India has always offered an interesting dichotomy for the upstream business. Full of potential with significant oil and gas fields, yet with only around a third of proven oil reserves online and less than 25% of India’s sedimentary basins currently explored. A huge and growing domestic energy requirement, yet India is a substantial importer of energy despite access to significant energy reserves. This is an interesting juxtaposition, which over the years many have commentated would change, yet until now hasn’t really. However, the scene is more than set now for this imbalance to be reset and India to increasingly take full advantage of its oil and gas resources.
As recently as two weeks ago, io were on business in India and got to hear first-hand about the specific issues that the country’s oil and gas industry is facing. Against a backdrop of low oil prices and industry investment, the fact remains that India is one of the world’s fastest growing economies and its escalating energy needs will need to be supported by a number of different fuel types as well as increasingly by oil and gas.
At the ‘Energizing India 2.0’ event held by CNBC and GE, with Indian Minister of Petroleum and Natural Gas, Dharmendra Pradhan, and GE Oil & Gas President and CEO, Lorenzo Simonelli, who called investment in the country a “unique opportunity” stating he expected $35bn to be spent on exploration in the region in coming years. However, many have heard this before and challenges in the relatively untapped region still remain, particularly because many of India’s reserves are in deepwater or HPHT fields which combined with the low natural gas prices made those reserves uneconomic. So why are there now buoyant predictions for substantial investment in to India to get the upstream industry moving?
Back in March the Indian government announced plans to raise the natural gas price by about 60 percent for undeveloped gas discoveries in difficult areas. With much of India’s reserves in deep water or HPHT fields, and the bulk being gas, these have until now been uneconomic due to the gas pricing structure. By raising the natural gas price Prime Minister Narender Modhi is opening the door to economic realisation of India’s huge natural resources.
For the most part, India’s sedimentary basins are largely unexplored. Although the country has proven reserves of 206 billion barrels of oil, only 67 billion barrels are online. In addition, less than 25% of India’s sedimentary basins are explored, with offshore areas particularly underexplored. In fact, only one of the country’s 83 deep-water blocks has been developed . Geo-scientific data on nearly 48% of the more than 3 million square kilometres of its 26 sedimentary basins is either scarce or unavailable . Yet not even the government’s launch of a new exploration licensing policy about 15 years ago, which established the auction framework to award licenses under production-sharing contracts, sparked a worldwide bidding frenzy despite the potential for commercial discoveries.
ONGC and Reliance are the two biggest operators involved in India, with participation by international players low, with only 12% of the total acreage and about 7% of total contracts awarded to foreign players to date. This is often cited as being due to the following challenges: comparison of prospects in India relative to other countries, perception of slow and bureaucratic decision-making, and disputes arising between the government and operating companies on matters of cost recovery and obtaining environmental and land clearances from various government departments. The drop in crude oil prices has naturally further slowed investment from the private sector, however increasing gas prices is setting now the scene for investment to potentially flourish.
The new Indian government is aware of the challenges for its upstream sector and has taking positive steps to encourage foreign investments by enacting significant changes, including the new market-linked gas pricing formula currently in force, the new revenue-sharing model for upstream projects being considered, creation of the National Data Repository for all upstream blocks and upcoming bidding rounds for marginal fields and E&P blocks.
In addition, the Indian government is pushing a Make in India initiative, which brings together Oil and Natural Gas Corporation and Pan-IIT—a research consortium of seven premier Indian Institutes of Technology—in search of technologies to enhance not only hydrocarbons but also alternative energy sources. Research areas identified include geoscience, reservoir characterization, enhanced oil and gas production, and unconventional hydrocarbon exploration as well as software development, engineering solutions and alternate energy resources.
On top of this, India aims to attract $25bn of investment in natural gas and crude oil in the next few years with the help of sweeping reforms to its exploration and production rules announced in the last month. Minister of State for Petroleum and Natural Gas, Dharmendra Pradhan, said the new hydrocarbon exploration and licensing policy and a liberalised gas price regime would help reduce India’s heavy dependence on imported energy over the next 10-15 years. At present, the world’s fourth-biggest oil and gas consumer imports nearly three-quarters of its energy requirements, but Prime Minister Modi has set a target of cutting its fuel import dependency to two-thirds by 2022 and to half by 2030.
The bulk of India’s energy will continue to come from oil and gas, so it is natural that the development of the country’s hydrocarbon resources is a key element of the government’s energy agenda. And it cannot be in any doubt that Prime Minister Modi’s experience as Governor of Gujarat, must be helping drive through these transformations. As in his previous role he will have seen the benefits of Gujarat being India’s state with the most advanced gas distribution system and one must presume he has a vision of having that same level of distribution across the bulk of the country.
With a solid commitment from the authorities to jumpstart domestic oil and gas exploration, improve midstream distribution networks and gain efficiencies in energy production, there are significant opportunities to take advantage of the myriad of opportunities arising in the Indian oil and gas sector. Companies need to approach these opportunities with a fresh mindset in order to maximise the potential of this relatively unexplored region. It’s also critical to note that deepwater and HPHT experience will be needed to help local operators exploit India’s assets, this must surely lead to involvement from the majors who mainly retain that experience.
The world must watch and wait to see how matters unfold.
Dan Jackson is the chief executive at io.