Expect private players in shale gas exploration soon

Dharmendra Pradhan, 45, is one of those young leaders whom Narendra Modi has picked for very crucial assignments.The Rajya Sabha MP from Bihar is one of the rising stars in Indian politics. In an interview with Shreerupa Mitra-Jha, Pradhan discusses the initiatives he plans for his ministry.

shreerupa

Shreerupa Mitra-Jha | November 22, 2014


Dharmendra Pradhan, Minister of State (Independent Charge) for Petroleum and Natural Gas
Dharmendra Pradhan, Minister of State (Independent Charge) for Petroleum and Natural Gas

India’s huge appetite for energy with disproportionate dependence on hydrocarbons and its consequent impact on foreign reserves puts us in an insecure position. What is the government’s overall strategy?
It is necessary to have a long-term policy for the hydrocarbons sector, which would facilitate meeting the future needs of the country. Like you said, the country’s dependence on imports is a concern that needs to be tackled on a priority basis. Here, every active stakeholder of the energy industry needs to act in concert – be it the government, policymakers, regulators, industry players and even consumers, as our approach to dealing with energy security must be multi-pronged and diverse.

From the government’s point of view, we are committed to putting in place an operational framework that incentivises extensive domestic exploration and production – this involves enabling fiscal policies and incentives, a transparent and stable regulatory regime, a reliable monitoring mechanism and a facilitating business environment. We are taking measures to advance along all those fronts.

Recently we took significant steps for deregulating diesel and implement gas price revisions. Both these steps, in combination, will certainly make the domestic oil and gas a promising sector. The issues of fuel subsidy on account of the regulated pricing mechanism and remunerative pricing for costlier gas finds are issues that have been on the boil for quite some time and with their resolution, I believe, the domestic oil and gas sector is on a much surer footing now.

Furthermore, we are placing a lot of emphasis on quick clearances and execution of high-value critical projects that would add fresh volumes to the country’s hydrocarbon output. Overall, the objective is to make the industry more competitive and open and foster a business climate that not just encourages indigenous companies but one that attracts global players as well. This is the reason why oil and gas sector is one of the 25 major thrust areas in the Make in India initiative launched by prime minister Narendra Modi.
 
The government had deregulated petrol and diesel in 2002 too – only to re-regulate in 2004. Do we have a plan to shield the consumer if the international price of crude oil were to reverse its current downward trend?
Let’s wait and watch. Don’t jump to conclusions. We have taken a very considered decision with much deliberation. We have to give a very positive signal to the market because the economy is in a bad shape since the last 10 years. A positive vibe has to be created. So at the right time, the government has, by deregulating or linking the market forces with diesel, given the right signal at the right time. World geopolitics is changing. We are hopeful that deregulation will help to create a stable market and we can have a most robust economy in India.
 
Does the government have any plans for targeted subsidies, that is, making petroleum products multi-tiered?
Yes, we have started DBTS (direct benefit transfer scheme) for LPG customers. We have started the system again. The new system will start functioning for 54 districts from the 15th of this month. From January 1, 2015, the [revised] DBTS will come into force across the country. That way government plans to have a targeted customer base and have de-duplication [of beneficiaries]. We can say about 15-20% of the existing subsidy burden will be reduced through this targeted customer system.
 
Are there any plans for encouraging E&P investment in the development of non-conventional hydrocarbon energy sources like CBM and futuristic hydrocarbon energy sources like gas hydrates?
There certainly is. We are an emerging economy and so naturally our energy requirements are substantial for the coming years. Our estimated hydrocarbon requirement in 2031-32 is estimated to grow from around 220 MMtoe (million metric tonnes of oil equivalent) in 2012-13 to over 680 MMtoe; a more than three-fold growth.  We have to tap and monetise every possible source of energy and the potential in the unconventional hydrocarbon space in India is sizeable. According to the directorate general of hydrocarbons (DGH), India has coal bed methane (CBM) reserves of about 4.6 trillion cubic metres. As for shale gas, India’s reserves could be anywhere between 500 to 2000 TCM (trillion cubic meters). While CBM production is already underway, exploration of shale gas, as per the initial mandate is in place and is being carried out by ONGC. The first shale well was drilled by ONGC in Jambusar in Cambay basin in November 2013.

Coming to shale gas there is a scramble for shale gas exploration given the US’s success in the sector. But the extraction of shale gas is a highly water-intensive process apart from potentially serious health and environmental hazards. According to TERI, by 2030 all basins in India will experience water shortage. Is shale gas extraction a viable option for India?
Hydro-fracking is a technology but there are other technologies for the extraction of shale gas. The scientific community is now researching new methods of exploration, and hydro-fracking is just one of them. Some other way may come out. Research is on. As of today, we are yet to do full-fledged shale gas extraction. Today the permission is only with ONGC and Oil India. Now the government is planning to broaden its exploration base by involving private players also in shale gas exploration. We are coming out with a new policy very soon. So to your basic question, what do you do about water, our specific answer is hydro-fracking is one of the technologies. There are other methods also and we are exploring those technologies.
 
We are the world’s fourth biggest oil consumer and we import about 75% of our crude needs. Apart from the E&P in South China Sea, what are the ongoing and new efforts for tapping oil and gas locations? Do we have a databank for the oil sector?
What you are talking about are collaborations in the international energy arena which has been a persistent theme of our energy strategy and is primarily being executed by ONGC Videsh, the foreign business arm of ONGC and other companies like Oil India Limited, Reliance, etc. ONGC Videsh currently has 35 projects across 16 countries out of which 13 are currently on production and the country is earning equity oil and gas. Nationally, besides the Barmer fields of Cairn, there are the KG offshore finds which are hugely promising. For example, ONGC’s KG-DWN-98/2 deep-water field has significant potential from which we are expecting the first gas by financial year 2018 and the first oil by 2019.

As for a national databank we are working towards building a national data repository for which work has already been initiated under the supervision of DGH. This will serve as a one-stop hub for all relevant information pertinent to our upstream sector and will be accessible from anywhere in the world by energy companies. Once completed, it will greatly streamline our licensing process. In fact, we plan to eventually transition to the open acreage licensing policy (OALP) from the current new exploration licensing policy (NELP) regime where companies will be able to bid for any block through the year.
 
What is the current level of FDI in the hydrocarbon sector?
On an average, over the last eight financial years, foreign inflows have averaged $627 million annually. This average will certainly register an improvement once the impact of the recent policy is felt and the reforms undertaken translate on the ground. Also, considering that the Indian sedimentary basins are relatively underexplored, there is significant untapped potential which should incentivise foreign interest in the sector. We allow 100% FDI in exploration and production. Also, there is tremendous potential for foreign participation in building the country’s energy infrastructure.

In the past we have been unsuccessful in procuring oil and oil-equivalent gas from at least three oilfields in Russia. Russia and China recently signed a historic $400 billion gas deal. I believe the Russian Rosneft has offered ONGC a stake in oilfields in eastern Siberia. Do we plan to engage more in oil diplomacy?
Well, the business of oil and gas has always been central to international discussions on economy and politics given the highly strategic roles that these fuels play in motoring the global growth engine. In Russia, ONGC Videsh has been looking for opportunities especially with Rosneft/Gazprom, for joint participation, from time to time, but they have not fructified. However, ONGC Videsh received a proposal from Rosneft on August 5 this year for joint development of the Yurubcheno-Tokhomskoye field. Subsequently on August 29, Rosneft also offered 10% stakes in the giant Vankor field. There have been several rounds of negotiations and ONGC Videsh is taking it forward while following all due processes with diligence.
 
How will the government tide over resource deficit if it arises given the Iraq crisis?
Without doubting the seriousness of the Iraqi conflict that is far from reaching any kind of resolution, global oil supplies have mostly remained unaffected, also due to the growing output from other regions, particularly North America. The sharp slide in crude prices in recent months, which is influenced by muted overall demand, is an ample reflection of the current supply overhang regardless of ongoing situations in countries like Iraq. But we all know how quickly things can turn here and we are keeping a close watch on all such developments that could potentially affect the global oil supply scenario.

There was a proposal to extend the peace pipeline of Iran to Pakistan from Multan to New Delhi. What is the status?
The Iran-Pakistan-India (IPI) pipeline was named the Peace Pipeline. It was planned for transportation of natural gas from South Pars gas fields of Iran to Pakistan and India. Various trilateral and bilateral joint working group meetings were held between Iran, Pakistan and India to finalise issues such as transportation costs, transit fees, price reviews, and governing laws / seat of arbitration and delivery points. Inter-government agreements and joint cooperation declaration were also discussed. Nonetheless, official channels of communication remain open between the partnering countries as we are completely aware of the strategic and economic relevance of the realisation of the project in an era of costly LNG imports.
 
Our refineries are perhaps not as efficient as they should be. Do we have any plans for the modernisation of PSUs?
Some of the refineries of the Indian central public sector enterprises (CPSEs) are old and surely they do not match the efficiency level of the latest refineries in the world. Their gross refining margins are very low. However, the new refineries set up by our PSUs, private entities and through joint ventures are state-of-the-art refineries. Benchmarking studies were organised by the centre for high technology (CHT) for 15 PSU refineries in 2010-11 and 2011-12. Various improvement measures are being undertaken by PSUs including technology and capacity improvement. Since we plan to develop India as a refining hub of the region the government will spare no efforts for modernisation of our refineries. The new refinery that is to be commissioned in Paradip (Odisha) in the first quarter of 2015 will be one of the most modern refineries of the world.

The interview appeared in November 16-30, 2014 issue

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