Thursday, March 03, 2005

India Petroleum Update

The oil equity quest

Middle East: ONGC Videsh, with a US partner, edged out a dozen companies to win a contract to explore and develop an offshore oilfield in Qatar. The Najwat Najem oilfield is extimated to hold 300 million barrels of oil reserves.

Meanwhile, Iran has extended an official invitation to Indian companies to "participate in the development" of its giant South Pars natural gas field

Burma: Last month the IOC-OIL combine won India its first overseas block through the competitive bidding route, at a bidding where European giants drew zilch. Now they are taking the bidding to a closer home destination - Myanmar - where they will bid for two oil blocks.

Russia: ONGC meanwhile has signed an MoU with Gazprom that opens the doors for their joint bidding for global energy assets. It was the absence of such a deal that made Indian companies miss out of Putin's famous "Christmas present" to Aiyar - by then it was too late to bid for a prized Yukos asset which went under the hammer.

Rosneft has put a number to the total oil and gas projects it wants ONGC to participate in - 11. This includes all the big tickets that were being touted like Yugansk, Sakhalin-3 and Vankhor. The exact details will be out in a joint statement soon.

Bangladesh: GAIL finally got India into the gas stakes in Bangladesh. Though Bangladesh has huge gas reserves, which were rather recently discovered, and India is a natural and big market, domestic politics does not allow them to sell gas to India. Now GAIL has signed an agreement with Spectra International of Bangladesh to "identify possibilities of joint co-operation in CNG infrastructure development projects and gas retailing in Bangladesh." Could this small step become a giant leap?

Africa: A senior Ministry of External Affairs delegation is heading for oil-rich Angola. The mission is to say, "No hard feelings", after Angola in the recent past gave a pretty lucrative oil contract to China instead of India.

Incidentally, China had then offered a total aid package of $2 billion, as against India's offer for an upfront $20 million. Apparently the powers-to-be in Angola know their math well enough. The Indian oil hunting machine has seen much coming-of-age since then, and maybe better deals will be offered at future biddings.

Update:Chad, Nigeria keen on Indian role in oil sector

Aiyar's Third Front

IOC meanwhile has begun working on the third front in Aiyar's strategy of securing energy security for India (after equity and pipelines), in the form of longer-term contracts. South Korea recently signed a 10-year oil supply contract with Kuwait, while Indian companies still work with annual contracts. Towards this end IOC has prepared a set of suggestions to act a guidelines while negotiating new contracts. These include:
IOC feels new contracts must incorporate provisions like:

• undisrupted supply of contractual volumes even if Opec cuts production

• flexibility to reduce term contract volume by 25% at buyer's option

• exit clause in force-majeure situation

• flexibility on change of grade

Domestic compulsions on strategy

Sunil Jain on talks on how the real challenge for Aiyar lies in domestic pricing. Indian CNG, LPG, kerosene and coal are priced well below international rates. The underpricing on CNG results in an under-recovery of $4-5 billion annually. To maintain this underpricing once the pipelines from Iran and Turkmenistan are working at full capacity, the Govt will have to spend $6 billion annually. For the record, current under-recovery is $1.6 billion on LPG, $3 billlion on kerosene, and $5.5 billion on coal - including CNG that makes it about $15 billion. Is it worth it considering power rates in India are still not among the lowest in the world?