Sunday, August 14, 2005

India Petroleum Update

The Shale Story

We all know that petroelum is formed when organic matter decays under an appropriate amount of pressure and temperature. Coal is actually formed somewhere along the journey from just-dead organism to petroleum. We saw how conversion of coal to petroleum products is getting hot as a propect with the maturing of technology in that area. Now if coal is good enough, then why not oil shale, which is a little closer to petroleum in the formation process?

Oil Shale is a kind of shale that contains kerogen, which can be processed to get oil. The cost depends on who you ask, but it will definitely be competitive compared to coal. Now comes the interesting part. ET reports that Oil India Ltd geologists claim that India has enough oil shale to meet all our oil requirements (at current levels) for the next 100 years. Swaminomics comments on this here.

Here is a quick look at the statistics. If India has to have the kind of shale reserves being claimed here, it would have to be the world's best kept secret in that department. 140 million tonnes every year for the next 100 years translates to current reserves of 14 billion tonnes - that is proven (or at least estimated) recoverable reserves. According to the world energy council survey 2001, only the US at 60-80 billion tonnes has more recoverable reserves than that. Now since the US is estimated to have over 60% of world reserves, India's share comes up to above 10%. The survey does not mention India at all - and that means that if true this is the world's best kept secret in the field of geology.

Iran-Pak-India-(China?) gas pipeline

While an Indian delegation reaches China today to discuss cooperation in exploring energy resources in third countries, one proposal that will loom large over all discussions would China's participation in the Indo-Iran gas pipeline project. China's participation will mean a big win-win situation for India. For one the transit fees will more than make up for whatever India would be paying Pakistan. Secondly if the same pipeline feeds China too, then Pak will be far more enthusiastic about ensuring the security and sanctity of the gas flow. Thirdly the Chinese angle is likely to make it far easier to tie up an international consortium to build and maintain the pipeline.

So how likely is this? TOI reports that "Officials of the petroleum ministries of India and China are engaged in a serious dialogue about the possibility of Chinese participation in the India-Iran gas pipeline". The US is against such a deal with Iran, and China is smarting under the recent failure of its bid for UNOCAL. Please do the math. To speak the truth, China has not yet officially commented on the proposal.

Domestic Developments

HPCL chairman M.B. Lal told Rueters of plans to set up three new refineries - one on the east coast in Vishkhapatnam to process 300,000 barrels per day, the second in Bhatinda in Punjab to process 180,000 bpd and the third (oil ministry willing) in Rajasthan to process Cairn's crude. Cairn and ONGC have already submitted a proposal for a joint-venture refinery in Rajasthan and the oil ministry will take a final decision on this.

For its part, Indian Oil Corporation has put its own projects on hold citing mounting losses from under-recovery on the petro-product sales. This also being the first quarter ever when all four oil retail PSU's have recorded a loss, the current under-recovery rates mandate that IBP, BPCL, HPCL and IOC will all become sick in sequence from September 2005 to July 2008.