Due to rising geopolitical tensions in West Asia, oil prices are expected to remain elevated and volatile. With a high import dependence of 88%, India must make determined efforts to boost domestic oil production that has been steadily declining since FY12. In the current fiscal up to August, production was almost similar to the corresponding period last fiscal. This has been falling for various reasons including declining output from old and marginal fields. India lacks the technological capability for deepwater exploration. There have also been no major hydrocarbon discoveries of late either. The government is seized of the imperative of stepping up oil production by incentivising domestic producers and global giants for exploration and production (E&P) and plans to introduce a new law replacing the existing Oilfields (Regulation and Development) Act of 1948 in the next session of Parliament. There is also a sense of urgency to extract more oil before the world switches to other forms of energy to hit net zero climate targets.
While oil minister Hardeep Singh Puri is optimistic about the interest of global oil majors like ExxonMobil and Chevron, little is known about their commitments. The government believes that E&P offers investment opportunities of $100 billion, but the fact is that the interest of global oil majors in exploring for oil has so far been constrained by the challenging investment environment including concerns regarding arbitration and compensation in case of expropriation. Foreign direct investment inflows into petroleum and natural gas amounted to only $8.2 billion from April 2000 to June 2024. ExxonMobil and Chevron earlier signed MoUs with the state-owned giant, ONGC, for joint and individual technical studies to enable E&P in the waters off the east and west coasts. Whether these two oil majors are investors or just providers of technological services is far from clear. “I said you come, join Oil India prospecting off the Andamans waters. Don’t make any investment, just come in. We will incentivise them. And if you strike oil and you are a partner, you will have first right of refusal,” Puri told the Financial Times Energy Transition Summit.
The new legislation, which seeks to broaden the definition of mineral oils that previously included only petroleum and natural gas, is intended to facilitate E&P in major offshore oil deposits located in previously prohibited or no-go zones. The policy regime seeks to double the current net area being explored for oil and gas to 500,000 sq km by 2025 by reducing the no-go areas in India’s exclusive economic zones by 99% and incentivising the discovery of potential basins like in the Andamans, Kutch-Saurashtra, and Mahanadi at the government’s cost.
India has around 26 sedimentary basins covering an area of 3.3 million sq km, of which only seven category 1 basins have established commercial production of oil. Only 10% of the sedimentary basin currently is under exploration with expectations that it will rise to 15% very shortly and go on to 30%. In the ninth round of the Open Acreage Licensing Policy, which was open from January to September, 38% of the bids were for exploration in the erstwhile no-go zones. Clearly, this is the frontier that must be tapped if the imperative of stepping up domestic output is to bear fruition. A more sobering reality, however, is that the global oil majors will be interested only if the balance of risk/reward is sufficiently tempting in the new law.