The Narendra Modi-led government has actively taken up oil diplomacy to secure energy...
The Narendra Modi-led government has actively taken up oil diplomacy to secure energy assets overseas to feed the growing demand at home.
Taking cue from China, Japan and South Korea, the government is making a blueprint envisaging upstream companies ONGC and Oil India along with downstream players IOC, HPCL and BPCL and engineering, procurement and construction (EPC) contractor Engineers India striking deals backed with government support. “Oil diplomacy has taken a paradigm shift under the guidance of the PM,” said MoS (independent charge) for petroleum and natural gas Dharmendra Pradhan. The 45-year-old told FE that his ministry has held formal dialogues with minister of external affairs (MEA) Sushma Swaraj to actively pursue oil diplomacy.
Chinese and Indian state-owned energy firms competed over Kashagan, Kazakhstan and BC-10, Brazil, in recent years. Chinese firms have been more successful in gaining access to foreign overseas upstream assets. Ability to leverage large financial resources and strong government support, including the provision of non-energy related development projects in return for upstream assets, have been the key drivers for its success.
Pradhan said the government has put in place a strong system which connects the petroleum ministry with the Prime Minister’s Office (PMO), finance ministry and the MEA to discuss and take up bilateral issues.
The acquisition of prolific natural resources overseas has become important because India’s crude import bill has skyrocketed from $112.1 billion in FY11 to $155.7 billion in FY14. On the other hand, production of oil and gas from domestic fields is rather stagnant.
“There are a few things that work in India’s favour. For instance, our market size is our advantage. Modi has already said the MEA’s role is not just political but also to pursue commercial interests for economic gain of the country,” Pradhan explained.
Oil diplomacy could help India in several ways, believes Dilip Khanna, partner (oil and gas practice), Ernst & Young. This includes gaining preferential access to evaluate certain acquisition opportunities, better aligning India’s interest with the target country’s national agenda, and preventing pre-emption of acquisitions by national oil companies in target jurisdictions.
All PSUs need government support while acquiring energy assets overseas. Countries such as China, South Korea and Japan are actively pursuing diplomacy and their companies have strong coordination among themselves. This is also the need of the hour for India, where PSUs should engage among themselves and the government to be able to negotiate while acquiring assets overseas. “Local governments in emerging countries not just look for upstream participation but development of the ecosystem. Emerging countries (for example Mozambique) provide access to their energy assets for overall infrastructure development,” said Gaurav Moda, partner (management consulting) KPMG in India.
European countries such as Sweden and Italy have their trade commissions attached to their embassies that pursue business opportunities of the country’s multinational firms. These trade commissions have dedicated and focussed resources to identify and work on resources in different countries. In countries such as Vietnam, it is difficult to get local information and having a trade commission helps.
Recently, Asian gas buyers such as India, Japan and Korea, among others, are trying to create an ‘LNG hub’ based in Singapore, and possible an Asia-specific natural gas index similar to Henry Hub. This would link prices to local market conditions. Whenever there is more liquidity of supply; prices are more transparent and competitive, said Moda.