Column: Unshackle energy exploration and production

Updated: May 24 2014, 02:47am hrs
Indias growth aspirations are inextricably linked to the availability of energy. Finding energy for 1.2 billion people is a tremendous challenge. With total energy imports accounting for 40% of supplies, Indias net energy import bill of around $180 billion per annum continues to put pressure on the economy. Reducing our dependence on imports and growing domestic energy production will be a key parameter to the new governments success.

Domestic exploration & production (E&P) and energy efficiency will need to play a very crucial role if our dependence on energy imports is to be decreased. The sector needs a big shot in the arm to attract high-risk investments, bring back foreign players who have left or about to leave and attract technology and skills to increase exploration and production activity which will ultimately result in higher domestic production. For example, as per Indian and international geologic estimates, India has the potential of 100 trillion cubic feet (tcf) of yet to find gas resourcesthis can literally turn the tables on the current situation of energy deficit in the country. Only 22% of the oil and gas basins have been explored. In terms of avoidable energy imports, the value of this potential domestic resource exceeds $1.5 trillion at todays LNG import pricean immense prize which can be delivered by an enabling policy framework focussed on encouraging E&P activity. India needs to support and unshackle its E&P sector to step up and participate in this very risky business! This is a business where there are more companies that fail than those that succeed. Track record in the Indian basins are 1 to 2 discoveries in every 8-10 wells drilled.

Though it may sound strange, the overarching goals of the government and the industry are completely aligned as partners in the production sharing contract in terms of increasing production and maximising value of the natural resources to the nation. The main focus for the petroleum and natural gas ministry today should be around framing policy initiatives to encourage any and every activity that allows production of every drop of oil and every molecule of gas and in building the trust between the government and the E&P companies. It is important to remember that this is an association for decades once oil or gas is found, where the industry is investing multi-billions in the near-term for production over the long-term. This is repeated across the globe and not new to India. Only when companies have confidence in the sanctity of contracts, will they invest the much needed capital, technology and resources to explore, develop and produce more oil and gas in India. The government and the E&P companies have to work on improving the trust deficit. The government needs to recognise that if there is no activity, there will be no government take to protectwhich is where we have ended up today. More importantly imports of energy will increase disproportionately, strain the treasury and bring prosperity and economic development to oil and gas exporting countries.

In the recent past, a number of policy changes to accelerate the E&P activities were promised and initiated but have not been concluded or implemented. It is important that these initiatives are implemented on a top-priority basis. One of the key initiatives has been the revision of gas price, which was approved by the cabinet in June 2013 and a gazette notification issued in January 2014, but which still awaits implementation. Immediate implementation of the notification will result in various national and private companies across India starting development of around 10 tcf of already discovered resources, which will help in unlocking $150 billion through reduced LNG imports.This will also immediately reduce the CAD and fuel economic growth, in addition to the multiplier effect from the $25-30 billion investments that will be made to develop these mega projects over the next 5 years. As per the report by an international consulting firm, nearly 80% of the gas price flows back to the economy in terms of government revenue, capital investment and day-to-day operations and maintenance costs. Also, market pricing of a product automatically encourages energy efficiency and optimal use of the resource.

Similarly, taking immediate action to allow exploration in currently producing areas throughout the life of a field would encourage finding and development of incremental new fields which can use existing infrastructure to quickly produce.

In reality, the production sharing contract is well-crafted to ensure government risk is zero (government does not pay the contractor a single paise) while it provides flexibility to the participant to maximise production and value. Action needs to be taken now and with urgency. The value at stake for India here is too big to fritter away.

Sashi Mukundan

The author is Region President and Head of Country, India, BP Group