New oil and gas licensing regime faces maiden test tomorrow
New Delhi: India’s first auction of oil and gas blocks under a new liberal licensing regime on Thursday is set to test investor appetite at a time when renewable sources of energy are threatening the dominance of fossil fuels.
The first auction of blocks identified by explorers under an open acreage licensing policy (OALP) ensures greater industry involvement in the auction design and is a departure from the earlier regime in which pre-determined blocks were auctioned. Investors are also eligible for liberal fiscal and contractual terms, including pricing and marketing freedom for natural gas, under a new hydrocarbon exploration licensing policy (HELP) announced in March 2016.
Thursday’s auction will signal the direction India’s exploration industry is headed for as oil fetches far less returns to investors now compared to 2011-12 when price averaged a high of $118 a barrel. Indian basket of crude touched $76.25 a barrel on Wednesday. Besides, the outlook for fossil fuels is uncertain given the rapid advances made by solar power industry which is making commercial diesel power generation sets redundant. Policy makers are also working on making the country transition to full electric mobility by 2030, which is forcing conventional energy firms like Indian Oil Corp. and NTPC Ltd to test waters in electric vehicles charging network.
HELP also allows contractors to produce both conventional fuels like oil and gas as well as unconventional fuels like shale oil/gas and gas hydrates under the same licence, unlike the earlier policy. No new auctions were held in the country since 2009 as the government was preparing for a regime change in the upstream sector as the complicated terms and micromanagement of the blocks by the authorities in the previous policy had led to litigation in the high-risk, capital-intensive business.
The Narendra Modi government has set an aspirational target to cut oil import dependence by 10 percentage points to 67% by 2022 from 2015 levels but consumption of fossil fuels has been increasing in line with economic growth rate—6% in the first half of the 2017-18 fiscal. Globally, major oil producing nations are cutting supplies to keep prices firm although shale oil supply from the US is likely to counterbalance it. Capital spending in exploration generally declines when oil prices remain bearish but Indian state-run companies have been investing in exploration due to domestic demand growth and energy security concerns.
Karen Harris, managing director of consulting firm Bain & Company Inc.’s macro trends group, told Mint in a recent interview that the era of liquid petroleum controlling the price of energy has ended. The growth of alternative sources of energy has touched a tipping point which has capped prices of refined petroleum products, she said.
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