Oil and gas in the capitals

By 2035, India will be one of the world’s biggest energy consumers. Naturally, New Delhi has sent its state-owned enterprises, such as ONGC, around the globe to secure energy for the homeland. But what’s happening on the E&P home front? Are there domestic gas and oil opportunities in India?

In a nutshell, India’s domestic E&P sector has an earned reputation for excessive governmental red tape, which is debilitating for a country with less-than-copious reserves. Minister of Petroleum and Natural Gas Veerappa Moily, a maverick bent on reforming this sector, aims to change all that.

In March 2013, Moily said his ministry was designing a plan, “Vision 2030: The Emerging Global Energy Basket,” to make India energy-independent by 2030. While coal figures prominently into Vision 2030, Moily wants domestic oil and gas to play a major role, too.

As part of this plan, in November 2013, Moily began planning what he termed an “oil pilgrimage”—a global marketing tour—to help drum up foreign investment in India’s domestic E&P sector. He wants to auction off 46 new onshore and offshore blocks to international and domestic companies, something that the government announced in January during Petrotech 2014, India’s biennial energy expo. The blocks are part of the New Exploration and Licensing Policy (NELP X).

The government also touted new policies last fall, and at Petrotech 2014, to streamline the E&P sector. Moily says that in 2013, the “mood in the industry was completely pessimistic,” but that his policies will “turn that into only optimistic.” While not all of these measures have been finalized, the petroleum ministry appears serious about implementing them.

First, Moily asserts that his ministry will approve E&P projects more quickly. He started doing this in 2013, and cites Reliance Industries as an example. Once freed from governmental obstruction, Moily says, Reliance surged in Block KG D6, offshore Andhra Pradesh state, and struck a discovery in the MJ-1 well—the Dhirubhai-55 field—possibly the biggest natural gas discovery in that block. Initial estimates say that it might hold 2.5 Tcf of gas. (If New Delhi keeps gas prices for the KG D6 blocks at $4.2/Mcf, however, then D-55 won’t be economically viable.)

Second, the ministry wants to replace the PSC with a revenue-sharing contract model. This is supposed to increase transparency and speed the contract process.

Third, on Jan. 21, the government announced that it was spending the next 26 months reevaluating India’s 30 basins. Its current appraisals are 20 years old. The IEA estimated in 2012 that India had 43.8 Tcf of proved natural gas and 5.5 billion bbl of proved oil, ranking 22nd, globally, in both categories.

Fourth, the government aims to replace the NELP X with a Uniform Licensing Policy. This will allow companies wider E&P options in their respective blocks—such as both conventional gas and shale gas—under a single license, instead of applying for multiple licenses for different types of E&P in the same block.

Fifth, Moily wants to halt royalty payments to the central government from offshore E&P. Present rates are 5% for deep water, for the first seven years and, after that, 10%. Shallow-water rates are 10% from the start. Royalties from onshore operations that go to state governments would remain at present levels.

Apart from these technicalities, the government is using its influence to solve problems and attract E&P investment. For example, Minister Moily is trying to get ONGC to partner with BHP Billiton, to keep the latter from quitting its nine blocks acquired between 2008 and 2010. The blocks are offshore, south of Gujarat. The Ministry of Defense and Department of Space objected to BHP’s exploration there, which delayed the company’s access to its acreage, which triggered its departure.

All of these initiatives are well and good, but many are tentative, and there are scores of additional impediments.

For starters, bureaucratic red tape and poor governmental coordination will not go away, just because Moily is exhorting sweeping reforms. In February, for example, Gujarat state withdrew its nine of the 46 blocks offered by the central government, because it didn’t believe that it would reap its fair share of revenues from discoveries.

Additionally, not all of Moily’s measures are universally popular, especially revenue sharing. Some companies assert that this model is more suited for regions with copious reserves. Allowing drillers to first recuperate sunk costs in high-risk operations, would work best for India, they say.

Finally, there are multiple security risks. India is one of the world’s most terrorist- and insurgent-prone countries, and these groups have, in the past, targeted the energy sector. Maoist insurgents are surging all over eastern India, infiltrating the northeast. Islamist militants supporting Pakistani goals continue to infiltrate over the northwestern border. A host of other niche groups, such as the United Liberation Front of Assam, regularly strike infrastructure targets in the northeast.

Despite these issues, India’s gas and oil sector, led by Minister Moily, is taking the right steps to increase E&P. No, India doesn’t have the proven reserves, a set contract regimen, or universal governmental support, at present, to become an E&P hot spot like the U.S., Canada and Saudi Arabia. Reshaping India’s entrenched bureaucracy, to make it E&P-friendly, will take several years, and pockets of resistance will likely emerge. But India has to start somewhere to break through its self-imposed E&P stagnation, and Moily’s planned measures appear good enough to get things moving in the right direction. This year will be critical to gauge whether he has the power and support to get the job done.