A slick move

India is slowly yet steadily strengthening its energy security architecture and expanding its oil and gas sources across the world

shankar

Shankar Kumar | November 6, 2017 | New Delhi


#Vietnam   #Energy   #Namibia   #Narendra MOdi   #PSU   #ONGC  
(Photo Courtesy: www.ongcvidesh.com)
(Photo Courtesy: www.ongcvidesh.com)

Namibia has joined the growing list of countries where India has made investments in oil and gas blocks. ONGC Videsh has acquired a 30 percent stake in an oil block in this southwest African nation which is known for its rich natural resources, including uranium.

Till December 2016, according to the ministry of petroleum and gas, Indian oil and gas companies were present in 26 countries with a cumulative investment of worth $32.89 billion. In India’s quest for energy security, this is seen as a significant spread by the country’s hydrocarbon companies. In May 1988, India took a baby step outside its shore when the foreign arm of the state owned ONGC, ONGC Videsh Ltd (OVL), bagged the exploration licence for an oil block in Vietnam. The country’s strategic move for energy security will get further bullish if it wins a bid for oil and gas exploration in Israel’s offshore blocks in November.

Interestingly, in the course of prime minister Narendra Modi’s ground-breaking visit to Tel Aviv in the first week of July, none expected that Benjamin Netanyahu, the Israeli prime minister and Modi’s close friend, would nudge him to wade into a territory about which there was no faint idea to Indian officials, forget about loud noise in New Delhi’s diplomatic corridors. Majority of people in the national capital at the most knew that Modi would oversee the signing of agreements on space, science and technology, water conservation and agriculture during his first Israel visit as the Indian prime minister. While the signing of agreements on these areas remained true to public expectations, Modi in principle, as per diplomatic sources, agreed to look into his Israeli counterpart’s suggestion on possible Indian investment in Israel’s newly found gas and crude oil blocks.

In August, almost a month after the prime ministerial visit, India sent a delegation of officials headed by ministry of petroleum and gas joint secretary Sunjay Sudhir to Israel to discuss the issue of India’s participation in the bidding process for the country’s offshore Levant Basin. Israel has put 24 exploration blocks up for auction, which closes on November 15. If an ongoing feasibility study of offshore blocks by ONGC Videsh Ltd turns out satisfactorily for India, then New Delhi would bid for exploration of blocks for oil and gas in Israel.

“Israeli offshore blocks seem to have more gas potential than oil,” Sunjay Sudhir told Governance Now. He refused to provide details on the issue, but indications are that if everything remains on track, Israel would add to the growing list of countries where Indian oil and gas companies have a presence in their hydrocarbon sector. Yet reservations have been expressed by some experts that if India takes a plunge into Israeli gas and oil fields then New Delhi’s close friends and long-term crude oil and gas suppliers from the Middle East may feel edgy and uncomfortable with this move. 

This argument has gained ground against the backdrop of continued logjam in the talks between India and Iran over the Farzad-B gas block. Discovered by an ONGC Videsh-headed consortium in the Farsi offshore block in 2008, Farzad-B gas field is estimated to hold reserves of 12.5 trillion cubic feet. India had invested $98 million on the feasibility study of Farzad-B gas field and as such, it was expected to carry out exploration from the gas field. But in the wake of America-led sanctions in 2012 against Iran, it stopped its activities.

When sanctions were lifted from Iran in January 2016, India showed its keenness to develop the gas field. The ONGC Videsh-led consortium was ready to offer $11 billion to Iran; $6 billion for development of the gas field and $5 billion for the setting up of a LNG plant. But Iran is said to have told point blank to India that it is under no obligation to award the contract for its gas field to India.

India then cut imports of crude oil from Iran, which in turn signed an agreement with Russia’s Gazprom for development of the gas filed. This was confirmed by Iran’s oil minister Bijan Namdar Zanganeh in an interview on June 8 with Argus Media, a London-based independent media organisation which is engaged in assessment and analysis of international energy and other commodity markets. “We have signed an initial agreement with them [Gazprom] on Farzad, the North Paras and Kish fields,” Zanganeh was quoted as saying. Soon after this, India bid for Israel’s oil and gas field.

“In business, we don’t bring any political linkage. Politics and business don’t go together. We have good relations with both Iran
and Israel. Our prime minister visited both the countries. Iran continues to be our major crude oil supplier. Therefore, I don’t see any reason for our friends from the Middle East to fret about our move in Israel,” said a senior official, requesting anonymity. 
However, the fact is that due to political volatility of the Gulf region and extra premium charged on supplies to Asian countries, India continues to move outside the Middle East for investments and smooth and uninterrupted supply of oil and gas to feed the engine of its growing economy.

Of the total 27 countries where India has investment in oil and gas sector, as many as eight belong to African countries – Namibia, Libya, Gabon, Nigeria, Mozambique, Sudan, South Sudan and Mauritius. If sources are to be believed, India is considering withdrawal of its assets from ethnic war-ridden South Sudan, where ONGC Videsh has invested $2.5 billion in the hydrocarbon sector and has 25 percent stake in the Greater Nile oil project. But talks are on between India and Algeria for a tie-up for exploration and development of hydrocarbon projects in this African nation, while Equatorial Guinea has offered stakes in its oil blocks. And then Nigeria tops the suppliers’ chart of African countries by exporting more than 23 metric tonnes of oil to India during the April-December 2016 period. It was closely followed by Angola, Algeria and Libya. India continues to meet the entire petroleum products requirements of Mauritius and Indian oil companies are building storage and bunkering facilities.

In fiscal 2015-16, over 59 percent of the total hydrocarbon imports came from the Middle East, minister of petroleum and natural gas Dharmendra Pradhan told the Lok Sabha in a written reply on April 25, 2016. In 2014-15 fiscal, the total imports from the region was 58 percent which was down from 2013-14 fiscal when the country had imported 61 percent of its total crude oil and gas requirements from the region. In 2012-13, total imports from the Middle East were 62.44 percent. These data clearly show a declining trend. Several reasons have been attributed to this slide and one of them is extra premium charged from Asian countries, including India, by the Middle East countries for their oil and gas supplies. Majority of these countries are members of the cartel called the Organisation of the Petroleum Exporting Countries (OPEC).

“Middle East countries, most of whom are the members of the OPEC, charge a premium on supplies to their clients like India, China and Japan. If they charge, for example, just $270 per barrel from a western nation, they will charge $330 per barrel from Asian nations, including India. This together with volatility of the situation in the Gulf is seen as one of reasons behind India’s diversification of supply and investment spots in other parts of the world,” said JNU professor Gulshan Sachdeva. In the countries like Iraq, Libya and Syria, as per a document from the ministry of petroleum and gas, OVL’s assets are “under force majeure”. Ongoing tension, violence and political crisis in the region are cited as factors behind this position.

As home to only 0.3 percent of the world’s proven oil reserves, India has to purchase 80 percent of its oil from abroad to meet its consumption which, as Pradhan says, “is expected to grow to almost double by 2035”.

This is supported by the International Energy Outlook 2017 of the US Energy Information Administration, the statistical and analytical agency which works under the US Department of Energy. The International Energy Outlook 2017 states: “Most of the world’s energy growth will occur in countries outside of the Organisation for Economic Cooperation and Development (OECD), where strong, long-term economic growth drives increasing demand for energy. Non-OECD Asia (including China and India) alone accounts for more than half of the world’s total increase in energy consumption over the 2015 to 2040 projection period.”

In view of this, India has adopted several strategies, including importing gas from Russia’s resource-rich Siberia through a pipeline. Both Indian and Russian companies have identified total 10 routes, as per sources, through which the pipeline will pass. These routes were not disclosed by sources, but they hinted that the proposed Russia-India pipeline “would not be able to avoid passing through either China or Myanmar”.

Since 2014, Myanmar too has come under India’s radar for its oil and gas blocks. Reliance, Oil India Limited and GAIL have bid for hydrocarbon reserves in Myanmar. In the close neighbourhood, Bangladesh and Sri Lanka have also become part of India’s quest for energy security. While Bangladesh has offered its gas blocks to Indian companies for exploration, India is building a liquefied natural gas plant and an LNG-based power plant near Colombo.

Already, Indian Oil Corporation’s local subsidiary, Lanka IOC, is operating 15 oil tanks out of the total 99 tanks built in Trincomalee during the World War II. These are parts of India’s energy security architecture and under it the country is engaged in several programmes, including planned holding of a conclave of the 72-member International Energy Forum in April 2018. n

shankar@governancenow.com

(The article appears in the November 15, 2017 issue)

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