By R. Sasankan
A news report that came out of Muscat the other day caught my eye. It
simply said: "Energy major BP has agreed to sell 20 per cent of its
Participating Interest in Oman’s Block 61 to PTT Exploration and
Production Public Company Ltd (PTTEP) of Thailand for a total
consideration of $ 2.6 billion… Block 61 contains the largest tight gas
development in the Middle East.”
The first thing that struck me was whether India had missed out on an
opportunity. Were the people in the positions of power even aware that
such a deal was brewing? If they did, did they baulk at the asking
price?
Oman is geographically close to gas-starved India which is aiming to
raise the share of gas in its total energy mix from the present 6.2 per
cent to 15 per cent by 2030. Domestic gas production can meet only a
fraction of the target. Obviously, India has to raise its dependence on
imported LNG. A more sensible approach would be to acquire gas assets
overseas. Preference should be given to assets nearby.
India’s domestic production of oil and gas meets only 16 per cent of the
demand. India today ranks as the third largest importer of crude oil,
the second largest in the case of LPG and the third largest for LNG. In
2020, several oil and gas assets were put on the block as global giants
grappled with the ruinous impact of the Covid-19 pandemic. Sadly, none
of the Indian state-owned enterprises could grab the opportunity to
snare some of these assets. Even the deal that ONGC Videsh had
negotiated in Senegal slipped out of its hands after it was finalised.
India’s domestic production has been stagnating for years. Last year,
ONGC decided to concentrate on acquiring producing assets overseas
instead of exploration blocks. Since then, it has acquired neither
exploration blocks nor producing assets. ONGC Videsh Ltd (OVL) is the
single largest overseas player with 14 producing assets across several
countries but its Russian portfolio accounts for the bulk of its annual
output. The public sector majors like Oil India, Indian Oil Corporation,
Bharat Petroleum, GAIL, and HPCL also have a few producing assets
overseas. Put together, their aggregate production amounted to only 24.5
MMTOE last year.
It would have been ideal for Indian PSUs to try and make a play for the
Oman asset that Thailand's PTT EP acquired from BP on two counts: the
geographical proximity to Oman and the political stability that prevails
in that nation. This is very important in Indian scheme of things.
Indian companies have burnt their fingers in Libya, Syria and Sudan
because of turmoil that has enveloped those nations at various points in
time. Indian PSUs have also made a considerable investment in oil
assets in Venezuela but haven't been able to exploit its potential
because of the US sanctions against that country.
Opportunities in the oil-rich Middle East has eluded Indian PSUs for a
very long time. One reason could be that India did not fit into their
scheme of things in the past. That situation has completely changed now.
Countries like Saudi Arabia and UAE are actually courting India and are
extremely keen to invest here. At the diplomatic level too, the leaders
of these countries are very close to their Indian counterparts. In the
changed circumstances, these governments will not stand in the way if
oil majors operating oil and gas assets in those countries want to
dilute their stakes in favour of Indian PSUs. India wields a lot of heft
now in the global oil market simply because it is one of the top
consumers of oil and gas. These countries need India more than India
needs them as the world is grappling with an oil and gas glut.
Last year, Indian Oil Corporation (IOC), the largest state-owned oil
marketing company, acquired Shell’s 17 per cent stake in Mukhaizna
oilfield (including the marketing rights for entitlement oil). This was
done by acquiring 100 per cent equity stake in Shell Exploration and
Production Oman Ltd from Shell Overseas Holdings Ltd for a transaction
value of $ 329 million. The UAE government also handed down a 10 per
cent stake to Indian PSUs in the producing Lower Zakum field and a
couple of exploration blocks. These are significant developments. This
is precisely why I believe that India should concentrate its energies on
acquiring assets in these neighbouring countries.
One must sound a word of caution about natural gas. These assets will
not be cheap. Prices had been soft (under 2$/MMBTU) for a long time and
touched a reasonable $3.25/MMBTU on Thursday as this column was being
written. Energy experts agree that India should have aggressively sought
gas reserves and upstream companies with operating assets that are
producing natural gas. The valuation of these assets/companies would
take into account the economics, including transportation costs. Thus,
distance from India will be priced in.
A natural gas asset closer to India will simply demand a higher
valuation in view of the lower transportation costs all else being
equal. The economics would be based on the delivered cost CIF at Indian
regasification facilities. Without a strategy in place to acquire such
upstream assets with dedicated liquefication, shipping arrangements,
associated re-gasification and a robust domestic pipeline network, India
will find it extremely difficult to raise the share of gas in the
energy mix to 15 per cent at a reasonable cost.
Almost all oil companies including oil majors are in trouble and they
want to restructure their assets which will involve selling some of
them. Companies such as Royal Dutch Shell, Total, BP, Eni and Equinor
are striving to become leaders in renewable energy. India’s Reliance
Industries is also committed to follow such a strategy. India’s
dependence on fossil fuel, however, will continue to rise at least till
2050. This is precisely why India should work out a clear strategy to
acquire overseas oil and gas assets.
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