👍Oiling wheels of change | Expert Views – Business Standard

Discounted sales from Russia are reported to have reduced India’s annual oil import bill from $157 billion to $132 billion last year.

Oiling wheels of change | Expert Views – Business Standard

https://www.business-standard.com/opinion/columns/oiling-wheels-of-change-124072401384_1.html

lipped from: https://www.business-standard.com/opinion/columns/oiling-wheels-of-change-124072401384_1.html

China’s post-2013 oil strategy offers valuable lessons for India on unlocking new reserves

Representative Picture

Discounted sales from Russia are reported to have reduced India’s annual oil import bill from $157 billion to $132 billion last year. Our trade deficit and inflationary pressures will, however, persist as global oil prices are expected to remain elevated. Being projected as the world’s largest source of incremental oil imports in the years ahead thus seems a dubious distinction. 

Data for financial year 2023-24 showed yet another decline in domestic crude oil production to 29 million tonnes (mt), or about 600,000 barrels per day (bpd), while imports at 232 mt stayed at 87 per cent of total requirements. This dismal scenario — a 4 per cent decline per year since 2018 — is set to continue, according to the International Energy Agency. In its February 2024 report (Indian Oil Market—Outlook to 2030), the IEA projected that India’s oil production may fall to 540,000 bpd in 2030, while oil demand would rise to 6.6 million bpd “with major implications for India’s security of supply”. Dependence on foreign supplies would then be well over 90 per cent! It would be even higher, if not for India’s praiseworthy schemes to promote electric vehicles, biofuels, and other alternatives.

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Change may, however, be on the horizon with the Minister for Petroleum and Natural Gas (MoPNG), Hardeep Puri, recently announcing the formation of a Joint Working Group to promote ease of doing business in exploration & production (E&P). This group includes both private and public sector companies active in E&P operations, as well as the MoPNG and the Directorate-General of Hydrocarbons.

Mr Puri noted that eight rounds of open acreage licensing and production bids have led to 240,000 sq km of area being awarded for E&P. He wants this raised to 10,00,000 sq km. Regulatory reforms for this objective include simplifying 37 approvals to 18, with nine eligible for self-certification. With Rs 7,500 crore committed to generating new seismic data, Mr Puri noted that geo-scientific data is available for the Kerala-Konkan, Mumbai and Mahanadi offshore basins and the Andamans. S&P Global, in its Commodity Insights report of July 12, said these and other Category II/III basins hold estimated potential for 22 billion barrels of oil. Exploration ventures have already been successful on the Indonesian side of the Andaman Sea, and the East African offshore, where Tanzania is set to join Mozambique as a significant gas producer.

If the welcome prioritisation of domestic oil production leads to change on-and below- the ground, it could initiate a shift in the perspective of international oil companies as well as India’s private players, both of whom have responded anaemically to reforms so far. Getting a grip over unpredictable, and often predatory tax administration (or what US Ambassador Eric Michael Garcetti once diplomatically described as “opaque corporate tax practices”) would also help. Bitter experience in the past led to oil majors with deepwater expertise fleeing India’s shores, and now turning unlikely prospects like Namibia, Senegal, Cote d’ Ivoire, Cyprus etc, into serious oil and gas producers.

Oil industry lead times — from exploratory success to additional production— will take us to 2030 at least in case of any new finds. A more rapid increase in production, crucial for security amid potential crises in our turbulent times, can only flow out of productive mature fields like-Mumbai High, Assam and Rajasthan. Industry veterans are confident much more oil can be extracted through intensive exploration and enhanced oil recovery techniques — all of which are capital-intensive. The finance ministry should therefore axe the windfall tax on domestic producers, which leaves them no margin for reinvestments. At present, producers envy- importers pride, sums up our oil taxation scenario!

What China is doing for energy security bears scrutiny. China is the world’s largest importer of oil (11 million bpd), mostly shipped in through vulnerable maritime routes with multiple chokepoints. After years of building substantial strategic reserves, investing in oil fields abroad, and diversifying suppliers, state-owned oil companies now prioritise domestic production. China is the world’s dominant producer and investor in solar and wind energy and leads in new build of nuclear power plants. However, it follows a realistic “all of the above” approach to extract energy from every possible source to fuel its giant economy. Maintaining domestic oil output at the 4 million bpd (mbpd) level has been deemed necessary by China’s leaders to power not only manufacturing activities, but also for defence and security.

Chinese oil production peaked at 4.3 mbpd in 2014 when imports were at 6 mbpd. As its mature legacy fields began to decline, by 2018 its production fell below 3.8mbpd, even as imports surged to almost 10mbpd —accounting for over 70 per cent of total requirement. At that juncture tensions with the US and sanctions on Iranian oil compounded its serious concerns over energy security. China’s leaders then launched a Seven-Year Exploration and Production Increase Action Plan.  Massive, and productive, investments (estimated last year at $80 billion) have led to prolonging the life of mature fields, increasing offshore E&P, tapping shale oil and gas resources, and developing coal-to-liquids plants. Production has gone up by 2 per cent per year, and in 2023 China produced 4.2 mbpd and reduced external dependence by a few percentage points. In six years, China has increased production by almost half a million bpd — close to our total output.

New offshore fields are being developed from Hainan in the south to Bohai Bay in the north. Ultra-deep reserves are also being explored onshore using what President Xi Jinping describes as “new productive forces”. It has been reported that in Xinjiang’s Tarim Basin, a  joint venture of PetroChina and Sinopec with seven other state-owned groups (including steel, machine building, electrical, mining, and even aerospace science specialists) is building an industry chain for ultra-deep exploration and development. Drilling to 10,000 metres below the surface, they are unlocking new reserves and, in the process, kickstarting new industrial investment cycles in underdeveloped regions. Something to be studied out there.

The writer  is a former diplomat