Can India take advantage of falling oil prices?

India can and should take advantage of present fall in price and obtain whatever it can, provided we have adequate and secure storage facilities.  This will provide increased energy security

 

According to Fatih Birol, Chief Economist, International Energy Agency (IEA), the current fall in oil prices is unlikely to last for long. He is reported to have said, "there will be downward pressures on investments (upstream) even as demand for oil increases. This may result in prices rising again".

 

More details on this important issue can be found in "World Energy Outlook 2014" released by the International Energy Agency. It appears from this study that, by 2040, oil supply will rise to 104 million barrels a day.

 

It may be recalled that the Indian Cabinet Committee on Economic Affairs (CCEA) had proposed the gas price at $5.61 per mmBtu as against $4.2 in force until end October this year. The Rangarajan Committee had proposed a price revision at $8.4, which was approved by the previous government. This was ought to have been put into effect as of 1st April this year, and this was postponed until the final revised price of $5.61 has been fixed. There has been no official announcement as to why the rate was fixed in US dollar and not in rupees; nor has the government announced the rate of exchange between the US dollar rate and the rupee conversion factor!

 

In any case, as far as India is concerned, perhaps, it can and should take advantage of present fall in price and obtain whatever it can, provided it has adequate and secure storage facilities. This will provide increased energy security.

 

In the meantime, the good news on hand is that the Gujarat State Petroleum will be able to get gas from its KG block and this was announced in the TV channels, though full details have not been given out so far. These are expected shortly.

 

In another interesting development, early this year in April, Cairn India had submitted a revised development plan to ONGC to increase gas production from the Raageshwari Deep Gas fields in the Rajasthan Block to 100 million standard cubic feet or 2.83 mscmd, by fiscal 2017. At present, it is only producing 0.25 mscmd and hope to double up its production by 2015 last quarter, if not earlier.

 

Just to refresh memory, ONGC has 30% stake while the balance of 70% is held by Cairn India in the block. As a result, they have a production sharing contract (PSC) and the operator can get unconditional extension for five years if it is producing oil and 10 years in case of expected gas production. So far, Cairn has been successful in its attempts and is increasing its production. Their plans are afoot to exploit the full resource base of 300,000 boepd in their Barmer block.

 

Press reports indicate that ONGC, has been eyeing to raise its holdings from 30% by presumably delaying their concurrence on these developments so that they may secure an increased stake. The country is in dire need of both oil and gas and it is in fitness of things to raise such matters at the Board level and thrash it out rather than adopting such means to secure higher stakes. Development and expansion work should be hindered in any way. Cairn India has already floated tenders for construction of gas processing terminal.

 

In the next few weeks, news is on hand, that the government may offer 5% of its holdings in ONGC to carry on its plan for divestment.

 

ONGC has recently appointed Intec Sea of Malaysia to help it develop the KG-DW-98/2 block which is estimated to hold about 500 million tonnes of oil and oil equivalent gas.

 

This area is said to cover 7295 sqkm and sits next to the block owned by Reliance-BP-Niko Consortium in KG Basin. It may be remembered that this block was won by a consortium consisting of ONGC, Cairn Energy and Norway's Statoil. But now, it appears that Cairn Energy and Statoil are in the process of selling back their stakes to ONGC.

 

One serious development that may crop up in the months ahead when stake sales of this nature comes up for serious discussion. Who knows Vedanta or Cairn Energy Board may toss up new proposals and then seek to swap their stakes in KG basin for the Rajasthan holdings?

 

In the meantime, ONGC would do well to seek assistance from experienced private players in deep water exploration so as to get the best result and to ensure both oil and gas starting flowing from this KG basin.

 

Country needs the supply of gas and oil for national development and to reduce dependence on imports.

 

(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.)

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