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Felicity Bradstock

Felicity Bradstock

Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK.

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What Will Privatization Mean For India’s Burgeoning Oil Industry?

Indian state-owned oil and gas producer Oil and Natural Gas Corporation Limited (ONGC) is told to sell its stake in the country’s oil fields as part of the Ministry of Petroleum and Natural Gas seven-point plan to boost production after a year of limited production.  According to a Press Trust of India (PTI) report the country’s Ministry of Petroleum and Natural Gas is communicating with ONGC on how to increase oil output over the coming years. 

The plan, titled 'ONGC Way Forward', suggests that ONGC divests its stake in several onshore and offshore oil fields, including Panna-Mukta or Ratna, R-Series and the Gandhar field, as well as partnering with foreign oil and gas firms to develop its projects in the gas-rich block KG-DWN-98/2, Ashokenagar block in West Bengal and Deendayal block in the KG basin. The Ministry is also putting pressure on the ONGC to monetise existing infrastructure.

Production in the $5-billion KG-DWN-98/2 project is expected to increase substantially over the next year, with peak production projected for 2024. ONGC expects the fields to support around 2 million metric standard cubic metres per day (MMSCMD) of natural gas by the end of June. Additional fields operated by Reliance and British Petroleum in the Krishna Godavari basin will contribute to the increase in domestic natural gas production. 

The plan also looks to separate various oil services such as drilling, well services, logging, workover services and data processing entities.

Related: Goldman: Oil To Hit $80 On Largest Ever Demand Jump

Efforts are being made to increase national oil and gas production as ONGC crude production fell from 20.6 million tonnes at the end of fiscal year 2020 to 20.2 million tonnes in 2021. Gas production also decreased during the same time period. The plan hopes to see ONGC increase production levels by one-third by 2024. 

This plan represents the third attempt under the Modi government at convincing ONGC to privatise its marginal oil and gas fields to focus wholly on large producing fields to boost domestic production.

The plan states that national production must increase production to 40 million tonnes of crude oil and 50 billion cubic metres of natural gas by fiscal year 2023-24 if India hopes to reduce its dependence on oil and gas imports and meet domestic needs. ONGC is expected to produce the majority of this target oil production, at around 70 percent of the country’s total oil and gas output, an increase of almost 8 million tonnes of crude on its present production levels. 

An official stated of the plan, “India’s domestic crude oil production is constantly on a decline. It is mainly because ONGC, which contributes about 70% of the domestic output, is unable to ramp up production from existing fields and could not add new fields under production. Hence, the action plan”.

However, industry experts believe the plan could significantly weaken ONGC, with private partners profiting from the corporation’s existing discoveries in oil and gas, likely the reason that ONGC has, until now, resisted pressure from the Ministry to divide its assets and privatise. 

Yet, with India’s oil and gas production levels falling under ONGC since 2012, largely due to the reliance on low-output aging wells, it is clear that something must be done if the government hopes to increase domestic production levels. For example, boosting national production will likely require technologically intensive methods to benefit from more hard-to-access areas such as ultradeepwater fields, something ONGC is currently failing to achieve. 

While ONGC will likely resist the Oil Ministry’s latest attempt at privatisation, it has become clear that the state-owned corporation must adapt in order to meet national oil and gas needs over the next decade. 

By Felicity Bradstock for Oilprice.com

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