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Fawzia Sheikh

Fawzia Sheikh

Fawzia is a contributor to Oilprice.com

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India Facing Fierce Competition in its Search for Oil and Natural Gas Resources

While energy-strapped India is scouring the globe for oil and gas - a bid that recently took it to Sudan and Russia where India signed two memoranda of understanding, and to Iran where it forged two agreements – the South Asian nation is also urging energy investors to its shores.

“India is thirsty for energy,” Ron Somers, president of the U.S.-India Business Council, told OilPrice.com. India, with a population of roughly 1.2 billion and a 300-million-strong middle class, is “fundamentally without hydrocarbons,” said Somers, whose organization aims to deepen two-way trade and strengthen commercial ties between the nations.

Large, cash-rich public-sector companies like the Oil and Natural Gas Corp. (ONGC) and the Indian Oil Corp. are investing outside the country but face fierce competition from Chinese and other international interests, Somers noted. “I know that India has succeeded and failed and stubbed its toes,” he conceded, adding that India began its overseas oil
acquisition activities in the last five or six years.

In December, a consortium of Indian firms signed two agreements with Iranian authorities to invest $10 billion developing gas fields and liquefaction facilities in the Islamic republic in return for a minimum of six million tons of liquefied natural gas each year. Days later, India signed a MOU to expand cooperation in Sudan’s oil and gas sector, and one with a Russian company to search for oil and gas assets in Russia and
Central Asia.

India’s energy model in the developing world, particularly in Africa and to some extent in Iran, has combined resource extraction with long-term industry development in that country or region, said Peter Pham, a senior fellow and director of the Africa Project at the New York-based National Committee on American Foreign Policy, and an associate professor of justice, political science and African studies at James Madison University
in Harrisonburg, Virginia.

With a long history in Africa, India is willing to “do value added” on the continent and integrate itself into the economy, rather than simply view Africa as “a supply depot for resources,” Pham argued. India views helping with African development as conducive to a more sustainable relationship between the two regions, he noted.

“I would say it's a hybrid model,” Pham told OilPrice.com. While Western countries largely use a strategy of private investment in Africa, Chinese and Russian models are state-driven, he said. In India’s case, however, quasi-governmental organizations known as “parastatals” work with private firms, but there is a coordinated government effort to drive investment, he explained.

At a joint India-Africa hydrocarbon conference this month, the Indian government was keen on buying more crude oil, sourcing larger volumes of liquefied natural gas, investing in more upstream opportunities, lending “skills, talent and technology” to Africa, and taking up community development programs on the continent.

African countries’ potential acceptance of the subcontinent’s oil and gas model varies, Pham argued. A democratically-accountable nation with regular, competitive elections is more likely to prefer India’s long-term engagement philosophy because “the public can see that there’s more than just resource extraction,” he said.

Pham said Guinea’s new military junta, in contrast, probably has “a shorter lifespan” and therefore was willing to sign an energy deal with China in October. “There’s no  development foreseen; it’s just simple resource exportation.”

India’s investments in Africa have not always been praised, though. The Indian government struck a MOU with Sudan recently, and India’s ONGC Videsh Ltd. has invested $2.5 billion in the oil industry there, but “furious debate” within India over the last few years has centered on whether it should be doing business with the African country at all, he said.

Outside of Africa, India’s model of energy-related development has extended to Iran. India has helped to develop Iran’s refining capacity and other aspects of the sector in exchange for entry into the natural gas market there, he said. Other countries, meanwhile, have mainly taken away energy assets.

India’s November vote to sanction Iran for its nuclear program will have “very little actual impact” on the relationship between India and Iran beyond “politically ruffled feathers,” Somers of the U.S.-India Business Council predicted.

At home, moreover, India forged deals five years ago that are now coming to fruition.

The United Kingdom’s Cairn Energy PLC scored an oil discovery in 2004 that is now under production at the rate of 180,000 barrels a day and will reduce India’s oil imports, Somers said. He said production began this year.

Reliance Industries Ltd., an Indian company, also found at least 30 trillion cubic feet of “proven, probable gas reserves” on the subcontinent and began producing this year, he added. In another 18 months, the “game-changer discovery” will start generating electricity and alter the country’s economy, he said.

In the end, these domestic oil and gas discoveries are like “a flashing green light saying we’re open for business, and that you can succeed magnificently on Indian sovereign soil,” Somers noted.

Anaylsys by. Fawzia Sheikh for OilPrice.com

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