Home | Comment & Analysis    Thursday 4 September 2003

India’s oil hunt attracts US attention

By INDRAJIT BASU, UPI Business Correspondent

CALCUTTA, India, Sep 04, 2003 (UPI) — Four years back when India’s currently governing political party, the Bhartiya Janata Party, came to power, it used "national security" as one of the promises to win the elections. The two main elements of this policy were securing India’s borders as well as ensuring its oil and gas security. But, while the BJP’s efforts to secure India’s borders over the years made headlines, its pursuit of oil security attracted little attention.

Now, however, it has begun attracting global notice — most importantly from the United States — as a task force on the United States Energy Policy, constituted by President George Bush, has identified "India as one of the major energy markets" and, as a part of a policy realignment, the U.S. Department of Energy has offered support to "any industry expertise required by India to create its own strategic reserves."

Reports also suggest that throwing the Enron-Dabhol fiasco — Enron’s $3 billion Indian venture called the Dabhol Power Company that is on the verge of going bust — to the winds, the Bush administration is also lending its weight to American firms seeking to invest in India’s energy sector.

Indeed, egged by the BJP government and supported by diplomatic channels, Indian companies over the last three years have been involved in a massive oil hunt both domestically and offshore. In the offshore arena, three of its state-owned oil companies; ONGC Videsh — the subsidiary of the country’s largest oil company Oil and Natural Gas Corporation, Oil India Ltd, Indian Oil Corporation, and, the largest privately owned company, Reliance Petroleum Ltd, have picked up stakes in — and ideally control of — quite a few new oil fields around the globe that were discovered over the last three years.

The hunt for oil within the country is more intense. Early August, in a project code-named "Sagar Samriddhi", Oil and Natural Gas Corporation announced a deep-sea oil and gas project to explore one-third of the estimated 11 billion tons of oil and oil equivalent gas reserves lying unexplored in the deep waters in the east and west coasts of the country.

"This is the biggest deep-water exploration ever attempted by a single operator, anywhere," said ONGC Chairman and Managing Director Subir Raha adding that ONGC is targeting to add four billion tons of reserves from the deep-sea exploration campaign.

The main reason behind the sudden global interest in India’s efforts to seek oil security is obviously the smell of money. The spoils of the hunt are indeed rich.

For instance, the Indian quartet has agreed to fork out nearly $3.3 billion between them to pick up interests in oilfields in 10 countries including Russia, Yemen, Sudan, Vietnam, Iraq and even in the United States.

The "Sagar Samriddhi" project has an even bigger stash. The project’s 47 exploratory wells in its blocks spread across the Arabian Sea and the Bay of Bengal has an estimated $138 billion worth of hydrocarbons to hunt for. And, part of that treasure has already started flowing out to foreign drilling companies. ONGC, for instance, has hired Transoceanic Inc of the United States and Dolphin Drilling of the United Kingdom to commence drilling for this project, which would involve a payment of $336,906 and $361,763 per day respectively. According to ONGC, the two companies alone could eventually take home over $8 billion from this contract.

No doubt then that foreign drilling companies, which even until a few years back considered India’s oil sector as a laughing stock, are rushing in. Sources from the Petroleum Ministry said, as many as 66 United States oil and gas majors have shown interest in recent road shows, in which the Indian government invited multinationals to explore 24 oil blocks that have were identified by the government through yet another exploration project called the New Exploration Policy-IV.

But why is India suddenly putting a heavy foot on the throttle in its hunt for oil?

The problem is, although India sits on abundant gas reserves, the country has no spectacular oilfields. And, despite 56 years of efforts — since the country gained independence from the British rule — as well as the much-hyped new oil strikes (in Rajasthan) in recent years, India does not produce more than 30 percent of its oil needs from the oilfields within its territorial boundaries.

Already the country is the seventh largest consumer of oil in the world today. Last year, India spent $18 billion to meet 69 percent of its needs and during the decade 1991-2001, India’s oil consumption increased by 68 percent to touch 2.07 million barrels per day. This growth rate has been exceeded only by South Korea (78 percent) and China (109 percent). It is estimated that India’s fuel consumption will rise to 3.2 million barrels per day by 2010. In the process, India will emerge as the fourth-largest consumer after the United States, China and Japan.

However, more alarming is the fact that the country buys much of the oil it needs from the Middle East countries. This makes India terribly vulnerable to any event that causes instability in the Middle East. "In many ways, the Iraq and Afghanistan War has shown the government that it needs to tie-up alternate sources soon," says Petroleum Minister Ram Naik.

In 2002-03 India with 18.8 million tons of purchases, was the largest importer of crude oil from Saudi Arabia. Imports from Nigeria, with 11.6 million tons were next, followed by the United Arab Emirates and Iran with 9 and 7.4 million tons, respectively. Cumulatively, India imported 55 million metric tons of crude from West Asia and 27 million metric tons from other regions during the year, official sources said.

Clearly, as says Petroleum Minister Naik, India has to ensure "that the people and industry do not suffer for want of oil and gas."

The Indian oil companies have made some quick gains until now. But, say experts, they still have a long way to go. For, even with their cash pile, they lack the resources to match the big global giants in the slugfest to grab oil fields that global giants also target. For instance, in most of the 10 offshore fields in which the Indian companies managed to grab stakes in the last three years, they were successful because those fields were ignored by the global biggies.

Moreover, Indian companies failed to buy the richest reserves discovered so far — the fields in oil-rich Abu Dhabi, Saudi Arabia and Kuwait, because the same global giants that ignored the deals India eyed, snapped them up. That is why Indian companies so far had kept their sights restricted to new oil discoveries in areas that were not fancied by the bigger oil companies.

However, the main hurdle lies elsewhere: while bidding for oil fields offshore, the biggest consideration is the relationship India has with that country. When stakes in oilfields are sold in the global arena, government influence between the selling and the bidding countries, is what comes into play more than cash. And the question is; does the Indian government wield enough influence globally to help its oil companies swing deals in their favor?

The country is indeed hoping that with the help of a few friendly nations (read the U.S.) the government can.