To reduce its vulnerability to high and volatile global energy prices, India must make efforts on a war footing to increase the levels of relative self-sufficiency by stepping up domestic oil and gas production over the medium-term. Unfortunately, however, this is not happening. Domestic crude production, for instance, has been steadily declining, from 38.1 million metric tonnes in FY12 to 29.7 mmt in FY22.
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Till November this fiscal, production at 19.6 mmt is not different from a year earlier, according to the Petroleum Planning & Analysis Cell. Domestic production is falling sharply for various reasons including declining output from old and marginal fields. India lacks the technological capability for deep water exploration. There have also been no major hydrocarbon discoveries of late either. India is currently increasing expenditure on seismic surveys of domestic hydrocarbon assets. Domestic producers and global giants clearly must be incentivised to explore and produce more as costlier energy prices imply a higher import bill and inflation besides straining the current account, which is the broadest measure of India’s goods and services transactions with the rest of the world.
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The big question is how likely is an increase in domestic output. Grounds for cautious optimism in this regard were indicated in a speech of the petroleum and natural gas minister, Hardeep Singh Puri, at the Voice of the Global South Summit last Friday. Puri said India will see an investment of $58 billion in exploration and production (E&P) of oil and gas by 2023, and global majors like Chevron, ExxonMobil, and TotalEnergies are showing interest. Prima facie, this is indeed a huge number considering the capex plans of state-owned oil giants and the largest private player and the relatively modest cumulative FDI equity inflows in petroleum and natural gas till September 2022. ONGC plans to spend $4 billion to increase exploration from FY22 to FY 25. The Vedanta Group, too, plans to triple its production and account for 50% of India’s oil production. ONGC and ExxonMobil have an agreement to collaborate on E&P in deep waters off the east and west coasts. Whether ExxonMobil is an investor or just a provider of technological services is far from clear. TotalEnergies, for its part, has inked a deal with the Adani Group to invest $50 billion in green hydrogen production over the next 8-10 years. Expectations of big-ticket investments in E&P stem from plans to double the current net area being explored for oil and gas to 500,000 sq km by 2025 by reducing the prohibited or 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 by E&P players at the government’s cost. India has around 26 sedimentary basins covering an area of 3.3 million square kms, of which only seven category 1 basins have established commercial production of oil. Prospecting the remaining areas entails a huge amount of resources and technology. Over the years, the sedimentary basin exploited has remained stagnant at 6-7%. On the floor of Parliament, the petroleum minister stated that this has gone up to 10% since 2016, and the expectation is that it will rise to 15% very shortly and go on to 30% after that. This is the frontier that must be tapped if the drive to step up domestic production is to bear fruition.