Reducing India’s crude oil import dependency

India imports nearly 84% of its crude oil requirement. Massive outflows of foreign currency has not only adversely impacted the country’s balance of trade, but also hurt its current account deficit. The import bill is estimated to grow by 27% from $88 billion in 2017-18 to touch $112 billion in 2018-19, says the Petroleum Planning and Analysis Cell (PPAC) of the petroleum and natural gas ministry in its latest assessment (April 2019). It’s no wonder that for the past five years the government has been working out various strategies to boost domestic production of oil and gas.

The government has devised a three-pronged strategy to tackle the issue. The first is to extract maximum oil and gas from the existing fields, by using latest technologies like enhanced oil recovery (EOR). “Using the state-of the-art EOR technology, India can increase its existing crude production by 30%,’’ contends Ajay Kumar Dixit, CEO, Cairn Oil and Gas-Vedanta. He believes that his company can raise production from its existing fields in Barmer, Rajasthan, by as much as 50%.

The second strategy is about tweaking the rules of the production sharing contract (PSC) between the contractor and the government to increase productivity, without necessarily destabilising the contract, also described as debottlenecking of contracts. "These include early monetisation of discoveries, expansion of existing contracts, special dispensation for north-eastern region and the recent policy on the discovery and use of unconventional hydrocarbon like coal-based methane, etc," says Amar Nath, joint secretary  exploration, Ministry of Petroleum and Natural Gas.

Finally, it is about increasing the acreage under exploration and production (E&P). "Without increasing the acreage, we cannot increase production, which has stagnated for the past many years," says Nath. A major step has been to bid out small discovered oil fields of the national oil companies like Oil and Natural Gas Corporation, Oil India Ltd etc., which have not been monetised because they were considered economically unviable by these companies. Through two bidding rounds, the government has already awarded 53 contracts, which are in various stages of implementation. Such a step, say experts is likely to augment production by leveraging new technology, capital, and management practices through private sector participation.

But more importantly, the National Democratic Alliance (NDA) has changed the existing contractual regime between the upstream player and the government. It has brought in the Open Acreage Licensing Policy in 2016, which allows bidders to choose their own block from the portfolio of blocks offered for E&P rather than the earlier policy of handling out the blocks. According to the government, the country has reserves of around 41 billion tons of oil and oil equivalent, of which only 25% has been discovered so far.  Under the new Licensing policy 87 contracts have already been awarded and more than 1 lakh square kilometres have been bid out to various players. This, explains Nath, is much more than what was bid out under the earlier Hydrocarbon Licencing Policy.

To ensure greater participation by both domestic and international players in E&P, the government on February 2019 announced a new policy, differentiating between different basins and different taxation structure for different basins. For instance, in Category II and Category III basins, which has seen no commercial activity —bids will be given out on the basis of the work programme promised by the contractor without any revenue or production sharing contract with the government. Bidding for six out the seven blocks bid out is already underway like those in Cambay, Mumbai offshore, Rajasthan, Krishna Godavari-Cauvery, etc. Bidding will end on October 31.

Learning from the earlier experience of companies bidding too high to get a block and being unable to pay later, the government has set an upper ceiling on biddable revenue under the new PSCs. Moreover, fiscal incentives have been announced for early field production and contractors have been given full marketing and pricing freedom to sell their crude oil and natural gas.

In India, 66 blocks produce nearly 95% of the country’s hydrocarbon and here the government has allowed the national oil companies to enter into partnership with foreign E&P and other players to speed up oil and gas exploration in the country. Of the other 147 blocks, which are currently with the national oil companies, 66 are being bid out till December 31.

Through a transparent, investor friendly and a competitive policy initiative, the government hopes to accelerate exploration activities and provide impetus to expeditious production of oil and gas thereby ensuring energy security in the country.