India, China set for big-rig oil partnership

India to take stake in Kazakhstan's oil and gas exploration projects.

Join hands with your competitor if the competition is formidable. That is the new mantra of the petroleum ministry led by Mani Shankar Aiyar.

Having lost out to China in several international oil bids, the ministry is chalking out a blueprint for an alliance between New Delhi and Beijing in the hydrocarbon sector.

A hint to a plan like this was given by Petroleum Secretary SC Tripathi last week when he told reporters that India wanted a marketing presence in China's hydrocarbon sector. The strategy goes like this: India will take equity in Kazakhstan's oil and gas exploration projects.

As the natural market for absorbing production from such fields cannot be India, it has to be China because of the country's proximity with the Central Asian region.

This means India is clearly looking at having a share in the world's fastest growing economy and the reason behind this new thinking is not too far to seek.

India has lost out to China in securing equity oil and gas abroad. One such example is Angola where Shell wanted to sell its stake to ONGC Videsh Ltd (OVL) but China snatched the pie away at the last minute.

Similarly, in Indonesia, OVL lost stakes in five oilfields to China. The trend continued when China National Petroleum Corporation (CNPC) pipped OVL to the post in Sudan, winning an 11 per cent stake in a field.

Therefore, an alliance between the two countries makes sense, say oil experts.

China, consuming about 5.56 million barrels per day of petroleum products, and India, with a consumption almost half of this, are net importers of crude oil.

China became a net importer in 1993 and is expected to fuel its growth with substantial oil imports bill by 2010 when it is expected to import over 50 per cent of its oil.

India ranks sixth in the world in terms of petroleum demand, of which 70 per cent is met through import of crude oil. By 2010, India is projected to replace South Korea and emerge as the fourth-largest consumer of energy, after the United States, China and Japan.

Aiyar, a diplomat, saw in this a need to change India's strategy. So, he not only announced setting up of a joint task force, headed by Talmiz Ahmed, to identify areas where the two countries can work together but also expressed India's desire to be part of a Kazakh-China pipeline.

The products of India's Kazakh investment, including those in petrochemicals, will be headed for China if the country succeeds in getting a hold in Kazakhstan.

Similar is the case with Russia where both India and China want to secure an energy source outside West Asia. China is already buying crude from Russia.

"An Indian equity presence in Russia would not necessarily mean that production from there would come here. It would ideally be suited for China or Japan," said an official.

A small beginning has already been made by India. Gail has picked up a 10 per cent equity in China Gas Holdings, which will supply compressed natural gas to Beijing and other cities.

The two countries are also partnering in third countries. Sudan, for example, where both OVL and CNPC have an equity in the Greater Nile Project although the former had lost out to the Chinese firm in a different bid earlier.

Teri Director-General RK Pachouri felt that an alliance like this was worth trying. "The strategy is sound as both India and China are competing for the same reserves," he said, adding that this caused sub-optimal use of costs and benefits as bidding pushed up the bid price for these assets.

The tying up, however, will not be easy. "They would need to map strategies to which both the parties agree. Besides, a lot of information would need to be kept confidential," he said.

Government officials said as oil and gas blocks were awarded all over the world through bidding, an alliance in this was a tricky affair.

The big game

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Stakes for India:Last year imported Rs 83,538 crore worth of crude oil, about 70% of demand

Stakes for China:Requires 266 mt oil but produces 170 mt; imports 91.12 mt

Where India lost out:Angola, Indonesia, Sudan

New approach:Kazakhstan: India will take equity in the country's oil and gas projects. Supplies may go to China

Sudan: OVL and CNPC have an equity in the Greater Nile Project although the former had lost out to the Chinese firm in a different bid earlier