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The World’s Third Largest Oil Consumer Aims To Drastically Reduce Imports

New Delhi

India, the world’s third largest oil consumer, imports about 82 percent of its crude oil requirements, and meets just 18 percent of its demand through local sources. The Indian Government has introduced several new initiatives, and changed existing policies, with a view to increasing domestic production and hence reducing hydrocarbon imports. The current economic scenario presents India with the opportunity not only to get its policy decision-making processes streamlined for exploration, but also to build up reserves.

According to most reports and estimates, India’s dependency on importing hydrocarbons is likely to deepen, as the already vast middle classes grow in numbers, and consumer demand rises. In order to counter this dependency, the Indian Government has been trying not only to make the operating environment more favourable for oil investment, but also has dedicated efforts towards the ease of doing business, in line with Prime Minister Narendra Modi’s motto of “minimum government, maximum governance”.

NEW POLICY INITIATIVES

To move forward on the target set by Narendra Modi of reducing the nation’s oil import dependency by 10 percent by 2022, several new policy initiatives have been announced. The start was made by the Petroleum Minister, Mr. Dharmendra Pradhan, on 2 September 2015 when he announced the Marginal Fields Policy (MFP), which was accompanied by the auctioning of 67 marginal fields under the Discovered Small Fields (DSF) Licensing Round. The MFP entailed two significant changes; the first was the adoption of a revenue-sharing model, and the second the grant of a single (uniform) license to the successful bidder, enabling the operator to explore and produce by conventional and unconventional means. These two facets of the policy have also formed the basis of subsequent exploration policies. Companies successful in the DSF Round were granted a 20-year license for a field, and will be able to sell gas at the prevailing market price rather than the administered price. The move to auction marginal fields was a positive one, and will be followed by DSF II in September 2017; however, it only witnessed participation from small domestic Indian companies, seeking to diversify their portfolios.

The government is expecting a significant response (especially from IOCs) to its Hydrocarbon Exploration Licensing Policy (HELP) under the revenue-sharing model. The previous New Exploration Licensing Policy (NELP), introduced in 1998, had shown increasingly evident deficiencies – the major ones being the inability to cater for unconventional hydrocarbons and inadequacies in the PSC. The most significant part of HELP is the Open Acreage Licensing Policy (OALP), enabling bidders to nominate areas for exploration; and the Petroleum Operations Contract (POC) for all hydrocarbon types, for a period of six years with a possible one-year extension. Under the OALP, a bid round will be held twice a year, starting in July 2017. The bid rounds will be facilitated by the new National Data Repository (NDR), established and populated over 2015-2017, and due to open its doors in July 2017; the provision of data through NDR will finally help to eradicate the sense of oil and gas data starvation that has persisted for several years. Related: The World’s Top Oil Consumers

AGGRESSIVE DOMESTIC EXPLORATION AND PRODUCTION

While many explorers world-wide decided to slow down investment on account of the prevailing low oil-price scenario, Indian state companies have made a conscious decision to aggressively pursue domestic E&P activities. This is evident from ONGC’s FY 2016-17 drilling campaign, under which 501 wells (167 offshore) were drilled, against 386 wells in FY 2015-16. Also, following the approval of the Marketing and Pricing Policy for new gas production from deep-water, ultra-deep water and high pressure/high temperature (HPHT) areas, the Indian major has embarked on a US$ 5 billion field development plan in the deep-water environment of the Krishna-Godavari basin. With the fall in oil prices, there had been much criticism of the previous gas-pricing model for not providing sufficient incentive to encourage investment in high risk areas.

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The government’s aggressive domestic E&P approach is also evident from the blueprint “Vision 2030 for North East India” document, released in Q1 2016. Headline aims laid out in the document include doubling regional oil and gas production by 2030, increasing refinery capacity and extending the pipeline network. The predominantly rural and remote Assam region is where Indian oil and gas exploration and production began, at the Digboi field (1890). Although the fields are small in reserves terms and most are in decline, the Northeast region contributes 12 percent of national production. In E&P, challenges include mountainous terrain, access, infrastructure and connectivity, and the government recognizes that many aspects have to be improved in order to attract new private sector E&P investment. Special license conditions are under consideration (longer periods, tax holidays, partnerships with service companies – PECs or Production Enhancement Contracts). It is anticipated that there can be a significant increase in gas production, particularly through exploration in the under-explored states of Manipur, Tripura and Mizoram.

Related: The Dark Side Of The Oil Tech Boom

ONGOING LITIGATIONS

Although there has been no major oil and gas litigation under the rule of the current government in power from May 2014, a strong perception of delay in resolving disputes persists. Such is evident from the infamous KG-DWN-98/3 (D6) (Krishna-Godavari Offshore) deep-water block gas migration dispute between ONGC and Reliance Industries Ltd (JV partners BP & Niko). In early March 2017, a three-member arbitration panel had started the hearing into the legitimacy of government’s demand of US$1.55 billion compensation from RIL for unfairly producing ONGC’s gas in the basin. Sluggishness, and at times inefficient, Indian bureaucracy has always been a concern for domestic and international investors. As such, while acknowledging the government’s intent of creating a business-friendly environment, more needs to be done to fast-track contested matters.

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To conclude, in an industry where being opportunistic is a vital forte, India needs to be lean and efficient with its decision making to attract investment, particularly at a time when China, a major competitor in seeking overseas acreage, is suffering a market slow down. Fast-tracking policy decision making, aggressively pursuing domestic exploration and production activities and launching an OALP are certainly positive steps to encourage direct investment.

By Drilling Info

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Leave a comment
  • Dan on June 07 2017 said:
    India would be the perfect place to develop natural gas autos and n.g.stations. Build in relationship to housing development for growing middle class.
  • Naomi on June 09 2017 said:
    India has plenty of oil in the ground. Unfortunately India is a corrupt society. Endless bribery prevents progress on any business endeavor until profits are non existent. Indian courts are equally corrupt.
  • Vishwas on June 13 2017 said:
    Crude demand arises from cars, increasing demand for cars, goods transport arising from higher consumptions and power. Govt. policy to go for electric cars and small vans used for last mile logistics and nuclear power. Overall, in the next, 5-7 years, in spite of increasing consumption by the ever increasing Indian middle class families, demand for crude is likely to fall. These reports seem to be motivated to boost oil prices.

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