Petroleum Sector in India

In association with President Clinton’s visit to India in March 2000, J. Joseph Grandmaison, Director of the U.S. Trade and Development Agency (TDA), held discussions with Dr. S. Narayan, Secretary at the Indian Ministry of Petroleum & Natural Gas in New Delhi, India.  During the meeting, Secretary Narayan expressed a keen interest in encouraging U.S. participation in several areas of India’s petroleum sector.  In response, Director Grandmaison invited the Secretary to head up an orientation visit to the U.S. petroleum sector and committed to sending a definitional mission team to India prior to the visit to identify areas of cooperation between India and the United States. TDA engaged Petroleum Equities Inc. to conduct the definitional mission. 

E. Hunter Herron, president of Petroleum Equities, and under subcontract to Petroleum Equities Vinod K. Shrivastava, president of CORE International Inc., composed the definitional mission team.  The team spent one week in India and in 17 separate meetings met with more than 30 officials, executives, and professional staff engaged in the petroleum sector.  In a pre-mission visit to Houston, Dr. Herron also conferred with 15 key executives at eight U.S. companies engaged in exploration, production, and oil field services.

       Key Findings of the Definitional Mission

Over the past decade, India’s domestic oil production has remained essentially unchanged from year to year, while the country’s demand for petroleum products has almost doubled.  This has caused India’s reliance on foreign oil to grow to the point where more than two-thirds of the country’s petroleum supplies are now acquired from abroad.  The foreign exchange cost of the imported petroleum is in access of $10 billion per year.

While India’s hydrocarbon resource base is estimated at 29 billion tons of oil and oil-equivalent gas (215 billion barrels), about two-thirds of its potential hydrocarbon producing areas remain either poorly explored or totally unexplored.  Consequently, only 6.8 billion tons of reserves have been established through exploration.

In response to the underdevelopment of domestic hydrocarbon reserves in the face of a growing dependence on petroleum imports, the Government of India is encouraging both domestic and international private investors to increase exploration and production efforts in the country with the implementation of a new exploration licensing policy (NELP) .

Since January 1999, a total of 21 entities—10 foreign companies, 6 Indian private com­panies and 5 public-sector enterprises have participated in the NELP bidding process.  However, to the government’s disappointment, no major international oil companies have joined in the recent bidding.

Relying exclusively on offshore exploration and development to reverse India’s growing dependence on imported oil is not a short-term solution, even with major participation by international oil companies in the country’s new bidding rounds for exploration licenses.  This is because seven years or more are required to bring on production from a previously unexplored offshore  tract. However, enhancing recovery from existing fields is an attractive stop gap measure reworking existing fields can result in significant increases in production within two to three years. 

India is endowed with significant deposits of coal and lignite which have never been subjected to methane drainage.  The Directorate General of Hydrocarbons has identified nine prospective blocks for coal bed methane exploitation.  It is expected that eight of these blocks will be offered by the government for development through global competitive bidding, with the remaining block reserved for the state-owned Oil & Natural Gas Corporation (ONGC).

The general perception of the U.S. petroleum industry regarding operating in India may be summarized as follows:

• The potential market for petroleum products is well appreciated. Similarly, it is recognized that vast unexploited resources of petroleum are probably present in India, both onshore and offshore.
• No exceptional physically-based operating problems have been experienced in India.  The operating problems encountered in the past have all been associated with unsatisfactory relations with the government.
• The business environment in India is very bureaucratic.  The permitting process is extremely slow with a consequent negative impact on recovering one’s initial investment. The process of importing the required equipment and exporting production is so cumbersome that unacceptable amounts of management resources must be devoted to a project.
• No “roadmap” exists to guide foreign companies through India’s permitting process, and the “goalposts” are moved during negotiations with the govern­ment in the course of conducting operations.

In contrast to these perceptions in the United States, in India the mission team found that India’s poor reputation as a host for international business is now recognized by the government and that enormous strides have been taken to correct the situation.  Now that reforms have taken place, it should be possible to encourage the participation of U.S. companies in the Indian petroleum sector, provided the Government of India is able to persuade non-domestic companies that it really has cleaned up its act.  In our opinion, the most effective means of doing this is through a soft-sell approach, whereby the government provides tangible evidence to U.S. companies of the benefits of participating in its exploration projects.

  Recommendations

Prior to conducting the mission, the mission team confirmed that the following areas within the Indian petroleum sector were to be the focus of  the mission:

• Exploration and production, with particular emphasis on offshore, deep-water projects
• Coal bed methane exploitation
• Exploration licensing policy.

During the conduct of the mission, three additional areas were identified as also being of potential interest:

• Enhancement of production from existing oil and gas fields
• Upgrading and expansion of refining facilities
• Petroleum sector restructuring.

Following are the team’s recommendations regarding each of these areas as well as Secretary Narayan’s anticipated orientation visit. 

Exploration and Production

ONGC is seeking operating partners to develop six prime offshore exploration blocks that the corporation obtained from the Government of India by direct nomination.  To provide India an opportunity to demonstrate its reformed approach to accommodating international participation in its petroleum sector, the mission team recommends that TDA finance a technical seminar in Houston of about four days duration.

At the seminar, ONGC would present to targeted U.S. companies a detailed exposition on the geologic settings associated with each of the six exploration blocks in which ONGC is offering participation and conduct an extensive discourse on its new, user-friendly participation terms with the companies that express interest in joining ONGC in developing petroleum reserves on the blocks.

Coal Bed Methane (CBM)

Given the concerns expressed during the mission by both U.S. and India-based companies regarding CBM projects in India, the mission team does not presently recommend TDA pursue any activities in the CBM area, with the exception of including a meeting with a prominent U.S. firm involved in CBM exploitation during Secretary Narayan’s orientation visit.

Exploration Licensing Policy

The mission team recommends that the advantages of NELP to the international petroleum sector be emphasized during the technical seminar that the team is recommending be conducted by ONGC.  We do not at present recommend any additional activities in the area of NELP development until the outcome of the technical seminar can be evaluated.

Production Enhancement in Existing Fields

Petroleum geologists and engineers consulted during the mission stressed the need for the government to focus on enhancing oil and gas recovery from existing fields as a stop gap measure while reserves from the deep-water offshore are still under development.  The mission team concurs that this is a highly desirable strategy for increasing oil production in the near term, given the long lead times required to bring on production from new deep-sea exploration.

Accordingly, we recommend that proposals to engage the participation of U.S. companies in projects to enhance the recovery of oil and gas in existing fields be pursued, as discussed in Appendix IV of this report.

Upgrading and Expansion of Refinery Facilities

In association with plans by Indian Oil Corporation (IOC) to upgrade and expand its refineries, IOC has expressed interest in obtaining technical training for its personnel in several areas. However, as none of these requests for training are linked to near-term projects that would generate any potential for exports of U.S. goods or services, the mission team does not recommend any training programs for IOC personnel be funded by TDA at this time.  But the team does recommend that TDA continue a dialogue with IOC and look for specific procurements that could be linked to providing training.

Petroleum-Sector Restructuring

The mission team concludes that the Indian Ministry of Petroleum & Natural Gas could significantly benefit from technical assistance aimed at assessing different models for petroleum sector restructuring to introduce efficiency into the sector.  As this is not the type of support that TDA traditionally provides, the team briefed SARI Program officials at USAID (New Delhi) and recommended they initiate discussions with Secretary Narayan to explore the possibility of obtaining USAID assistance in this area.

Orientation Visit of the Petroleum Secretary

The team confirms that the proposed orientation visit of Secretary Narayan anticipated (at this writing) in September 2000 is very timely, as the Government of India plans to issue a large number of tenders for licensing under NELP as well as a number of separate tenders for exploitation of coal bed methane in the near future.  We recommend that participants from India in the orientation visit include:

• Dr. S. Narayan, Secretary, Ministry of Petroleum & Natural Gas
• Dr. Avinash Chandra, Director General, Directorate General of Hydrocarbons
• A leading technical representative from the Oil & Natural Gas Corporation
• A leading technical representative from the Indian Oil Corporation
• Two representatives from India’s private sector (probably Reliance Petroleum and another firm).

A proposed itinerary for the visit, developed by the mission team from our assessment of the technological needs of India’s petroleum sector, is shown in Appendix III of this report.  The itinerary includes travel from New Delhi to Washington for one day of meetings with TDA and other government officials, followed by travel to Houston for two days of meetings with commercial researchers, service providers and offshore operators, and a return to Washington for a debriefing with TDA before returning to New Delhi.

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