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Press Release [FREE Access]
Petro Intelligence » India Must Buy Near Location Oil & Gas Assets

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.



To download the latest issue 'Volume 28 Issue 1 - April 10, 2021', click here
Petro Intelligence [FREE Access]
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Capacity Utilisation of LNG Regasification Terminals (As on November 1,2020)
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Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
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Update: Domestic Oil & Gas Production vis-à-vis Overseas Production
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Update of Fuel & Loss in Indian Refineries
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Rising Crude Price Pushes Up Global Rig Count
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Update of Specific Energy Consumption in PSU Refineries
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Tenders [FREE Access]
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