Without investments, Modi’s dream of halving crude imports by 2022 cannot be achieved

Eight years is quite a long time in the hydrocarbons business and India had stayed away from striking any new deals in exploration and development after 2010. That hesitation seems to have been discarded and the NDA government has put in place a more flexible and open exploration policy. The fresh auction of oil and gas assets has helped India to reassess its policy framework, make the terms of auction more attractive for 55 blocks spread over 53,000 square km that have been placed on offer. The UPA’s second term and the Narendra Modi government’s first three years had not seen any major investments in India’s oil and gas blocks by domestic or foreign players barring the state-run ONGC. The status quo set in after the huge outcry on the faulty production sharing contracts that apparently favoured Reliance Industries (RIL) and other private players.

Pricing issues and political controversy with charges of commission and omission also hit the hydrocarbons sector hardest. The initial momentum built up with British Petroleum’s forays in India along with RIL seems to have been lost. The New Exploration Licencing Policy (NELP) also went through huge changes to not only make it flexible but also make the Indian blocks saleable by attracting sizeable investments in the sector. But, nothing substantive seems to have been achieved by the Modi government in the hydrocarbons sector that has been besieged with charges and counter-charges of swinging sweetheart deals. In fact, RIL had dragged the government to International Court of Arbitration against fines slapped over sloppy development of oil and gas fields. Leave alone attracting top hydrocarbons companies, even RIL has shifted its focus to developing telecom business.

Much needs to be done yet. The open acreage policy of the NDA government may not have helped calm the nerves of investors and bring back the large players that never settled down in this country. Even Cairn Energy sold out most of its interests in India to Vedanta and beat a hasty retreat. In this backdrop, it is no surprise that none of the big players in the exploration and development business has even expressed its intent to pick up wells in the Indian subcontinent. State-owned ONGC may finally end up salvaging the bidding process with 41 blocks. While Vedanta may still be interested in some blocks, other minor players seem to have put in Expression of Interest (EoI) as a non-serious effort. Even though bidding is open till mid-April, none of the top European, US, Russian, Gulf-based exploration companies have taken up EOIs. The only significant development thus far has been the visit of the British Petroleum team to the data room at the Directorate General of Hydrocarbons (DGH). Over the last two years, given the volatility in crude prices, investments in exploration business have taken a nosedive globally. Many companies put fresh investments on hold to tide over the downward turn in oil and gas business internationally.

Petroleum minister Dharmendra Pradhan’s claims that over $40 billion in investments will flow into the sector may remain a pipedream. Also, without fresh investments by foreign companies in the Indian oil and gas assets, Modi’s dream of cutting down crude imports to half by 2022 cannot be achieved. The 256 blocks that were offered for exploration and production way back in 2000 have not yielded much. While 156 blocks were already relinquished interest due to poor prospects, there is hardly a valid reason for large companies to stage a comeback in the latest bidding that opened on Thursday.