ONGC doesn’t see sanctions hitting Russia business
Firm's CMD says not giving much cognizance to sanctions between US and Russia over Crimea annexation
New Delhi: Oil and Natural Gas Corp. Ltd (ONGC) is unperturbed by the sanctions imposed by the US and the European Union (EU) on Russia, a country in which India’s biggest oil and gas explorer owns stakes in significant hydrocarbon assets.
The EU and the US have imposed sanctions on Russia and are threatening to expand their ambit after Russia absorbed the Ukranian region of Crimea following a referendum that approved the secession.
“If it is the UN sanctions then we are bothered. If one country or a group of countries imposes sanctions then we may not give much cognizance to that,” said Dinesh K. Sarraf, chairman and managing director of ONGC. “That may not change our commercial position. Our thoughts on the sanctions are very clear.”
ONGC Videsh Ltd (OVL), the overseas unit of the state-run explorer, owns a 20% stake in the Sakhalin-1 hydrocarbon block and had bought the Russian assets of the UK’s Imperial Energy in 2008.
The sanctions come at a time when Indian oil and gas companies have acquired stakes in US shale gas assets. OVL had, however, sold its US assets before investing in Sudan, fearing that the US could invoke the Alien Tort Claims Act, which allows “foreign victims of serious human rights abuse abroad to sue the perpetrators” in US courts.
“There are various developments which keep on taking place globally. We keep an eye on them,” said Sarraf.
ONGC has been battling concerns over its domestic production capabilities and diminishing yields at its ageing oil fields. According to the company’s Perspective Plan 2030, it is targeting production of more than 130 million tonnes of oil equivalent (mtoe) in 2030, of which half will come from assets owned by its overseas unit.
US and Russia imposed sanctions and counter sanctions on each other, targeting respective lawmakers and senior government officials. The sanctions have resulted in freezing of assets within one’s jurisdiction and barring domestic firms from conducting business in the other’s domestic space. The US has also banned Aktsionerny Bank of the Russian Federation, also known as Bank Rossiya.
The dispute may test India’s ability to balance commercial and diplomatic interests with Russia.
Analysts are concerned over the fallout of sanctions on Russia. The sanctions on Russia “can have some significance for India, since the bilateral trade is worth $11 billion— which is primarily in the defence, space and nuclear energy equipment sectors,” Neelam Deo, director of Gateway House, foreign policy think tank, said in a statement dated 19 March. “India and Russia also have investments worth $8 billion in each other.”
OVL has expressed interest in exploration opportunities in Russia’s Arctic zone after India received observer status at the Arctic Council. India is also trying to secure energy resources in Russia by leveraging its historical association. Indian investments in Russia, mainly in the hydrocarbon sector, total around $4.25 billion.
“As Russia has a veto in the United Nations Security Council, no UN sanctions can be imposed. Western sanctions against Russia may have some impact, as presently seen in Iran, on the investments by Indian public sector undertakings like ONGC and GAIL in the oil sector, and perhaps discourage Indian companies that are planning to expand operations in Russia,” Deo said.
OVL had sold its 10% stake in an offshore gas exploration project near Louisiana coast in the US in 2003, a month before it acquired a 25% stake in Greater Nile Petroleum Operating Co. in Sudan from Canada’s Talisman.
Most of ONGC’s oilfields in India are more than 30 years old. While the company’s domestic reserves increased to 1,287 million tonnes of oil equivalent (mtoe) in 2011-12 from 1,243 mtoe in 2010-11, its production declined to 52.4 mt from 52.6 mt in the same period. ONGC produced 26.12 mt of crude in 2012-13, against 26.92 mt in the previous fiscal year. Gas production fell to 25.33 billion cu. m (bcm) from 25.51 bcm.
India’s energy demand is around 700 mtoe. Till now, state-owned firms have invested ₹ 64,832.35 crore in overseas energy assets, according to India’s petroleum ministry.
India imports 80% of its crude oil and 18% of its natural gas requirements. The country trails behind the US, China and Russia, accounting for 4.4% of global energy consumption. Of India’s total imports worth $491 billion last fiscal year, oil accounted for $164 billion.
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First Published:23 Mar 2014, 10:59 PM IST
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