The hunger for hydrocarbons
According to the government’s Hydrocarbon Vision 2025, India’s hydrocarbon requirements would jump to nearly 370 million tonnes over the next 18 years. But according to industry analysts, despite the ambitious target of 80 million tonnes of indigenous production, the country could end up importing a lot more of crude oil and natural gas to meet the growing appetite for hydrocarbons.
Some estimates are that India may need to import nearly 350 million tonnes of crude oil by 2025, up from a little over 100 million tonnes at present. Natural gas imports could rise to 85 million tonnes in less than 20 years.
According to P:etroleum Minister Murli Deora, demand for petroleum products is likely to top 132 million tonnes in less than five years, up from about 120 million tonnes at present. The government has a two-pronged strategy to tackle this formidable challenge: searching for new oil and gas fields within the country, and encouraging domestic oil majors to acquire assets abroad.
Earlier this month, the government launched the seventh round of its New Exploration Licensing Policy (NELP VII), offering 57 oil and gas exploration blocks to interested bidders. The government expects to attract about $3.5 billion in investments in both the oil and gas sectors; bidding for the seventh round closes in April.
The sixth round of NELP has seen committed investments of over $3.3 billion, and the government has already awarded 52 blocks to the successful bidders. The six rounds have so far – since 1997, when the NELP was launched – attracted over $8 billion in commitments for exploring the 162 blocks that were on offer, and half of it has already been invested by the successful bidders.
Domestic production during the current five year plan (2007-2012) is expected to rise by nearly 25 per cent to cross the 200 million-mark, as against a little above 160 million tonnes during the 2002-07 five year plan period.
NELP VII is likely to attract international majors including ExxonMobil, Chevron and British Gas. Most of the Indian energy majors, including Reliance, the Mittal group, and state-owned ONGC and Oil India are also likely to participate in the new round, which will cover over 170,000 sq km of oil and gas blocks, the largest so far in the NELP.
* * * * *
NELP VII is likely to elicit a better response, thanks to the discoveries made by bidders in the previous rounds. Reliance Industries, Carin India, ONGC and Gujarat State Petroleum Corporation, which had successfully bid for various blocks, have made significant discoveries in recent months.
The government, learning from previous experience, is also offering smaller blocks to attract medium-sized and even smaller bidders. Nineteen of the exploratory blocks are in deep water, nine in shallow water, and the remaining on land. A majority of the deep-sea blocks (15) are on the west coast.
The previous rounds of NELP have resulted in nearly 50 oil and gas discoveries in about 15 exploration blocks in Cambay onland, the Krishna-Godavari deepwater areas and in the North East coast, with total hydrocarbon reserves accretion of 600 million tonnes oil equivalent.
Reliance Industries, India’s largest private sector energy major, found huge gas reserves in the Krishna-Godavari (KG) basin. The company, which owns a 90 per cent stake in the D6 block in the KG basin, plans to start initial production of 40 million standard cubic metres of gas a day (mmscmd), by June, doubling it gradually.
ONGC is also likely to begin production of 350 barrels a day of oil from an onland block in the Cambay basin in 2008. Two blocks in Gujarat are also entering the production phase, with 300,000 mmscmd of gas and 750 barrels a day of crude oil.
The government expects a 40 per cent jump in gas availability next year, following discoveries in the KG basin. The Reliance gas discovery has been embroiled in a controversy, after some politicians accused the company of jacking up capital expenditure – amounting to nearly $9 billion – to raise the price of gas.
A government appointed international consultant recently approved the capital expenditure incurred by Reliance. The government has also approved a basic price of $4.2 per million British Thermal unit (mmBTU), minus the transmission and marketing costs for Reliance gas. Reliance recently signed a transmission agreement with state-owned Gas Authority of India Ltd.
* * * * *
INDIA’S other strategy, of targeting overseas hydrocarbon assets, however, threatens to unravel in view of the stern view taken by the US in international dealings with countries like Iran, Sudan and Myanmar.
Indian energy majors have been on an acquisition spree around the world, picking up stakes either on their own, or in joint ventures with other international firms. ONGC, Reliance, the Hindujas and even the Essar group, have been investing significant assets in overseas assets.
ONGC, the largest Indian player in the international exploration business, has equity stakes in over 30 projects in 15 countries; about 20 per cent of its total production is now accounted for by these overseas blocks. ONGC’s international commitments exceed $5 billion.
Reliance, which has invested about $50 million abroad, has interests in nearly a dozen blocks in about six countries. And Indian investments are spread across countries like Iran, Sudan, Myanmar, Oman, Yemen, Russia, Vietnam, Libya, Nigeria, Australia, East Timor, Brazil and Colombia.
ONGC is also seeking to invest in Kazakhastan, where its partner, the L.N. Mittal group, has already acquired a 50 per cent stake for nearly a billion dollars, from Russia’s Lukoil, in an asset. However, the Kazakh authorities are not too keen on the Mittal group allowing ONGC into the venture and acquiring a stake.
ONGC and the Mittal group – owned by steel baron L.N. Mittal, had about two years ago signed up an agreement to jointly bid for oil and gas assets in nearly a dozen countries, including Angola, Azerbaijan, Congo Brazzaville, Indonesia, Kazakhstan, Romania, Turkmenistan and Uzbekistan.
But the aggressive strategy of Indian companies – who are facing stiff competition from Chinese firms, which are also buying up overseas hydrocarbon assets – is hitting a roadblock, following opposition from the US.
Recently, the US Senate cleared the Sudan Divestment Bill (it needs to be cleared by the House of Representatives and then signed by the President), which directs the federal and state governments, pension and mutual funds and other investors to withdraw investments from companies that invest in Sudan.
State-owned ONGC, which is also listed on the stock exchanges, has several US-based investors, who could be forced to pull out funds from the company, if the bill is passed. An ONGC subsidiary has significant exposure in Sudan’s oil sector.
Recently, the Essar group was forced to put on hold plans to build a refinery in Iran and also develop some oilfields, after pressures from the US; the group has significant interests in America and did not want to jeopardise the acquisition of a new mine and a steel firm. The governor of Minnesota, where Essar has bought a steel company, had objected to Essar’s investments in Iran.
But ONGC and the Hinduja group – which has long-standing business ties with Iran – are planning to make investments in the Iranian oil sector. They are likely to partner a unit of the National Iranian Oil Co. India, of course, has been rather slow in pushing the ambitious Iran-Pakistan-India pipeline, allegedly — according to critics of the United Progressive Alliance government — under pressure from the US.