The Hydrocarbon Exploration Licensing Policy (Help) announced by the Union government on March 10 has been welcomed by most commentators. While it moves the policy framework in the right direction, the policy continues to be bedevilled[bi'de-vu(harass,सताना)] by the conflict[kón,flikt(battle,विवाद)] between consumers and producers.
The most significant shifts under Help are: One, from production/ profit-sharing contracts (PSCs) to revenue-sharing contracts (RSCs); and two, pricing and marketing freedom for gas produced from deep water, ultra-deep water and high pressure high temperature (HPHT) fields. The Open Acreage Licensing Policy and single licence for all hydrocarbons are also important developments.
A brief overview of the exploration and production (E&P) experience since 1999, when the New Exploration Licensing Policy (Nelp) was launched, is in order. India has about 3.14 million sq km of area with potential for oil and gas, out of which about 1.8 million sq km is spread across 26 onshore and shallow water sedimentary basins, and another 1.3 million sq km lies in deep water. The Hydrocarbon Vision 2025, presented by the erstwhile[urst,wI(-u)(past,पहले का)] NDA regime in 2000, envisaged[en'vi-zi(imagine,विचारना)] that 25 per cent of the potential area would be fully explored by 2005, 50 per cent by 2010, 75 per cent by 2015 and 100 per cent by 2025. Progress has been dismal[diz-mul(depressing,निराशपूर्ण)], with only about 22 per cent area well-explored by 2015 (40 per cent area is presently under different stages of exploration). This shortfall in meeting a key strategic outcome is testimony[te-sti-mu-nee(evidence,प्रमाण)] to the systemic governance deficit.
The declining interest over nine Nelp rounds had already poured cold water on E&P. Foreign companies won 40 per cent of the 254 awarded blocks, but many blocks held by companies like ENI, Gazprom, Petrobras and BHP have since been relinquished. BP is the only global oil major remaining. Out of 254 blocks, 106 have been relinquished[ri'ling-kwisht(leave,छोड़ना)] and only 11 out of 128 discoveries have gone into production. Seismic surveys, integral to exploration, have virtually come to a grinding halt over the last five years.
Investments in deep water and ultra-deep water have been at a standstill, caught between defence objections, pricing and production disputes and proxy wars. As brought out by the International Energy Agency (IEA) in the India Energy Outlook, 2015, “The sense of under-explored potential is reinforced by the drilling record. Roughly 3,000 wells have been drilled in India’s offshore basin, at an average density of one well per 146 sq kms, which is a low intensity compared with other offshore basins (and certainly with the US Gulf of Mexico, which has been drilled with an average density of one well per 14 sq kms)”.
All this has resulted in a situation where India’s import dependency on hydrocarbons is projected to increase from 80 to 90 per cent by 2040, leaving the country highly vulnerable[vúl-nu-ru-bul(weak,कमज़ोर)] to geopolitical developments, especially in the Middle East.
The jury on Help 2016 — while cautiously positive — is still out, considering the ongoing debate on PSC versus RSC. The Rangarajan Committee had advocated a shift to RSC in 2013, while the Kelkar Committee had advocated the continuation of PSC in 2014. Instead of letting the matter linger, it’s good that the government has bitten the bullet in favour of RSC, although the response of E&P companies to this model remains to be seen. Given the high geological risk in Indian sedimentary basins, it’s by no means clear the risk-reward equation under RSCs will be attractive for E&P companies. The incentive structure under the RSC model may also militate against full exploitation of oil and gas resources, with significant implications for self-sufficiency.
The marketing and pricing freedom for new gas produced from deep water, ultra-deep water and HPHT fields, though better than before, is constrained by a cap on gas prices (there’s no such cap on oil prices). The introduction of coal price into the calculation is problematic since gas cannot be a substitute for coal for power generation, except at very low gas prices, as shown by the recent US experience. An artificial depression of gas prices only seeks to perpetuate[pu'pe-choo,eyt(cause to continue,बनाये रखना)] an untenable[ún'te-nu-bul(unjustified,असमर्थनीय)] bias[bI-us(partiality,भेदभाव)] in favour of the power sector. Almost the entire current gas production continues to remain hostage to highly depressed prices. There’s no roadmap for moving to import parity pricing for gas, as has already happened for oil. India’s full gas potential can be exploited only when the policy for artificial suppression of gas prices is given up.
The gas pricing framework throws up the inherent policy bias against producers and in favour of consumers. It’s no surprise India has consistently consumed 65-70 per cent of GDP over the last two decades, while China has consumed only about 50-55 per cent. The investment differential of about 15-20 per cent of GDP is a key parameter that reflects the different political realities and economic trajectories of India and China. The focus on Make in India essentially calls for a shift in priority from consumers to producers, a herculean[hur-kyu'lee-un(difficult,कठिन)] task at the best of times.
As per the IEA report, India has proven oil reserves of 5.7 billion barrels (recoverable reserves of 24 billion barrels), compared with an annual crude demand of 1.4 billion barrels, and rising. The oil reserves are thus meagre. Gas resources are projected at a much larger 7,900 bcm of recoverable reserves (more than 200 times the present annual production).
There’s a compelling[kum'pe-ling(powerful,प्रभावी)] opportunity for gas, which India must seize to reduce import dependency and shift to a lower carbon trajectory. Natural gas is the cleanest fossil fuel and also has lower amounts of sulphur dioxide and nitrous oxides than other fossil fuels. Help 2016 is more about gas than oil. While the overall thrust is positive, concerns regarding the contractual regime and gas pricing formula remain, and will need to be addressed.
Courtesy:indian express
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