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Journalism of Courage
THIS three letter word often spells security. It has brought nations to the brink of war, and is threatening to do so once again. No wonder, it was once termed as 8216;8216;The Devil8217;s Excrement8217;8217; by one of its own barons.
Welcome to the world of oil 8212; and gas 8212; the substance that prompted OPEC co-founder and Venezuelan oil minister Juan Perez Alfonzo to hurl the invective.
Read on, if you are still wondering why this war-talk and OPEC when India continues to be just another chronic oil and gas importer. A single big well in Bombay High to boast of, that doesn8217;t even account to a fraction of the country8217;s needs.
True for today, but it may not be the case tomorrow.
A fresh New Exploration Licencing Policy NELP and a mega gas discovery in the Krishna-Godavari basin by Reliance has sparked off a new interest in exploration within India. And the Great Indian Black Gold Rush has begun at the country8217;s east coast on the banks of Krishna-Godavari.
Controversy may shroud the quantum of the Reliance find with Directorate General of Hydrocarbons pegging it at 3.6 trillion cubic feet compared to Reliance8217;s claim of seven trillion. But no one doubts that the discovery has snapped Reliance competitors and the government out of reverie. Even the Oil and Natural Gas Corporation ONGC, one of the two monopoly producers in India until private firms forayed into exploration, recently floated a global tender for two rigs to drill in deep-water K-G basin.
PRIVATE INVESTIGATIONS
Today, Reliance, Essar, and Videocon are hunting for oil along with multinationals like Premier Oil, Cairn Energy and Shell. 8216;8216;With the entry of private sector, technology has changed completely. What ONGC could not get for years of drilling, the private players with latest equipment and technology like 3-D surveys are getting in months,8217;8217; says Chairman of Videocon Group, Venugopal Dhoot See interview.
The reason, say private sector players, for ONGC8217;s failure and their success is the natural risk-taking nature of an entrepreneur, immediate decisions to source technology and, of course, the blinding sarkari nature of ONGC. 8216;8216;Suppose an ONGC manager invests 10 million and gets nothing from a well then there are chances of Central Bureau of Investigation CBI or Vigilance Department gunning for him. But for us, success and failure are a part of this game,8217;8217; says an industrialist.
The importance of private sector investment can be gauged by the fact that crude oil imports are at a staggering Rs 65,000 crore per year, which is about two-thirds of its annual requirement. With a war looming in the Gulf, every drop of oil produced in the country counts. 8216;8216;Every increase in crude oil by single dollar results in the nation8217;s oil bill going up by 500 million,8217;8217; says a Reliance official.
In fact, Reliance, with its discovery in block D6 in the K-G basin, is the biggest success story of private sector entrepreneurship so far. Of the five exploration wells drilled so far in the block, Reliance has achieved a 100 per cent success rate, a significant achievement for any upstream company.
The reward for Reliance are huge: The wells have in place volume of natural gas is in excess of 7 trillion cubic feet 8212; as per company figures 8212; equivalent to about 1.2 billion barrels or 165 million tonnes of crude oil. Based on the recoverable reserves of over 5 trillion cubic feet, the gas availability to consumers in the country would increase by almost 60 per cent. 8216;8216;We would strive to deliver about 40 million standard cubic metres of gas per day to consumers in three to four years,8217;8217; says Mukesh Ambani, Chairman, Reliance Industries See Interview. 8216;8216;This would also help the country8217;s energy security, as the production would account for 4 per cent of India8217;s needs,8217;8217; adds he.
8216;8216;If we invest Rs 30 crore in a oil hunt venture we are sure that we will get oil worth Rs 300 crore. But it8217;s the technology used in wells that is important in getting proper returns,8217;8217; says Dhoot.
The Rs 6,000-crore Essar group is another player which is eyeing the oil exploration and production sector. 8216;8216;There is more margin in the exploration and production as compared to refining,8217;8217; says Raj K Varma, Chief Executive of Essar Oil8217;s marketing division. Essar is exploring oil and gas field located in the Bombay High and to begin with, plans to set up a 350-odd retail network, in West and North India in 2003. 8216;8216;Ratna-R was abandoned by ONGC but now we have a joint venture with ONGC and Premier to prospect oil there,8217;8217; says he. While Essar holds 50 per cent stake in the joint venture, ONGC holds 40 per cent stake and UK-based Premier Oil the rest.
8216;8216;Our strategy is to become a big player in the Indian oil and gas sector by setting up over 2,000 retail outlets, re-starting work on our refinery and of course hunting for more oil,8217;8217; Varma says. Adds Prashant Ruia, Director and promoter of Essar Oil: 8216;8216;The Indian oil and gas sector has a lot of potential and we are at present investing our time and funds into completing the refinery in Jamnagar.8217;8217;
The work at Essar Oil8217;s Jamnagar refinery has been abandoned for the last three years and the company is now looking for partner to re-start the work. 8220;We are planning to increase the capacity to 27 mmtpa in order to meet the growing demand,8217;8217; says Varma.
Surprisingly, the organisation that held rights to dig the entire Indian peninsula for decades, ONGC, did not swing into action in the KG basin even when Cairn Energy of Britain discovered gas in a block adjacent to Reliance as early as June 2001. It was only when word leaked of the Reliance find that ONGC floated the tender.
All three firms won the deep-water depth beyond 400 metres blocks in the first round of NELP, contracts for which were signed by March 2000.
Sources say that ONGC8217;s lethargy prompted Petroleum Minister Ram Naik to remark to its Chairman and Managing Director Subir Raha that ONGC was still sitting on its blocks. Raha, a newcomer to exploration from refining and marketing company Indian Oil, is now on the ball. Early this month, he said that ONGC would invest Rs 3,700 crore in 23 deep-water blocks during the 10th Five Year Plan 2002-2007. And if all goes well, he hopes to add 4 billion tonnes of oil and oil-equivalent gas by 2020.
Without shifting blame on his predecessors, he puts the lack of discoveries by ONGC to a run of bad luck. 8216;8216;That8217;s the nature of the oil game. Interpretation may have gone wrong,8217;8217; he says See Interview.
The government too was caught napping. Last week, it realised the importance of 8216;8216;recent encouraging finds with with Prime Minister8217;s Office seeking a presentation from Petroleum Ministry to decide whether a small task force of senior civil servants was necessary to 8216;8216;give greater momentum and impetus to the exploitation of indigenous and other gas reserves8217;8217;.
But it was the same knee-jerk reaction that got the private sector firms into oil exploration in 1992. That time, both World Bank and the Asian Development Bank put a rider that they would give fast disbursal loans only if India allowed private firms into the oil sector.
To display its noble intentions, the government allowed private and foreign firms to develop 30 discovered fields in partnership with national oil companies NOCs Oil India Ltd and ONGC. Later, 23 blocks were offered to the new entrants for exploration. But differences erupted between ONGC and the private players as the terms were loaded against the former.
ONGC8217;s objections were coupled with the foreign firms8217; request for fiscal terms equivalent or better than those available elsewhere in the world. And in January 1999, the government announced the new exploration policy to pump private funding in exploration.
The new policy has been good for all. 8216;8216;The contracts are simpler, bidding more transparent and decisions quicker,8217;8217; says an official of Canada8217;s Niko Resources. NELP8217;s success can be fathomed from the fact that the government has signed 52 production sharing contracts PSCs since April 2000, of which 47 are under the new policy. Another 23 contracts under the Third Round of NELP will be signed on February 4. Compare that with 22 contracts in the previous nine years!
8216;8216;Today, the area under exploration is 1.05 million square kilometres compared to 0.498 million in 1998,8217;8217; says a petroleum ministry official. 8216;8216;More players has resulted in deep-water exploration. Without the competition, ONGC would have continued to focus on soft, easy areas such as shallow water and onland blocks,8217;8217; he adds. This overdrive, says an ONGC official, would also end the speculation to whether or not India has oil and gas. 8216;8216;The 3-D surveys helps to mitigate the risk of drilling a dry well. This upfront investment helps rule out pumping a larger amount of money in drilling a dry well,8217;8217; says a ministry official. 8216;8216;Without that, it is like groping in the dark, drilling one hole after the other.8217;8217;
That is why the success ratio has improved. Of the four wells drilled by Cairn, it got gas in three, Reliance drilled six with discoveries in five, and Niko Resources drilled two with commercial finding in one and weak traces in the other.
Today about 8 percent of the total recoverable oil reserves of about 4,800 million barrels and 22 percent of the gas reserves of about 22 trillion cubic feet are owned by the private sector. But that8217;s still not enough to lower India8217;s import dependence. With domestic crude output stagnant at 32 million tonnes, the country imports 70 percent of its requirement. And the demand is expected to touch 244 million tonnes from the current 112 million.
Consumption of natural gas, tied down by domestic availability, is 65 million metric standard cubic metres per day MMSCMD. That is expected to touch 231 MMSCMD in 2006-07 and 391 MMSCMD by 2025 8212; and indication of growing dependence on natural gas.
The regime has to be far more simpler to attract the large players. The third round saw the introduction of a single-window clearance where legal and environmental clearances would be acquired before the blocks are put on offer.
The fourth round, to be launched in April, could see more deep-water blocks and with the PMO taking interest, it could see changes in the terms.
