Help at hand in India
Conservation, EVs and renewables can play their part. But India wants much more yield from its own oil and gas resources too
India has awoken to the imperative. Forecasts for soaring energy demand in the coming decades implies a costly and inevitable surge in imports—unless the country's maturing oil and gasfields can be rejuvenated or new projects brought into production.
While oil consumption has risen steeply in the past decade, production has flatlined. Last year, according to BP's statistics, output was just under 0.9m barrels a day, less than five years ago. Consumption was 4.5m b/d.
No one expects India to reach anything like self-sufficiency in its oil sector. But a domestic boost would help tame the pace at which the deficit widens. Resources remain significant, but have also been declining in recent years. In 2016, recoverable oil deposits stood at 4.7bn barrels—Asia's second-largest endowment. Both Colombia and the UK produce more oil than India, but from reserves less than half the size. The government's effort to bring some mojo into the oil sector is overdue.
Last year brought the arrival of the new Hydrocarbon Exploration and Licensing Policy—known by its appropriate acronym Help—a raft of reforms to the upstream regime that the government hopes will draw in at least $25bn of investment in the next few years. Help replaced the maligned New Exploration Licensing Policy (Nelp). Among other changes, Help has loosened the terms for discovered fields, offering pricing freedom, a revenue-sharing model (compared to a profit-sharing one under Nelp), a single licence for conventional and non-conventional (such as coal-bed methane) deposits, a longer exploration phase, the opportunity for foreign investors to take 100% of a project and what the government promises will be a transparent bidding model. Deep-water and ultra-deep-water prospects, for oil and gas, with no royalties for the first seven years and just 5% and 2%, respectively thereafter.
The new terms, in essence a big liberalising step for the sector, seem to have helped already—if not in production terms then at least in attracting developers. In the first bidding round under the terms of Help's Discovered Small Fields (DSF) policy, announced earlier this year, the government awarded blocks to 30 companies in 23 onshore and seven offshore blocks. This was broadly positive, noted a recent report by Anupama Sen from the Oxford Institute for Energy Studies (OIES). Two earlier Nelp auctions attracted more bids per block—but they happened during a period of rising global oil prices and soaring investment.
What the auction didn't show, though, were development plans sufficient to keep the upstream on track with India's target of reducing oil imports by 10% by 2022. In oil terms, that target implies growth of at least 343,000 b/d of supply, or a rise of 42% from 2016 levels, calculates the OIES. The blocks awarded in the most recent DSF round would achieve production of just 15,000 at their peak.
343,000 b/d - Minimum growth in oil output needed to hit 10% import-reduction target
Yet much more prospective acreage remains, offering scope for more significant output increases. India has 26 sedimentary basins, covering an area of more than 3m square km, but only seven are producing—Assam-Arakan, Assam Shelf, Mumbai Offshore, Cambay, Krishna Godavari, Rajasthan and Cauvery. Other basins, referred to as Category II, have seen discoveries but no commercial production.
More licensing rounds will tell the government whether Help is indeed a help. "It will take a few years to see the results of these policies," says Alay Patel, an analyst covering India for Wood Mackenzie, a consultancy.
Meanwhile, at least the momentum is moving in the right direction. Reliance Industries and its partner BP agreed to spend $6bn to develop deep-water gasfields in the Krishna Godavari (KG) Basin's block KG-D6, off the east coast. ONGC has announced an upstream capital spending plan for around $10bn.
And aside from the modest success of the DSF round, two more-one opened in July and closes in November; the other next year-called Open Acreage Licensing (OAL) are speeding ahead. For these rounds, investors can select blocks that interest them after assessing seismic data now being held at the National Data Depository, another government initiative. More than 3m square km is up for grabs under OAL, slightly more than half of it onshore. Much of it has what the government calls "sparse" data coverage.
The upstream drive isn't just about cutting imports. India's oil and gas sector accounts for about 15% of the country's GDP. And trying to perk up enthusiasm may also coax more can-do from the state-owned firms that have historically dominated the country's upstream—and overseen its gradual decline. In September, the two giants, Oil India and ONGC, said they would spend about $0.5bn shooting more seismic across 24 states.
This article is part of a report series on India. Next article is: India—demand dynamo