Business Today

Oil Games

Global oil policies can hinder Indias plan to push domestic production and cut imports.
twitter-logo Anilesh S Mahajan   Delhi     Print Edition: April 23, 2017
Oil Games

Against the backdrop of a prolonged global oil price slump, India auctioned the first set of oil fields in the last week of March, the first such activity in the past six years. This may help meet 2 per cent of the current oil and gas demand, with the peak production pegged at 15,000 barrels a day. That is not heartening news as Indian consumption is expected to grow beyond 200 million metric tonne (MMT) in the first quarter of this financial year, while the domestic production is hovering around 38 MMT. Also, led by PM Narendra Modi, the country is facing a tough challenge as it endeavours to cut down oil and gas imports by 10 per cent by 2022.

For a country where oil consumption grows by 11 per cent, and 78 per cent of the requirements are met with imports, it is not wise to sit idle, Petroleum Minister Dharmendra Pradhan said. The real test will be to open new blocks, especially deep-sea oil and gas blocks, that can help boost overall output.

A look at the oil prices can help determine the sustainability of these production plans. All the oil-producing companies in India, including the largest public sector oil producer Oil and Natural Gas Corporation (ONGC) and state-promoted Oil India Ltd (OIL), are struggling to match their production number year on year. In January this year, ONGC reported net realisation of $51.8 a barrel. While the current prices may support the current production level, ONGC and other producers are finding it difficult to pump in more money to explore new fields.


Globally, oil producers have been caught in the crossfire of the Saudi Arabia-led OPEC countries, Russia and the revival of the US shale play. Since last November, the OPEC nations decided to cut oil production by around 1.8 million barrels in a bid to firm up prices. This suits Indian oil producers as long as oil prices stay at around $60 a barrel, which will ramp up production, help in operating new fields and balance with the 'cheaper' oil requirements of the downstream companies. Although oil prices firmed up around $50 to $53 a barrel at Brent scales, the decision of the US President to lift all restrictions on the production of oil and allied products has played spoilsport. While the production glut may spoil the price scheme of Indian oil producers, it will further increase the country's wait period for new investors despite reforms in the form of a new Hydrocarbon Exploration Licensing Policy.

Meanwhile, the government is pushing ONGC and OIL to pump in money and explore oil fields which were earlier stuck in legal tangles or were in queue to seek permission. Most important among them is the Ratna-R series, which was restored to ONGC after a decade-long dispute. ONGC is also planning to focus on high-pressure, high-temperature blocks on the western coast. India is also working on a production enhancement contract so that operations can be outsourced after setting a minimum benchmark output level. Living up to the targets set by Modi will require more efforts. Obviously, the global winds are not helping.

@anileshmahajan

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