Wild card for prospectors

For greater energy security, there is no alternative to stepping up domestic oil production.

ONGC, oil sector
While more FDI in petroleum and natural gas is expected, the moves by domestic majors to step up exploration are to be welcomed. (IE)

As global crude prices continue to be high and volatile, India must make determined efforts to increase the levels of relative self-sufficiency. There is a need to boost domestic production that has been steadily declining. With a high import dependence of 86%, the country has been diversifying its supplies, including relying on discounted crude from Russia that reached the highest levels in February. The imperative of greater energy security entails stepping up indigenous oil production over the medium-term by incentivising domestic producers and global giants for exploration and production (E&P). In this regard, the good news is that the policy regime seeks to encourage more offshore exploration with 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 at the government’s cost. Other reforms include royalty discounts, zero-revenue and windfall revenue sharing and speeded up environment approvals. According to a report by the consultancy group Wood and Mackenzie, there is also alignment and agreement between the Prime Minister’s Office and the Director General of Hydrocarbons on these objectives. India is now a licensing “wild card” for prospectors as the “balance of risk/reward” is sufficiently tempting to bring in the big players.

While the policy establishment is excited by the interest shown by ExxonMobil, Chevron, and TotalEnergies, little is known about their commitments, although TotalEnergies has inked a deal with the Adani Group for green hydrogen production. Whether ExxonMobil and Chevron are investors or just providers of technological services is far from clear. 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 in petroleum and natural gas account for only 1.3% of total inflows from April 2000 to September 2022. ExxonMobil and Chevron have signed MoUs with the state-owned giant Oil and Natural Gas Corporation (ONGC) for joint and individual technical studies to enable E&P in deep waters off the east and west coasts. Exxon’s study is expected to end by March and Chevron’s by December.

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While more FDI in petroleum and natural gas is expected, the moves by domestic majors to step up exploration are to be welcomed. ONGC plans to spend $4 billion to increase exploration from FY22 to FY25. So, too, does the Vedanta Group to triple its production and account for 50% of India’s oil production. The state-owned major plans to drill for oil and gas in the Cauvery ultra-deep waters in FY24 according to its director (exploration) in an article in the Business Line. As it has a good idea of the availability of oil and gas on the eastern and western offshore, ONGC plans to acquire 1 lakh sq km of acreage offshore every year so that it has over 5 lakh sq km in the next three years. Such efforts are necessary to increase levels of relative self-sufficiency and energy security at a time costlier energy prices are contributing to higher inflation and straining the current account, which is the broadest measure of the country’s goods and services transactions with the rest of the world.

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First published on: 06-03-2023 at 04:30 IST
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