Taking advantage of the falling crude prices, India could invite Gulf oil producers to enter into joint ventures in storage space in other countries
The international market has been witnessing a great fall in crude oil prices and the experts believe that this may even touch $40 a barrel in the near term! As far as India is concerned, it would be in their interest to buy at these prices, as and when available, but continue to explore our own resources.
State-run ONGC, for instance, has recently made three discoveries: gas in KG basin – deep-water block; Mumbai offshore (oil and gas) and in Cauvery basin, a significant gas discovery with a flow of 61,800 cubic metres a day with a condensate at 9.6 cubic metres during testing. This discovery is envisaged to enhance the commercial viability of this block and this well, MD-5 is located in Sirkhazi, Nagapattinam district. However, these developments would take a few years before commercial production can be achieved.
While speaking to the press, a couple of months ago, AK Banerjee, Director of Finance, ONGC, that ‘while a rise in natural gas price will definitely benefit the company, the drop in crude oil prices is definitely eating into the gains’.
(OPEC, the Organisation of Petroleum Exporting Countries - 12 of them, account for 40% of the global oil production, which currently stands at 90 million barrels a day, but no member wants to ‘reduce’ their output!
In the meantime, ONGC has appointed Intec Sea of Malaysia as consultants to help develop its Krishna-Godavari basin (KG-DWN-98/2 block), as this is estimated to hold 500 million tonnes of oil and oil equivalent gas (100 mt oil and 445 billion cubic metre or 1.33 trillion cubic feet of gas), which makes it ten times as big as Raava fields in KG basin. Potentially, it could produce 75/90,000 barrels a day. ONGC has so far spent an estimated $1.3 billion on the block, thus discovering four oil finds and seven gas discoveries, and yet for reasons declared as ‘technical’, so far nothing has been pumped out! Should they start doing so, or keep it in abeyance, in view of the international market situation? Tough question to ask, and even more difficult to answer!
The ONGC-Cairn joint venture at Raageshwari field in Barmer block, Rajasthan (ONGC has 30% and Cairn 70% stake) has drawn up development plans involving $690 million and this is expected to take care of completion of 37 new wells, including surface and other related pipe laying facilities. The present gas facilities, though nominal, is expected to double up by 2020 only.
Here again, work is scheduled to continue.
Because of the falling crude oil prices, while our exploration policy and development work must continue, what should be our strategy? Ideas have been floated that India should take this golden opportunity to buy as the prices fall and maintain strategic reserves! But, where, is the question?
Many countries in the world have stock-piled strategic petroleum and petroleum products reserves, including the US, which has, in two decades, built up a 727 million barrel reserve. It has four main strategic reserves, and mention may be made of the Bryan Mound reserve in Texas, for example.
In so far as India is concerned, we too thought of this way back in 1990s and the Indian Strategic Petroleum Reserve Ltd (ISPR), under the Oil Ministry was set up a few years ago. As a result, three such reserve facilities are in various stages of completion, and the Vizag unit is expected to be fully operational by end of 2015, while the other two, at Mangaluru and Padur would be in final stages.
These three will have a 5 million tonne storage capacity, enough to cover our emergency energy security needs for 15 days. Four more are planned, which can hold 12.5 million tonnes that would cover the 90 days equivalent of consumption by 2020, and these are expected to be built in Rajasthan, Odisha, Gujarat and Karnataka. These are in addition to the commercial storage of crude and petroleum products of about 30 million tonnes (about 70 days needs) available with the oil companies at any given time.
From the press reports, one can come to know that the government is keen to utilise underground natural rock caverns through excavations, although, in many countries, they resort to building up huge tank farms.
As a temporary measure, floating storage like very large crude carriers (VLCC) could be used, but, here again, it is the question of funding and maintenance costs that would be prohibitive! Additionally, VLCCs are vulnerable in case of hostilities!
One good move that is reported in the press is that during the recent visit of Petroleum Minister, Dharmendra Pradhan, to the Gulf countries, he had proposed to Kuwait, Saudi Arabia and UAE (Abu Dhabi Emirate) the opportunity to use the Indian storage facilities, with India retaining the first right of refusal, for 20% of the stocks held, since 80% would be its own. This could be a start, but it would be more realistic and practical if this was done on a joint venture basis, in which the foreign partner holds the majority, and invests in the entire project. A mutual discussion could prove to be useful, as later on, such projects can evolve into other related manufacturing facilities, for meeting the Indian and other ‘export’ markets!
This would also be a ‘make in India’ campaign, involving strategic materials!
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)