The beginning of this century augured well for the hydrocarbon industry in India, with the ambitious roll-out of the New Exploration Licensing Policy (Nelp) for exploration bidding. Within four-five years, the KG Offshore Basin promised to be a boon for the import-dependent Indian economy. Three operators, namely, Oil and Natural Gas Corporation (ONGC), Reliance Industries (RIL) and Gujarat State Petroleum Corporation (GSPC), made impressive gas discoveries in the basin, with claims of making the country energy independent as more discoveries of oil and gas were expected and the KG East Coast was projected to have the potential to turn into the next North Sea in terms of oil and gas operations.
Where do we stand a decade and a half on? RIL fast-tracked its field development and started gas production on an impressive scale. The production rate, however, declined due to controversies over gas pricing, cost recoveries under the production sharing contract and allegations of inflating capital cost. On its part, the Comptroller and Auditor General of India ended up sensationalising the issue. The worst fallout was an industry issue getting politicised to such an extent that global investors panicked. Renowned international oil companies shied away from joining collaborative ventures with ONGC and GSPC. Global players stopped participating in Nelp bidding, leading to a sharp fall in exploration activity in the country. Existing global players exited the Indian hydrocarbon scene one by one.
No exploration bidding has taken place for over six years now. RIL's operations are beset with controversies. ONGC and GPSC have not been able to deliver on their promises, mainly due to gas pricing issues and the lack of global interest to join collaborative ventures in India. The experience of the lone exception, British Petroleum, which joined hands with RIL, put off other global players as well.
So what does the future look like? Last year, Prime Minister Narendra Modi set the target of reducing import dependency in the oil and gas sector by 10 per cent by 2022. The government has embarked on major reform programmes such as announcing HELP (the new Hydrocarbon Exploration Licensing Policy), open acreage, uniform licensing, reduced loyalty rates and pricing and marketing freedom for gas production. A new pricing mechanism for gas from deep waters, high pressure, high temperature (HPHT) areas has also been announced, which should enable ONGC, RIL and GSPC to monetise stranded gas in difficult areas on the KG East Coast. These reform measures are expected to revive and rejuvenate hydrocarbon activity in the country and help reduce our import dependency.
The latest round of controversies politicising the GSPC issue is again posing a serious threat to investment sentiment in the sector. To be fair to GSPC, it has made genuine efforts to begin production from HPHT and tight reservoir areas. According to a state government release and other media reports, GSPC has established "in-place" gas reserves of 14 to 23 trillion cubic feet (tcf) with recoverable reserves of over seven tcf. Based on current prices, the value of production over the life cycle of these discoveries would be in excess of Rs 3 lakh crore. The company has also made investments of Rs 14,600 crore in creating the infrastructure for production and pipeline transportation from offshore and onshore processing facilities. It has also produced gas, though on a much lower scale than its potential.
An international firm of domain experts is also helping it on the technology front to carry out fracking in tight reservoirs to facilitate production flow.
GSPC has the potential to deliver but it needs to win the trust and confidence of all stakeholders. A full-time professional of proven capability should be employed as CEO on a long-term contract. It should not hesitate to engage additional domain experts of global repute to fast-track production. It should continue efforts to farm out part of the PSE holding in the block to a partner of repute, who can add value and expedite efforts to begin production on a commercial scale. This is the opportune time to do so, as the government has already approved a higher price and marketing freedom for gas production for such a reservoir.
The government and the Directorate General of Hydrocarbons (DGH), taking their cue from operations in the North Sea and the Gulf of Mexico, should encourage and facilitate collaboration among GSPC, ONGC and RIL to share infrastructure, pipelines, oilfield services and deployment of technology to improve efficiency and reduce cost. These three operators together have the potential to produce incremental gas of over 50 million metric standard cubic metre per day from the KG Offshore Basin. To make it happen, the government needs to offer further fiscal incentives through the DGH.
Most important, for everyone concerned about India's energy security, is to ensure that GSPC (and other domestic players) are not dragged into unwarranted political controversies. That would go a long way in improving investor sentiment and scale up the activity level in the Indian hydrocarbon sector.
The author is chairman, Ficci Hydrocarbon Committee, and former chairman and managing director, ONGC
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
