Tap The Hidden Potential

During the Eighth Plan, India will add 165 million tonnes of recoverable reserves, although the target was 330 million tonnes. The current projections for the Ninth and Tenth plans are rosier. Of course, this can change if the ONGC is successful in finding giant oilfields in deeper water offshore. Even then it may not be excessively pessimistic to say that in coming decades Indias import requirements would grow faster, with total demand exceeding total supply, resulting in increased import dependence for oil and for natural gas.

Therefore, the first policy element has to be an accelerated exploration programme. At present, exploration intensity is much lower than in other countries. For instance, the number of wells drilled per 10,000 sq km is only 20 compared to the world average of over 100. In India, there are 26 basins, out of which only six have been explored so far. Offshore, we yet have to explore deeper waters.

 

In accelerating this programme, India will have to make major policy modifications which can have a great impact on exploration efforts. This can be done by bringing in competition in exploration and production acreage and making exploration and production a truly national endeavour by involving the private sector on par with national companies. This policy can be of even greater importance for efficient exploitation of discovered oilfields, and will enable India to overcome certain recurring problems of reservoir management.

The flip side of this is that state oil companies will have to become internationally competitive. They should not be constrained, as they are today, to look for oil only in Indian basins. They should go where oil is available and wherever they can find it at the lowest possible cost and thus maximise their oil equity globally.

Fortunately, the world market for exploration acreage is rapidly expanding. India has a window of opportunities to increase her participation. It is now possible to bid for exploration acreage even in Opec countries. Venezuela has already made a beginning. Similar opportunities will open up in the Gulf, particularly in Iraq, as soon as the UN sanctions are lifted.

Indian oil companies will have to be internationally competitive to play the role of a global major. They will have to become more technologically dynamic, organisationally more flexible and far more entrepreneurial in their decision making. Examples of Total, ELF, Agip, StatOil of Norway and Petronas of Malaysia show that government ownership need not be a constraint in pursuing such a strategy.

For any major oil producing country a key strategic policy issue is the depletion policy for the countrys oil reserves. In the coming decades this can become an important issue for India too.

It is easy to show that under any circumstances the rate of depletion should not exceed the maximum economic rate which is the rate that maximises recovery from the oilfields. Following good oilfield practices is a fundamental pre-requisite for an optimal depletion policy.

This has not been followed consistently as brought out by the Dasgupta Committee report on Bombay High. There still are occasional problems in this area due to technological and organisational constraints.

The ONGC will have to take steps to overcome these constraints, if necessary, with strategic alliances, so that efficient depletion of reserves is always assured.

Of course, the actual rate of depletion can be lower than the maximum economic rate depending upon expectations regarding future prices, the rate of interest in global capital markets and the marginal productivity of capital. These factors vary over time and consequently, the depletion policy requires continuous review in the interest of oil security.

Yet another important way of enhancing energy security is to change the composition of hydrocarbon imports. The share of imports of natural gas in the total hydrocarbon imports has to be increased because natural gas has a distinct advantage in power generation and in number of other sectors.

Fortunately for India, she is very close to the worlds largest natural gas resources located in the Gulf and Central Asia which are enough to supply her energy needs for the next century or more. India can import natural gas from these sources as well as from eastern sources like Myanmar and Indonesia.

With these imports, whether in the form of LNG or piped gas, a cross-country network of gas pipelines can be created. This can be a safety net for energy security, as natural gas contracts are long-term contracts.

For import of natural gas, in happier times one could have opted for the option of importing it through on-land pipelines through Pakistan.

In fact, India should make every effort to actualise this but should not deny herself the possibility of importing natural gas from the Gulf by safer routes like deep sea pipelines.

There are underlying technological problems in implementing deep-water pipelines but they seem to be such that these may not be unsurmountable. Hence, for a century-long perspective, mastering of deep sea pipeline technology will have to be one of Indias major technology missions. This will enable the country to solve, in a substantial manner, the great supply question for the next century.

Let us now turn to the refining sector. In an economy our size, transportation costs of petroleum products will always exceed the transport costs of crude oil. Cons-equently, in refining, India will always have a competitive advantage over the others.

By now the country has mastered the art and science of setting up refineries as well as running them and is perhaps one of the lowest cost refiners in the world. Consequently, the country will become a net exporter of petroleum products in the coming century and a swing producer to stabilise global product markets.

One is also willing to argue that given the size of our market, supply capabilities and geo-political situation, in the coming century India will be asked to play a vital role