that the company must go to any country which has oil as easy oil is no longer available. This despite the constant threat of nationalisation of oil fields in many countries. The question that everyone seems to be asking is whether crude oil prices will rise further or will there be some kind of sanity with prices coming down to levels below $90 per barrel...
I have strong reasons to believe that prices are not likely to come down below $100 per barrel. The ever-growing demand for crude oil, constrained supply from existing assets and inadequate replenishment from new assets are the major reasons. At the same time, resource owners globally have started tightening control over existing and prospective resources, thereby constraining free access to these resources. The end result is that oil majors having the required technology and know-how are losing access to reserves.
Also, even though these companies are showing better financial results, production from their ageing fields, especially in major basins such as the Gulf of Mexico and the North Sea, are declining. This has resulted in prices moving up sharply in the last four-five years.
Are you saying that resource nationalism, or nationalisation of oil fields, is a major reason for why oil prices are rising and will continue to do so?
Resource nationalism is now an established fact. Some countries have openly or tacitly declared that oil fields in their countries will be controlled by them through their national oil companies. In this scenario, access to these resources is restricted which, in turn, is constraining the induction of suitable technology or skills for expeditious and cost-effective development of established assets. Oil and gas assets are concentrated in a few countries and tight control over these resources is bound to restrict supplies. As the demand-supply curve gets more skewed, oil prices are bound to increase further.
But surely speculative trading is also partly responsible?
Yes, speculation is one of the major reasons for the oil price hike. Due to the evolving geo-politics, major resource centres are unstable and even slight supply-side apprehensions attract speculators. In such a situation, consumers start hoarding. Besides, a weakening dollar is also one of the reasons. All of these factors have a cumulative impact on oil prices.
Now, everyone wants to have strategic crude oil storage. My worry is that any disruption in supply could have a negative impact with oil prices shooting up further.
What is the way out for economies like India?
For a country like India, demand-side management is vital. Today there is no awareness campaign to control demand. Beyond political considerations, consumers need to be educated about the adverse effect of high oil prices so that they willingly come forward for effective demand management. The country needs to develop a culture of energy conservation for effective demand-side management.
Even though resource nationalism continues to be a big problem in countries such as Russia and Venezuela, ONGC is looking to buy more oil fields in these countries.
We are looking for good oil and gas assets globally. As far as resource nationalism is concerned, it is in fact an opportunity for us. ONGC, being the national oil company of India, has better credibility to have access to resources in these countries as there is a sovereign relationship in these deals. We also believe in supplementing the endeavours of the host country as partners in progress towards social development. It is due to these reasons that we are welcomed by the resource holders.
How does ONGC's strategy change in this high crude oil price scenario?
ONGC is adopting an intensive and focused approach for augmenting production. Our recovery rate of crude oil has increased from around 28 per cent in 2000-01 to 30.5 per cent in 2005-06 for 15 major fields. We are making substantial investments in the enhanced recovery of oil from our ageing fields. This has enabled us to arrest the decline of around 26 per cent in oil production that had set in between 1995 and 2000. While globally, production is declining, ONGC should be commended for maintaining production over the last few years. Concurrently, we have intensified exploratory effort to locate new oil and gas assets. It is also our endeavour to bring discovered fields on stream at the earliest.
But does ONGC have the necessary technology to keep production at current levels, and then increase it further, considering that all easy oil seems to have been found?
Yes, ONGC has the necessary technology and skill sets to manage its existing assets and to maintain production at the current level. It is true that the era of easy oil is over and new assets are located in challenging environment like deepwater, ultra-deepwater and inhospitable and geologically difficult areas. The cost of drilling and evacuating crude oil from such areas is phenomenally high.
Is ONGC getting the technology to operate in these areas?
That is not a problem. We have established meaningful collaborations with companies like Petrobras and NorskHydro as these companies have experience and expertise of operating in challenging, deepwater environments.
The Budget for 2008-09 proposes to withdraw the tax holiday on the production of gas. What impact is this likely to have on the oil exploration sector?
It is a major issue. In the Budget documents, mineral oil has been defined to exclude petroleum and gas. But in the Income Tax Act, mineral oil is described to include oil and gas. Moreover, petroleum cannot include just oil and not gas. No company in the world will aim to produce only oil or gas. Even in an oil discovery, there is associated gas. The two cannot be separated. It will only lead to chaos and confusion, and discourage investments.
