India’s oil reserves to last only for 20 years

India can produce oil only for the next 20 years going by the official estimate of its current recoverable reserves. The situation is not very different in the case of natural gas either. Of course,the situation could improve if the country finds more oil and gas fields in the coming years.

Nevertheless,the situation right now is unflattering and compares poorly with most other large economies,not to mention the West Asian nations,which are naturally endowed with massive hydrocarbon reserves.

Explaining how India’s proven oil reserves would last only for 20 years at current levels of production,Gautam Sinha,head of department (production) at the upstream regulator Directorate General of

Hydrocarbons (DGH),said this figure represents what in industry parlance is termed reserve to production ratio. That is,India held reserves of about 761 million tonnes (mt) in April 2012 at a production rate of 38 mt per year.

India fares poorly not only against oil-rich regions like West Asia which have over 80 years of reserves in their kitty but also when compared with the global average of 50 years. As for natural gas,India’s reserve to production ratio stands at around 31 years versus about 150 years in West Asia and the global average of 60 years.

Gas reserves in India have been hit by the fall in production at Reliance Industries’ KG-D6 basin. India reported 1,330 billion cubic metres (bcm) of gas reserves at a production rate of 31 bcm per year. Part of the reason for the low reserves is that there are 26 sedimentary basins in India comprising roughly 3.14 million sq km,but only about 22% of the basinal area is well explored.

Also,of the 1.35 million sq km of -water zones,where potentially a lot of reserves reside,only 50% of the area has been offered for exploration. Fereidun Fesharaki,chairman of FACTS Global Energy,said that India is simply not blessed with a lot of hydrocarbon reserves.

Also,regulations and the bureaucracy in India are too prohibitive and this is reflected in the foreign participation in the NELP rounds,with only 12% of the total acreage and about 7% of total contracts awarded to foreign players till date,he said. The past track record of oil and gas discoveries in India has not been remarkable.

The recoverable position of crude oil has slipped from 763 mt in in 2006-07 to about 761 mt now. In the first quarter of 2013-14,the KG-D6 field produced 0.5 million barrels of crude oil and 49.2 billion cubic feet of natural gas,an annual reduction of 41% and 53%,respectively.

RIL’s other main producing field,Panna-Mukta,produced 1.8 million barrels of crude oil and 16.9 bcf of natural gas,a reduction of 19% in the case of crude oil and 5% in the case of natural gas.

ONGC’s director of finance AK Banerjee said that India’s reserve to production ratio is not alarmingly low considering it is not richly bestowed with hydrocarbons. Moreover,some prominent oil and gas producing countries like the US and Russia have lower reserve to production numbers than India,he said.

Sunjoy Joshi,director of the Observer Research Foundation,however,points that a low reserve to production ratio is possible in cases where the production is very efficient hence and reserves are extracted quickly as in the case of the US. But in the case of a net importer like India,the low reserve to production ratio is on account of lack of technical and manpower expertise.

What is more disconcerting is that even at these low levels the reserve to production numbers for India might be exaggerated. For the record,public sector oil companies ONGC and Oil India have been reporting reserve replacement ratios of greater than 1 over the last few years,yet their production has been falling. Reserve replacement ratio refers to the proportion of oil and gas produced in the year replaced by new reserves.

ONGC’s reserve replacement ratio stands at 1.84,while OIL’s is at 1.64. ONGC’s oil and gas production in FY13 fell by 2% to 51.45 million tonnes of oil equivalent (mtoe),while OIL’s production fell by 3% to 6.34 mtoe.

ONGC’s Banerjee explained that overstating of reserves occurs owing to difficulties in the monetisation of deep-water assets and small and marginal fields which are sometimes abandoned. “Moreover,geologically challenging fields like the KG-DWN take over 10 years to come into production,” he added.

Puncturing ONGC’s claim of a healthy and rising reserve replacement ratio,the Comptroller and Auditor General last year indicated that this was mainly on account of wrong reporting of reserve accretion and a decline in production attributable to ageing fields and delay in monetisation. “Consequently,ONGC’s healthy rising reserve replacement of greater than 1 is,in fact,due to a static/declining trend of production and reserves being accreted mainly through re-interpretation,” the auditor said.

An OIL official said that in the case of natural gas the pricing could be a factor for overstating reserve replacement ratios. As some of these fields are not commercially feasible for production at the $4.2 mmBtu levels,they were not brought into production,though they are categorised as recoverable reserves. “However,now with the revision in gas prices many of these fields will come back into production,” the official said.

The DGH believes that the oil and gas reserves and production will get a further boost once the open acreage licensing policy (OALP) regime comes into force and India transitions away from NELP. The DGH has now called external agencies to collect data in order to move to the OALP regime which gives companies a round-the-year window to pitch for oil and gas in blocks of their choice. With these efforts DGH hope to unearth more hydrocarbon resources particularly in the deep-water zones.