Fuel security still a distant dream

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Published: May 23, 2015 2:15:40 AM

Doubling India’s hydrocarbon extraction by 2022 will remain a challenge as long as policy uncertainties remain

Inaugurating the Urja Sangam, the prime minister set the industry a target for the Amrit Parv (the 75th year of Independence): Reduce energy imports by 10%.

Over the years, all successive governments have articulated the vision of self-sufficiency in hydrocarbons. It is another matter that actions taken in previous years were inconsistent with fast-tracking industry towards realising the stated vision. Consequently, today we are far from the target.  On the surface, a target of 10% reduction in the next seven years seems achievable. The reaction of industry at Sangam was,  “Let’s give it a shot.”

McKinsey, in a recent presentation, translated this vision to mean a 354 mmta demand and 149 mmta production.

With current production at 71 mmta, this implies a over-100 % increase in domestic production. Doubling hydrocarbon production in seven years is certainly a challenging target. Today, the status of some key factors is as follows.

Half of our sedimentary basin area is unexplored or poorly explored. The seismic study is targeted to be completed by 2019. This is the first essential step. Lead time to commercial production after the survey averages at least ten years. NDR work is in full stream. Population of NDR has started. Likely industry access is from 2016 onwards. When operational, this again shall be a key step.

Shale exploration in nominated blocks has been started by nationalised oil companies. A few wells have been drilled, but fracking is yet to commence. Thus, the unique shale issues are yet to come in to play and resolved subsequently.

Policy initiatives, stakeholder issues, environment issues, etc,  remain unclear. Work in nearly 200 blocks under production sharing contracts (PSC) is not yet permitted.

The last bidding round for Indian blocks (the NELP IX) was conducted in early 2011. Four years have passed and there is no clarity on the timing of future bid rounds. The contours of the new contracts for future auctions are also uncertain. The revenue-share contract remains the favourite for the administration. Leading industry players believe that this will knock-off one of the USPs of Indian auctions and is inconsistent with Indian geological risk. Moving away from PSC can impact participation in India.

The start of the Open Acreage Licensing Policy is uncertain, as it seems to have been linked to NDR. Media reports it to be one of the proposals under consideration. Whether it includes industry’s recommendation of an Open Acreage Reconnaissance with prior rights is unclear. Similarly, the contours of the unified licensing policy are still uncertain.

While it has been referred to frequently, industry is in the dark when it comes to the details.

Flexibility and the “ease of doing business”, under the existing contracts, remain only partially-resolved issues. A number of issues continue to remain unresolved, and even without a solution roadmap.

In addition, we have two hibernating resources: discoveries in the last few years, which are not developed because of procedural or commercial disputes, and low recovery factor, that has left subsurface hydrocarbons that require a shorter lead time for increasing production. Both these can yield results quicker than the typical exploration-production cycle of 10 years.

The current status, thus, has a positive flavour of active work-in-progress, potential areas and resolvable trigger points. It is crucial to keep focus on the concerns and the target and put in place enablers consistent with the targets and concerns in operation.

We can consider 2003-2008 as the most successful five-year window in the recent history of Indian exploration. We can work-out the ratio of “discovered quantity” to “exploration area” during this period. When we apply the same ratio for a target of 70-80 mmta, we find that the area required to be put under intensive exploration is much larger than the area currently under exploration. This needs to be rectified by making more area explorable and open to bids.

Without getting side-tracked by numbers and existing exploration, we should focus on the critical paths and critical actions required to achieve the targets.

The quick-to-fructify target is obviously the hibernating reserve. The government and investors, working together, should be able to resolve the impediments, acquire technologies and create strategic partnerships to make it happen.

The current seismic programme, though ambitious, is inadequate and slow. Measures that make sure it finishes in the next 30 months need to be implemented. It may be easier to achieve this if more companies were involved.

Implementing OALP for a reconnaissance by exploration companies, as suggested by industry, should also be considered.

Tight rocks, including shale,  can be a game-changer and make up for the lost time. This, however, seems unlikely unless policy and stakeholder issues are addressed up front with wholehearted commitment from various central ministries and the state governments.

We need to have almost three times the number of exploration companies active in the country right now, drilling at least three times the number of exploration wells being drilled right now. We cannot continue with the uncertainty on fiscal regime, governance model and related issues. Also, the model must be consistent with geological realities—one can’t wish these away, after all.

Exploration companies are commercial concerns; they are and shall remain driven by risk discounted commercial rewards on their portfolio. Any contrary thought is wishful. The proposed regime must bear this in mind. Instability of contract/fiscal regime, administrative actions or prices would increase uncertainty. Business abhors uncertainty.

Our conduct in last few years has left many holes that need to be filled to give investors the confidence. The earlier, the better. Are actions being taken towards such end results?

The current explorers are the most critical participants in the future auctions. Without their enthusiastic support, we are likely to fall short of targets. The current participants are more focused on issues resulting from contracts already in hand. “Ease of doing business” under current contracts is therefore a key driver that cannot be wished away.

Industry has repeatedly given inputs on this issue, which need to get the attention and action these deserve. While setting the objectives, we must, like Arjuna in Mahabharata, be single-mindedly focussed on the target—expediting efficient E&P—and not get waylaid by secondary considerations. Successful contract regimes require arm’s length between administrator and the regulator. In the Indian set-up, this is crucial. Let it not be decided by turf considerations.

We are all stakeholders in the new journey. We all enthusiastically support it. Missions succeed when the leader sets clear targets, using a decision-making process consistent with the target, and with the whole team participating. We are optimistic about the future and look up to the current dispensation to create a win-win participation model to achieve the fuel self-sufficiency vision.

The author is secretary-general, AOGO

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