New Delhi: India’s petroleum minister Murli Deora visited eight oil producing nations this year as part of a push to secure energy resources, with demand set to rise because of the pace at which the economy is growing.
The ministerial visits are testimony to India’s energy security concerns, given that it imports 80% of annual consumption—the oil import bill shot up 26% to Rs3.4 trillion in 2008-09. The consumption of petroleum products has grown at a compounded annual growth rate of around 4% in the last seven years. By 2030, the country will import 90% of the fuel it needs.
The spike in international crude oil prices to $148 (Rs6,926 today) per barrel in July 2008 added to the sense of urgency to the extent that India has been championing the creation of an oil price band to reduce volatility. In the absence of a broader agreement between oil producing and consuming nations, India has no recourse but to boost energy assets. This push has pitted the country against China in a geopolitical race to sew up as much of the world’s resources as it can. China has the world’s fastest growing major economy, while India is ranked second. Rivalry between the two for control of natural resources and energy assets beyond their borders has inflated acquisition costs.
Nobuo Tanaka, chief of the International Energy Agency, said in an earlier interview that India and China should collaborate rather than compete to secure resources.
According to the BP Statistical Review of World Energy, India’s primary energy consumption in 2009 was 469 million tonnes (mt) of oil equivalent, or 4.2% of global consumption. While the world’s oil consumption declined 1.7%, or 1.2 million barrels per day, on account of the global economic slump, it grew in countries such as India and China.
Graphic: Ahmed Raza Khan/Mint
“India is a huge market for oil and gas, it is a ‘destination’ like West Asia is a ‘source’. But India needs to diversify its sources of energy given the region we are in,” said Kanwal Sibal, former foreign secretary.
To help meet demand, state-run Oil and Natural Gas Corp. Ltd’s (ONGC) overseas arm ONGC Videsh Ltd (OVL) last year bought Imperial Energy Corp. Plc for £1.4 billion (Rs10,234 crore today) for the UK firm’s Siberian deposits. It also signed an agreement with Venezuela’s state-owned firm PDVSA for producing hydrocarbon from the Carabobo field in Venezuela in a consortium with Spain’s Repsol, Malaysia’s Petronas, Indian Oil Corp. Ltd (IOC) and Oil India Ltd. In addition to this, Reliance Industries Ltd has spent around $3.44 billion to acquire shale gas deposits in the US.
“The acquisition of oil and shale assets abroad are barely adequate for our burgeoning needs,” said Anil Razdan, former additional and special secretary in the petroleum ministry. “Our energy security will lie in building gas pipelines based on intergovernmental ownership with neighbouring countries like Iran, Bangladesh, Myanmar and an undersea link from the Gulf, with international multilateral funding.”
While the multi-billion-dollar Iran-Pakistan-India pipeline is back on the agenda, talks on the 2,300km pipeline that started in 1995 have been delayed over price and transportation fees India would have to pay Pakistan.
“Most of the pipelines up and running are towards the West at this point—Caspian Sea gas runs to Turkey and Western Europe, so does Russian gas. There is a Central Asia gas pipeline to China. In India’s case, the Iran-Pakistan-India or the Turkmenistan-Afghanistan-Pakistan-India pipeline, they are all proposals,” said Sibal. “And given the volatile situation in our region, it’s hard to imagine when the pipelines will fructify. Then there are the smaller challenges like security of sea lanes from West Asia to India to worry about.”
S. Sundareshan, petroleum secretary, defended the progress made in acquiring energy assets. “Not many people are aware that Rs53,000 crore, which is more than $12 billion, has been invested by OVL abroad. This is the largest investment by any company in any sector abroad,” he said. “Considering the fact that they have done this in competition with the international firms, very often private sector companies, which are presumed to be very nimble, I think this is a fantastic achievement.”
“As per the present plan, I would like OVL to invest in between one and three assets in a year,” Sundareshan said. “We hope that in the course of the present financial year, OVL would have one more major asset acquisition.”
This could well be in Vietnam, where OVL is leading a consortium of Indian firms aiming to acquire BP Plc’s stake in the $1.3 billion Nam Con Son project.
On the domestic front, efforts by the ministry of petroleum and natural gas to push hydrocarbon production have yielded few results. A case in point being ONGC, whose production from domestic fields is floundering. While reserves have increased from 65.56 mt of oil and equivalent gas in 2006-07 to 82.98 mt in 2009-10, production has dipped from 48.49 mt to 47.78 mt. “Our dependence on crude oil imports is an area of major concern, and will continue to rise,” Razdan said.
The country produced 47,573 million cu. m of natural gas and 33.688 mt of crude oil in 2009-10, missing the planned target by 8.8% and 11.4%, respectively.
India’s state-run oil marketing companies don’t seem to have the monetary firepower needed to make acquisitions or develop new assets. Owing to their having to sell fuels, except petrol since June, below cost, firms, including IOC, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd, will end 2010-11 with losses of Rs53,000 crore.
The combined borrowings of the oil marketing companies, which stood at Rs23,400 crore in March 2005, have since increased to Rs88,300 crore at the end of March 2010, directly undermining their ability to invest in new sources or squeeze more out of the assets they have.