Going with the flow: Oil and gas exploration in India

By 2025, tiny Guyana could be producing more oil than the whole of India. This fact alone points to what we have missed out on by driving away international investment through policy hostility

Six months into the war in Ukraine, Western sanctions have thrown the global energy markets into turmoil. Policymakers worldwide are struggling to ensure adequate oil and gas supplies at an affordable cost. As the world’s second largest importer, India’s resilience is being tested as high oil import bills bite into the budget, and worryingly widen the current account deficit. Pressures on oil sanctions and price caps, meanwhile, test our strategic autonomy.

Apart from skilfully diversifying foreign suppliers, our policymakers seem to be reviewing atmanirbharta in the domestic oil patch. In August, ONGC and ExxonMobil announced an agreement for collaboration on exploration and production (E&P) in deepwaters off the east and west coasts of India. The sketchy announcement did not clarify whether Exxon would be an investor or a service provider. There was no reference to regulatory changes (international arbitration/ compensation in case of expropriation) which Exxon had earlier made pre-conditions for E&P investment, or a joint venture,  which ONGC was reported to have offered last year.

The remarks of ONGC’s director (exploration) suggest that a new approach is being tried out: “Through the discovery route ONGC hopes to move to development wherein the inherent strengths of ExxonMobil would be beneficial for fast-track monetisation”, i.e Exxon is to be a partner in speedily transforming identified prospective reserves into actual production. Exxon’s India chief executive officer remarked cryptically that “great things happen when the right people collaborate”. The agreement could probably be a win-win, since we need oil asap, and Exxon would not have to commit to the usual three- to four-decade investment horizon of new E&P, which now faces resistance from climate activists among its shareholders.

Exxon has succeeded worldwide in the offshore oil business; in its latest, after just over a decade of effort, it has put Guyana on the path to riches by unlocking its offshore fields. By 2025, tiny Guyana (population 800,000) could be producing more oil than the whole of India. That fact points to what we have missed out on by driving away international investment since 2010 through policy hostility. The state-owned companies —Statoil (now Equinor) of Norway and Petrobras of our BRICS partner Brazil —both dipped their toes into Indian waters before being chased off by procedural delays and regulatory frustration. Equinor, which works in 30 countries, has regularly found so much oil and gas off Norway that that country now has one of the richest sovereign wealth funds in the world. Petrobras famously uncovered the deepwater “pre-salt” fields (5,000 metres below the seabed in waters 2,000 metres deep) and has made Brazil the largest producer in Latin America, with five times India’s production.

Other companies persisted and invested in India. Media reports-and anecdotal evidence suggest how we ensured they would not stay. Eni, the Italian giant, tried in the Andaman off shore, but could not work in the deepwater block assigned to it, apparently because it lay in the area where the first/second stages of ISRO’s rockets fall into the sea. That was surely a problem that Eni and its insurers —rather than our space department (who had objected) — had to worry about, but the bid sank without trace. Eni also got an onshore block in Rajasthan, but was denied environmental clearance to start exploratory drilling because part of the block (demarcated by government authorities) fell within the Desert National Park. Eni gave up trying, and was promptly given notice of a fine by the government for having failed to carry out the contractual minimum work programme! Eni packed its bags and went across the Indian Ocean to focus on potential it located offshore Mozambique. Along with other international companies, it has uncovered super giant gas fields which are now putting Mozambique among the world’s exporters of LNG. India has joined the queue of likely importers of Mozambique’s LNG after spending billions to buy into the offshore reserves there.

BHP Billiton of Australia ventured into the western offshore beyond the Mumbai High. However, the blocks assigned to it were found to be in areas where naval exercises are carried out — a senior naval officer advised me such exercises can include live firing! After ducking for cover while negotiating unsuccessfully, BHP folded its ensign in India — and went on to new finds in Trinidad and the Gulf of Mexico. Premier Oil of UK, was part of the consortium that lost the Ratna field in 2016, when the government cancelled the allocation after two decades of failed negotiations on a production-sharing contract. Premier has now discovered oil and gas in the Andaman Sea — but on the Indonesian side, so that country now has additional producing fields, while our Andaman potential remains just that —potential.  Cairn Energy’s travails in India after it sold its Rajasthan discovery are well known; less known is that after exiting India, it was among the pioneers in opening up the deepwater fields off the Atlantic coast of Senegal. 

Discoveries by international oil companies, facilitated by data crunching supercomputers and new drilling technologies, have begun to transform the economic prospects of a large number of developing countries, whose geological potential was considered low. In India’s offshore, a large bank of exploration data is already available. But in addition to geological complexity, India’s oil and gas sector faces regulatory, legal and business risks of very high order. The government’s latest decision to set up yet another expert committee on gas pricing has revived concerns over administered price controls and marketing freedom. Windfall taxes have also complicated investment decisions. Hence judgement on the ONGC-Exxon agreement must remain suspended till work actually starts.

If the potential of our sedimentary basins can be made to yield commercially viable oil and gas, a new chapter in India’s energy story can be written. An India producing a larger share of its own oil consumption would be better placed to reach its $5 trillion gross domestic product target, and preserve its strategic autonomy.

The writer is a former foreign secretary