Oil! Oil!

8216;8216;It is too early to rejoice,8217;8217; cautions a Petroleum Ministry official. According to a government status paper, the production potential is yet to be appraised. 8216;8216;The flow test to ascertain the formation pressure and additional exploration wells to determine the net pay zone are yet to be conducted,8217;8217; adds the official.

But Naik is jubilant. He calls the Scottish explorer8217;s discovery 8216;8216;the new year8217;s gift to the nation8217;8217;. Petroleum Secretary B K Chaturvedi, who leads review meetings with the exploration firms, shares the optimism, confident that the reserve numbers will increase.

8216;8216;The find was struck at 1,250 meters instead of the targeted zone at 3,000-metre depth,8217;8217; he points out, adding that further exploration, currently underway in the same block, could throw up a bigger reserve. Cairn plans to drill an exploration well on prospect N-A, which it considers of greater potential than the tapped N-B-1, within a month.

The new find makes it possible for Cairn to loop in its previous marginal discoveries at Saraswati 2002 and Rageshwari 2003 in the neighbourhood to transport the crude through a pipeline.

8216;8216;Their commercial attractiveness has increased after the find. A pipeline can now be built to link it Indian Oil Corp8217;s Kandla-Bathinda pipeline to take it up north or with ONGC8217;s pipeline in south Gujarat,8217;8217; says a government official.

But for now, the discovery means nipping more than two per cent off India8217;s current import requirement of 85 million tonnes. Not a large figure if viewed in isolation. But together with recent finds and an increasing shift to natural gas, the discovery symbolises India8217;s new push to address its oil security concern.

With domestic crude output stagnant at 32 million tonnes, the country imports 70 per cent of its requirement. And by 2006-07 the demand is expected to rise to 244 million tonnes from the current 112 million tonnes.

Consumption of natural gas, tied down by domestic availability, is 65 million standard cubic meters per day MSCMD. This is expected to touch 231 MSCMD in 2006-07 and 391 MSCMD by 2025, an indication of growing dependence on natural gas.

And, every drop of domestic oil counts when the oil import bill is a staggering Rs 65,000 crore per year. Every one-dollar increase in crude oil prices results in the nation8217;s oil bill going up by 500 million.

That opens the country to the vagaries of price spikes triggered by supply scarcity 8212; created either by the OPEC or due to exigencies 8212; a concern that prompted India to join hands with the International Energy Agency IEA in building strategic reserves. India recently approved a proposal to build tanks to store five million tonnes of crude oil for 20 days8217; supply security cover and plans to stock nearly 30 million tonnes to reach the 90-day cover.

And on Thursday, India agreed to 8216;act in consort8217; with the IEA to deter oil producers from taking unilateral action on supply cuts. The two will cooperate further on establishing 8216;8216;a hotline for effective information sharing in case of emergency8217;8217; and 8216;8216;update and consult, as appropriate, on the development of energy security measures8217;8217;.

As for adding on to domestic reserves, the offer of oil and gas blocks under the New Exploration Licensing Policy NELP 8212; first floated in January 1999 8212;has attracted both domestic and foreign firms for 91 blocks. The investment in exploration alone has been pledged by the bidders at 1.38 billion.

The liberal tax regime under the NELP has accelerated exploration and resulted in nine discoveries see table by Cairn, Reliance and Canada8217;s Niko Resources, most of which is natural gas.

The Reliance discovery off the east coast in the Krishna-Godavari basin was from a block offered under NELP-II and there are whispers that it has struck another gas find in north-east coast acquired under the second NELP round.

8216;8216;The availability of gas is increasing, specially from the east coast. This area, which was not explored adequately because of large depths, is now the focus with the arrival of the deep-sea drilling technology,8217;8217; says Chaturvedi.

Even ONGC, one of the two monopoly producers in India until private firms forayed into exploration, recently tied up with Transocean and Belford for two rigs to drill in deepwater.

Chaturvedi says the probability of finding gas here is very high, especially in the Krishna-Godavari, Mahanadi and Andaman blocks. With energy use shifting to 20 per cent gas in 2025-30 from the current seven per cent, these gas reserves will come in handy in insulating the country from external threats, he adds.

Another thrust is on extracting methane from coal seams to reduce the dependence on imported fossil fuel. This untapped area holds the promise of 710 to 948 billion cubic meters of methane, a principal constituent of natural gas.

So far, eight blocks have been awarded through open bids and two on nomination basis. Exploration is underway and discoveries are awaited. The second offer of coal beds attracted 21 bids in which six blocks will be awarded.

However, a third frontier for extracting methane from gas hydrates is yet to take off because of the absence of the technology for its deepsea mining. The technology, which may take 10-15 years to develop, will help India tap gas reserves estimated to be more than double the known reserves of fossil fuel.

The gas hydrate 8212; one part methane, a hydrocarbon, to seven parts water 8212; is in solid form at ocean depths ranging from 400 to 2,000 m. At present, Canada, Japan, Russia, and the US are developing the technology required to exploit gas hydrates.

A corner of a foreign oilfield8230;

8230; is temporarily India8217;s. Never mind if it8217;s in a pariah state

BOOM or bust. A risk India is taking in its hunt for oil abroad so that by 2010 at least 20 million tonnes of equity oil and gas would reach the country8217;s shoreline.

8216;8216;The idea is to safeguard India against wild fluctuations in oil prices,8217;8217; says Petroleum Secretary B K Chaturvedi. Domestic supply should be supplemented such that hydrocarbon availability is adequate, stable and assured while being cost-effective.

The country, with a limited domestic availability of 32 million tonnes of crude, has been subjected to the price spikes every time a country goes to war or global supply gets curtailed. For every dollar rise in the price of crude barrel, the country has to pay an extra 500 million in import bill.

It currently imports 70 percent of its requirement but to secure freedom, India is taking a 8216;8216;calculated risk8217;8217; to venture into countries where multinational angels fear to tread. ONGC Videsh Limited, the only firm permitted to pursue overseas exploration projects, has gone into strife-torn Sudan, outcaste Libya, explosive Iraq to secure that extra energy.

OVL managing director Atul Chandra said some time ago that the strategy was to tie up with countries which required less investment but were oil-rich, since safe havens like Saudi Arabia, Kuwait and UAE were already cornered by the MNCs.

That strategy is reflected in the country8217;s Hydrocarbon Vision 2025, a report prepared by a Group of Ministers chaired by then Finance Minister Yashwant Sinha. In the medium term, it said, the focus should be to build strong relations in focus countries with high attractiveness like Russia, Iraq, Iran and North African countries.

No wonder then that India8217;s gambles 8212; some of which are now paying off 8212; include Sudan, Libya, Syria, Iraq, Myanmar and now Angola, where OVL plans to acquire Shell8217;s 50 per cent equity in a large discovered field. On the radar is Nigeria and Azerbaijan.

The oil diplomacy is also using another tool suggested by the GoM: leveraging India8217;s 8216;Buyer Power8217; to obtain quality exploration and production projects abroad.

Last year, it managed to armtwist Iran into yielding highly prospective oil fields in return for India8217;s purchase of five million tonnes of liquefied natural gas LNG. Teheran even agreed to give OVL and its Indian partners equity in the South Pars field to provide gas for conversion to LNG.

Indian Oil Corporation, which has established deep relations with Middle-East exporters because of its annual term purchases of crude oil, has been able to get its foot in Saudi Arabia8217;s exploration programme.

The security concern has also translated into diversifying the crude purchase points. India currently sources 63 per cent of its crude imports from the Middle-East but the strategy is to reduce the country8217;s dependence on the forever troubled region.

A government strategy paper suggests that refineries switch over to low sulphur crude oil from Nigeria and net imports from North Sea, Venezuela, West Africa, the Far East etc. In the last few years, India has tied up with new sources like Brunei, Libya, Nigeria and Yemen and efforts are on to build new contracts with Venezuela and Angola.

And for troubled times, the Cabinet recently approved building tanks to store five million tonnes of crude oil for 20 days supply as strategic reserves to tide over high price periods.

Amitav Ranjan

Roadmap to black gold

A must-stop dhaba, a suddenly famous village, a landowner-turned-cleaner and silence that speaks. Anuradha Nagaraj finds them all on the road to RJ-ON-90/1

THIS story begins at Dhir Singh8217;s modest roadside dhaba at Pachpadra. About 100 km from Jodhpur, this is the first stop on the roadmap that leads to 8216;8216;one of the biggest oil discoveries in the world this year8217;8217;.

To get to the site where British oil and gas explorer Cairn Energy announced a 8216;8216;significant oil discovery8217;8217; earlier this week, Singh8217;s dhaba is a must-stop. Not only because Singh8217;s culinary skills range from the local dal-vadas to idlis, but also because Singh is the best story-teller on the highway.

For starters, he has the ability to look at your face and discern your destination. 8216;8216;You are looking for the oil guys,8217;8217; he begins. 8216;8216;Didn8217;t you get their location map, it is very precise.8217;8217;

And then he talks about the chartered planes that land in Jodhpur full of 8216;8216;oil people8217;8217; and the frequent stops they make at his place for a quick bite. 8216;8216;They love my aloo paratha,8217;8217; he says as he swirls tadka over the dal. 8216;8216;I use fewer spices for them though. They have been coming for over two years and now it looks like they8217;ll be here more often.8217;8217;

Like Singh, there are many who believe that it8217;s not just Cairn which has struck gold. 8216;8216;Once they start production, the face of this place will change,8217;8217; says Jagdish Acharya, naib tehsildar of Barmer. 8216;8216;Everyone is expecting a lot out of this.8217;8217;

And on the rig they know it. Officially, the men and women who have spent the last two months digging in the desolate desert land near Barmer are tightlipped about their find. But the grin on their faces and the spring in their step are dead giveaways.

About 15 km off the state highway between Jodhpur and Barmer, near a nondescript village called Nagana ka Tala, a small board leads you to the big find. Built by Cairn, this narrow road winds its way through sand dunes. Midway, the first signs of life appear in the form of a line of white cabins and a clothesline with orange-and-blue workmen clothes flapping in the wind. A little further, against the stark blue horizon, a spiralling pole emerges from the desert and then it8217;s the last bend before the road screeches to a halt outside an orange gate.

Beyond this gate is an isolated world, where 100-odd people go about their business of drilling for oil, finding it and then meticulously recording analytical details.

Besides work, there is nothing much they can really do. They are totally cut off from the rest of the world, with the nearest telephone 15 km away and no newspapers or Internet access for miles beyond that. Sometimes, when radio frequencies match, they are able to talk to the outside world. And when they can8217;t, they strike off dates on a calender, to see when their month-long shift will end and they can take a few weeks off. But all this was forgotten when the drilling machine hit oil.

A happy Lawrence Ray, Cairn8217;s man in-charge, shrugs his shoulders and refuses to speak, but he actually doesn8217;t have to say much. At the tea stall which has come up right outside the gate, villagers sidle up with drivers and exchange daily gossip.

Hanuman is a man of few words. Slowly sipping on tea he stares at the huge drilling machinery on the land that was once his. 8216;8216;I sold it to them,8217;8217; he mumbles, adjusting the yellow helmet on his head and fiddling with his earrings. 8216;8216;They paid me well and have also given me a job. I clean the place.8217;8217;

At the site, it is the combined effort of many companies, including Dalmer Energy, Schlumberger, Radhakrishna Caterers and local suppliers, that helps maintain this oasis in the desert. Two massive generators ensure non-stop power, big tankers store the gallons of water and the neat white cabins all lined up in a room provide shelter.

Feeding this army of people with 8216;8216;five star quality8217;8217; meals are Radhakrishna Caterers. From dishing out dal-rice for all the Indians on the site to delectable Continental food for the foreign crew, they run a 24-hour kitchen.

After this find, everyone is preparing for a longer stay. The company is expected to start production by May 2005 and people can8217;t wait for the process to get started, even as Cairn continues to explore where no other has gone before.

Miles away, in his cosy Jaipur office, S K Mittal can already visualise the big bucks flowing into the state exchequers. 8216;8216;Initially, when bids were opened here, there were no takers,8217;8217; recalls Mittal, director of the Rajasthan State Petroleum Department. 8216;8216;Now there are many. At present, six blocks are under exploration in Rajasthan and following this discovery, more blocks may be allotted in the region.8217;8217;

Further, now that someone has struck oil, the state is preparing to haggle with the Centre for its share of the booty. At present, according to the deal, 12.5 per cent of the royalty of the production will go to the state. Meanwhile, Oil and Natural Gas Corp ONGC has a right to 30 per cent from commercial production.

But it is not the present that the Rajasthan government is looking at. They are lobbying for 50 per cent of the 8216;profit petroleum8217; share that the government of India will start getting once Cairn has recovered investment costs.

8216;8216;The Centre will get anywhere between 20 to 50 per cent of the profits that Cairn will eventually make,8217;8217; explains Mittal. 8216;8216;We want our share.8217;8217; So does everyone else.

High, not dry, in deep waters

Corporates queue up to go digging as Reliance, Essar strike it rich

INDIAN oil companies are slowly discovering the value of black gold.

While Reliance Industries was the first company to strike, discovering huge gas reserves in the Krishna Godavari basin, Essar Oil with five blocks and Videocon Petroleum with one block have also made deep inroads into the oil exploration and production E038;P business.

8216;8216;We are expecting a turnover of Rs 5,000 crore from the oil exploration business in five years,8217;8217; says a confident Videocon group chairman Venugopal Dhoot. This year the company will earn Rs 1500 crore from its E038;P business. Videocon Petroleum has recently celebrated production of 150 million barrels of oil from its lone oil block in the K-G basin.

8216;8216;Thanks to our government8217;s policies, there is huge opportunity for Indian companies in oil exploration in both India and abroad. Similarly it is due to our policies that foreign companies are encouraged to invest in India,8217;8217; he adds.

The potential of E038;P business in India is now going up with new private sector investments in technology to discover oil and gas deep inside the earth. Cairn8217;s discovery in Rajasthan has given a fresh impetus to the oil industry.

8216;8216;The Indian energy sector policies are giving a major fillip to the industry and meets our energy requirements8230; We will bid for more blocks in the years to come,8217;8217; Dhoot adds.

At present the Indian E038;P business is dominated by the public sector ONGC. Oil marketing companies like HPCL and BPCL are also planning an entry into E038;P.

HPCL has already chalked out its plan to maximise growth by securing equity oil through E038;P. Says HPCL chairman and managing directorM B Lal: 8216;8216;The corporation has lined up a capital expenditure of Rs 11,000 crore for the tenth five-year plan period from 2002-03 to 2006-07.8217;8217; This includes the outlay for a new refinery and investments in the oil fields.

Essar Oil has five fields including Ratna 038; R-series in Bombay High, Rajasthan, Assam, and Mehsana in Gujarat. 8216;8216;The government8217;s policy of opening up the oil sector for private sector exploration and allowing Indian companies to invest abroad will help us in creating energy security,8217;8217; says a senior Essar official. The group alongwith its partners have invested close to Rs 100 crore in its E038;P businesses.

The big boy in the industry Reliance hit the jackpot when it discovered huge gas reserves at its D-6 Krishna Godavari field. The find 8212; in deep water off the Andhra coast 8212; is estimated to yield gas in excess of 7 trillion cubic feet, equivalent to 1.2 billion barrels of 165 million tonnes of crude oil equivalent. Reliance Industries started deep-water drilling less than four years ago.

In his half-yearly meeting with journalists, Reliance MD Anil Ambani announced ambitious plans for its E038;P business with fresh investments to the tune of Rs 1,100 crore.

Dev Chatterjee