Sunday, June 19, 2005

India Petroleum Update

The Indo-Iran LNG Import Deal

The big deal was finally signed. Here is a quick reckoner for those interested in the line item details.
1. A consortium of state-run firms are representing India, while the National Iranian Gas Export Company (NIGEC) is representing Iran.
2. Iran will sell India 5 million tonnes of LNG every year for 25 years starting 2006. The size of the deal would be between $18 to $22 billion. Discussions for an additional 2.5 million tonnes per annum (mtpa) were postponed to, "after the polls".
3. At $3.515 per mmbtu, the price is 26% higher than the price fixed with Qatar, while the price of oil has almost doubled in the time between the two deals. The gas from Qatar however is rich gas, which Iran has a policy of not exporting. Though the Iranian gas will not be stripped of ethane before export, it is still not clear if the gas will be stipped of other chemicals or not.
3. ONGC Videsh Ltd gets full operatorship of the Juffier exploration block, though only 10% of Iran's biggest producing field - Yadavaran. The deal is worth 60,000 barrels per day to India. Another 10% could be given after the discussions on the additional 2.5 mtpa are complete. The initial deal suggested was that India would pay market price for this oil, and I am not sure that has changed - in which case it is a very minor victory indeed.
4. IOC-OVL get an exploration block in the possibly very rich North Pars gas field.
5. IOC will team up with Iranian Petropars for an LNG and petrochemical complex. IOC is also pushing for another 9 mtpa deal with Petropars.

The Indo-Iran Pipeline Deal

The "heads of agreement" has been signed. An official level special joint working group has been set up by India and Iran, to thrash out financial, technical, legal and commercial issues. The first meeting will be in New Delhi on June 23-24. The Indo-Pak joint working group (formed this month) will meet in New Delhi in July.

Once again, the inclusion of China in the Indo-Iran pipeline project was discussed. Extending the pipeline beyond India, and especially into China is wonderful for two reasons: India gets transit fees to easily offset the transit fees being paid to Pak, and energy security is enhanced, as Pak would hardly dare cut supplies to China even in case of hostilities with India. On the face of it, all parties have expressed willingness to go ahead at various levels.

Scenting the NELP-V winners

Phoenix Overseas, a near unknown in the oil industry, and better known as an arm of Phoenix shoes, might win one of the most prospective blocks under NELP-V. The block in Rajasthan is spread in three districts, and Phoenix was quizzed on its proposed drilling details under the exploration program. This is seen as a strong indication.

Otherwise the status remains the same - ONGC is likely to win 10 out of 20, while Reliance will get at least 2, and maybe even 9.

Though it is likely to draw a blank under NELP-V, the world's largest oil and gas company, Total might enter the refinery sector in India in a big way, en route a retail entry. More correctly the refinery entry is near mandatory to enter the retail sector.

Cairn continues to trumphet its commitment to the Indian oil exploration story by saying that it hopes to, "discover and land several billion barrels of oil", in Rajasthan. Maybe it was just euphoric over this. Good for us anyway.