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New Delhi: India’s Oil and Natural Gas Corp. Ltd (ONGC) and China National Petroleum Corp. (CNPC) inked an agreement in New Delhi on Monday to jointly bid for energy assets overseas in a move that could have a significant impact on the global race for oil and gas blocks.

The deal could also see CNPC participating in efforts to develop and exploit ONGC’s domestic assets.

The primary purpose of the agreement, however, seems to be to ensure that bidding for global energy assets doesn’t get out of hand as it has in the past.

“We should collaborate and bid together," said D.K. Sarraf, managing director, ONGC Videsh Ltd (OVL). “There is no point in raising prices. A memorandum of understanding was signed." He clarified that neither partner has an immediate property in mind for which they can bid together.

To be sure, the two firms did have an earlier arrangement, but that was limited to hydrocarbon exploration and production, and didn’t result in much cooperation or coordinated bidding.

“This (the new agreement) is for examining possibilities of mutual interest in upstream, downstream and all related areas," Vasudeva told Reuters.

With India importing more than 80% of its energy needs, state-owned firms have been scouting overseas for securing assets and have invested 64,832.35 crore in the effort. This push has pitted the country against China in a race for the world’s resources. This competition for resources has in turn raised prices for the assets of both Indian and Chinese firms.

While OVL, the overseas arm of ONGC, and CNPC had earlier collaborated in Sudan and have worked together on projects in Syria and Myanmar, an institutional arrangement will bring the two rivals together and will have a global impact. OVL invested $2.5 billion in petroleum exploration and production in undivided Sudan as part of Greater Nile Petroleum Operating Co., in which it owns a 25% stake. Its partners are CNPC (40%), Petronas Carigali Overseas Sdn Bhd (30%) and Sudapet Co. Ltd (5%).

“We have to build on this association," an ONGC executive said, speaking on condition of anonymity. “Apart from jointly scoping overseas assets, the Chinese are also interested in investing in our domestic assets. They have asked us to show them what we have. It is now dependent on the security establishment how to take this forward."

The development comes at a time when the two countries have been discussing ways to double bilateral trade to $100 billion by 2015 and to plug a yawning trade gap in China’s favour.

“Securing energy supply continues to be a key strategic objective for China and India, both of whom continue to generate growth, and are concerned with the high energy prices," said Gokul Chaudhri, a partner at audit and consulting firm BMR Advisors Pvt. Ltd. “This requires both nations to undertake geopolitical risks in frontier areas like Africa and Myanmar, with significant financial outlays. In the past also, the two countries have sought to collaborate rather than compete in view of their mutual need for overseas acreages and energy security."

“This renewed effort, in the backdrop of improved economic ties, should yield long-term benefit to not just India and China, but also to the nations in which such joint energy projects are developed," he added.

China and India will be the world’s largest and third largest economies and energy consumers by 2030, respectively, jointly accounting for about 35% of the global population, gross domestic product and energy demand, according to the BP Energy Outlook 2030.

A strategic affairs specialist said the move will also ensure India maintained its relationship with China.

“This is in a way (about) India trying to keep equidistance between China and the US. It wants to maintain equidistance between the two," said R.N. Das, a senior analyst with the Institute for Defence Studies and Analyses. “India already has an agreement with China in energy cooperation and this has worked in the case of Sudan."

According to India’s oil ministry, the country’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalents today to around 1,500 million tonnes.

OVL is the only company among Indian state-owned firms with producing assets overseas. It has a presence in 15 countries through participation in 33 projects and has proven balance of oil and gas reserves of 202.908 million tonnes. But while its producing properties in Sudan have been affected by South Sudan’s decision to cap wells, the ones in Sakhalin and Syria are in decline.

Elizabeth Roche and Reuters contributed to this story.

utpal.b@livemint.com

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