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OVL caught in Russian bear hug

OVL caught in Russian bear hug
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First Published: Wed, Jul 02 2008. 11 59 PM IST
Updated: Wed, Jul 02 2008. 11 59 PM IST
New Delhi: India’s plan to secure much-needed supply of gas by bartering gas from its stake in Russia’s Sakhalin-1 block with Japan in return for gas which that country sources from West Asia has run into trouble with Moscow indicating that it is not in favour of any such move.
“Russia wants the marketing rights for the gas produced from Sakhalin-1 to remain with OAO Gazprom (Russia’s largest oil company). This became evident after Exxon Mobil’s plan to supply gas to China National Petroleum Corp. was shot down by the government. The Russian stand is in sync with the country’s hard-line approach towards its energy resources,” said an ONGC Videsh Ltd, or OVL, executive who did not wish to be identified. India’s stake in Sakhalin-1 is held through state-owned OVL, a subsidiary of the Oil and Natural Gas Corp.
Exxon Neftegas Ltd is the operator that runs the Sakhalin-1 block, which is owned by a consortium of Exxon Mobil Corp. (30% stake), Sodeco of Japan (30%), Russia’s RN-Astra (8.5%) and Sakhalinmorneftegas-Shelf (11.5%) and OVL (20%).
If India had been able to go through with its barter deal, it would have managed to substantially reduce transportation costs of gas because Japan is closer to the Sakhalin Island and gas-starved India is closer to countries in West Asia from which Japan sources gas. India needs around 180 million standard cubic metre per day, or mscmd, of gas largely to fuel its power generation and fertilizer plants.
Domestic supplies contribute around 81mscmd and the rest is imported. Russia has the largest proven gas reserves (48 trillion cu. m) in the world, accounting for 27% of total proven global reserves. Gazprom controls around 94% of Russia’s gas production.
In return for its $1.7 billion (Rs7,361 crore) investment in the Sakhalin-1 project, OVL gets 2-4 million tonnes of crude oil and will get 5-8mscmd of gas a year. It sells the crude in the international market, but it hasn’t figured out what to do with the gas it will soon get.
“What will ultimately happen is still uncertain. The episode with Shell and its partners Mitsui and Mitsubishi, where it had to hand over a 50% stake in Sakhalin-2 to Gazprom, has made investors very nervous there,” said Rohit Nagaraj, an analyst at Mumbai’s Angel Broking Ltd.
Given the soaring price of crude and all products derived from it, energy resource rich Russia has been playing the energy card to good effect on the international stage.
To achieve this objective, Russia has been trying to bring back the country’s energy assets under state control. Russia’s stance comes as a blow to India because Japan was likely to agree to the gas barter deal as reported by Mint on 10 February. Japan Oil, Gas and Metals National Corp. had agreed to explore possibilities for such a swap with OVL.
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First Published: Wed, Jul 02 2008. 11 59 PM IST
More Topics: Gas | OVL | ONGC | Russia | Oil |