increased its reliance on Russian crude oil imports to keep its operations running. Since late July, Nayara has exclusively taken Russian Urals oil as feedstock. Two Urals cargoes, totaling 1.40 million barrels, are expected to arrive this week, highlighting the company's continued dependence on Russian oil supplies.

Operational Challenges

Nayara Energy operates a significant 400,000 barrels-a-day processing plant, which represents 8% of India's refining capacity. The company also manages 7% of the country's fuel stations. However, the recent sanctions have forced the refiner to reduce its run rates, impacting its overall production capacity.

Stockpile and Logistics Issues

The sanctions have created logistical challenges for Nayara Energy. Currently, the company has over 1.20 million barrels of refined products stored on four sanctioned vessels near its Vadinar terminal. This stockpile indicates the difficulties faced in moving and selling its products in the wake of the sanctions.

Government Intervention

Recognizing the potential threat to energy security, the Indian government has taken steps to mitigate the impact of the sanctions. Authorities have approved the use of coastal tankers to facilitate the domestic movement of cargoes, aiming to prevent disruptions in the energy supply chain.

Industry-wide Impact

The situation has rippled through the shipping industry, with local shipowners ceasing services to Nayara Energy. This decision stems from their desire to protect relationships with European ports and insurers. The resulting gap in shipping services has been filled by sanctioned vessels covered by Russian or Iranian insurance.

As Nayara Energy navigates these challenging waters, the company's adaptations highlight the complex interplay between international sanctions, energy security, and global oil trade dynamics. The situation continues to evolve, with potential implications for India's domestic energy market and international oil trade relationships.

Nayara Energy, a major Indian refiner, is facing significant operational challenges as European Union (EU) sanctions impact its crude oil imports and business operations. The company's crude oil shipments have plummeted to an all-time low, raising concerns about its refinery operations and future sustainability.

Record Low Crude Imports

Nayara Energy is currently receiving its lowest-ever crude oil shipments, with imports dropping to just under 94,000 barrels per day this month. This marks a dramatic decline from the nearly 366,000 barrels daily recorded in July-September last year, representing a reduction of approximately 74%.

Impact of EU Sanctions

The sharp decrease in crude imports comes in the wake of EU sanctions imposed on Nayara Energy in July. The company was blacklisted for allegedly supporting Russia's war in Ukraine through oil trade. This month, Nayara received only four cargoes of Russian Urals crude, totaling 2.90 million barrels, with the last delivery on August 9. No further shipments are expected.

Refinery Operations Affected

The sanctions and subsequent reduction in crude oil imports have significantly impacted Nayara's refinery operations. As of late July, the company's 400,000-barrel-per-day refinery was operating at nearly 70% capacity. Industry traders anticipate further declines if the feedstock shortages persist.

Logistical and Financial Challenges

Nayara Energy is grappling with multiple challenges in the wake of the sanctions:

1. Payment Processing: The company faces difficulties in processing payments for its transactions.
2. Shipping Constraints: Legitimate shippers have withdrawn their services, forcing Nayara to rely on sanctioned 'dark-fleet' vessels for product exports.
3. Domestic Transportation: Major Indian shipping companies, including Great Eastern Shipping and Seven Islands Shipping, have ended their collaboration agreements with Nayara. As a result, the company has had to shift to trucks and rail transport for domestic distribution.
4. Banking Restrictions: The State Bank of India has stopped processing Nayara's trade and foreign currency transactions, further complicating its financial operations.

Company Profile

Nayara Energy operates a substantial 400,000-barrel-per-day refinery and owns nearly 7,000 fuel outlets across India. The company is part-owned by Russian oil giant Rosneft, which likely contributed to its inclusion in the EU sanctions list.

As Nayara Energy navigates these challenging circumstances, the long-term implications for India's domestic fuel supply and the company's future remain uncertain. The situation underscores the far-reaching impact of international sanctions on global energy trade and highlights the complexities faced by companies with ties to sanctioned entities.