By R. Sasankan
Saudi Arabia and the United Arab Emirates have always shown tepid
interest in India. In my fairly long stint as a journalist, I cannot
recall ever coming across a petroleum expert who saw the possibility of
Saudi Arabia funnelling a great deal of money into Indian ventures.
India was no more than a blip in its radar and was generally regarded as
a very average buyer of the crudes they produced. The UAE was equally
disdainful of the investment opportunities that India presented and its
relationship with this country rested purely on traditional commerce
while viewing it as a steady source of cheap labour.
But things changed suddenly three years ago.
Back then, www.indianoilandgas.com came out with an exclusive report
that Aramco had quietly commissioned a study on India’s petroleum
market, more particularly petroleum retailing. The rest, as they say, is
history. During these three years, Saudi Arabia and the UAE have
dominated the discourse in the media on foreign investment.
What changed their perceptions about India? Their new-found interest in
India had a lot to do with the anticipated surge in the country's demand
for crude oil and natural gas with the estimates put at 2.5 times and
4.5 times respectively. This was one of the main reasons why they
committed to jointly pick up 50 per cent stake in the proposed 60 MMTPA
mega refinery in the state of Maharashtra -- and which now qualifies as a
landmark decision. The Covid-19 pandemic wrecked so many petroleum
projects the world over but not the mega refinery project. Saudi Crown
Prince Mohammad bin Salman has already announced plans to invest $ 100
billion in the Indian market over the next two years. Saudi Aramco is
keen to sell 1 per cent of its stake to Mukesh Ambani-controlled
Reliance Industries Ltd (RIL) and, in turn, pick up 20 per cent stake in
RIL’s oil-to-chemicals (O2C) project. Aramco’s chairman has already
joined RIL's board as an independent director. RIL invests $ 2 billion
in ADNOC's petrochem project in the UAE.
Clearly, India's business ties with Saudi Arabia and the UAE are poised
to make a gigantic leap. I see a new dimension to this important
relationship that will change the fortunes for the two Gulf nations and
oil- starved India.
The petroleum industry can be broadly be classified into three segments:
upstream, mid stream and downstream. The flurry of investment
agreements that the three nations have signed with each other have been
confined to the downstream sector. But India really needs something
else. It is already an exporter of petroleum products, arguably the
largest in Asia. These products, both for export and domestic
consumption, are made from imported crude which accounts for 84 per cent
of the total crude processed. Put differently, India imports roughly
41-42% of its primary energy consumption which could rise to the 60-62%,
depending on how well India uses its biomass and renewable potential.
India’s sedimentary basins are not rich in hydrocarbon resources. Close
to 40 years ago, Oil and Natural Gas Corporation floated a fully-owned
overseas subsidiary called ONGC Videsh Ltd (OVL) which was mandated to
acquire oil and gas assets in the quest for energy security. There are
quite a few state-owned oil entities that are now actively acquiring
such assets. Despite all the initial misgivings in some quarters, OVL's
performance has been pretty impressive. In fact, it has performed better
than the domestic oil PSUs. But it was never given the sort of
financial heft it needed to exploit the myriad opportunities that arose
because of the distress sale of assets that was taking place in the
international market. The government was intensely concerned with its
own fiscal problems and, therefore, prompted ONGC to buy out its stake
in the oil marketing company, HPCL. And now, ONGC is starved of funds to
acquire new assets.
Russia is the only country where Indian PSUs have a significant
investment in a couple of projects. The PSUs actively engaged in the
petroleum sector overseas, thus, present an appalling picture of too
many players with very little resources involved in too many projects.
It is high time that the government takes a fresh look at the overseas
operations of Indian PSUs. One way out of this mess would be to merge
all these investments by creating to a corporate heavyweight with a
large pool of resources that could then command some respect in the
international market? Quite a few of these investments are in
geopolitically dangerous places. Together, they produced a total of 21.9
MMTOE in FY 2020-21. This is too small for a country of India’s size
and energy demands.
It will not be easy to acquire oil assets in countries like Saudi Arabia
and the UAE. Sometime ago, the UAE did part with a 10 per cent stake in
a producing field to Indian PSUs and it offered a couple of exploration
acreages as well. It was a modest offer but a significant, positive
gesture by that country. Why can’t Saudi and UAE, the two leading oil
producers, be persuaded to involve India in a significant way in their
upstream and midstream activities?
Take a look at the gas sector. Saudi Arabia is not a major player in gas
and is currently placed sixth in terms of gas reserves after Russia,
Iran, Qatar, Turkmenistan and the US. Importantly, Saudi Arabia seeks to
use gas internally and is not planning to be a major LNG player. The
Saudis will definitely go in for LNG production. Once it starts to
exploit its gas reserves, there will be scope to accommodate India in
the project. But the back room boys need to start working now and India
needs to mount a charm offensive in order to convince Riyadh that such
an arrangement will yield mutual benefits. After all, India needs a lot
more gas than oil at this stage of its development.
According to an acknowledged, energy expert, India should aggressively
look for quid pro quo deals by tying overseas interest in investment
opportunities in this country with the prospects for the acquisition of
upstream hydrocarbon assets in those nations.
“This is what China has done. China’s current primary energy consumption
is four times that of India. We should learn from China that you do not
become an upper middle income country with a per capita energy
consumption below 30% of the global average,” the expert added.
The idea is to start thinking out of the box - and there is no better time to do this than now.
To download the latest issue 'Volume 30 Issue 24 - March 25, 2024', click here |