Regional Report: India

Over the next 30 years, India is predicted to be one of the world’s fastest-growing economies. The nation produced 1.2 Tcf of natural gas in 2017–2018. Of this, state-owned Oil and Natural Gas Corporation (ONGC) accounted for 854.6 Bcf (68%), Oil India Ltd. (OIL) produced 102.4 Bcf, and other JVs accounted for the remaining 279.0 Bcf. By 2021, this mix is expected to undergo a significant change, with private JVs accounting for the largest portion, 1.42 Tcf, ONGC with 981.7 Bcf and OIL contributing 130.7 Bcf, according to the Economic Times.

The South Asian nation is also expected to be the fastest-growing oil consumer through 2040, according to the International Energy Agency. This growth is in alignment with the Prime Minister Narendra Modi’s target to reduce the nation’s hydrocarbon import dependence 10% by 2022.

POLITICAL FACTORS

India’s upcoming general election will most likely occur in second-quarter 2019, with voting conducted over several weeks. With more than 800 million voters, opinion polls show that the National Democratic Alliance, led by the Prime Minister, is in the lead.

Indian officials are ready to expand their upstream sector. If Modi is re-elected, that will give strength to his set target of cutting oil imports in half by 2030.

IRANIAN SANCTIONS

India is the world’s third-biggest oil consumer, behind the U.S. and China. However, the country meets more than 80% of its requirements through imports. Iran is India’s third-largest supplier, after Iraq and Saudi Arabia, and meets about 10% of the country’s total needs.

Fig. 1. The Mangalore storage facility, constructed in underground rock caverns, has a capacity of 11 MMbbl, and covers an area of 104.73 acres. Photo: Indian Strategic Petroleum Reserves Limited.

On Nov. 4, the U.S. plans to impose sanctions against Iran’s oil exports and energy sector. India is Iran’s second-biggest crude customer, after China, and has expressed its inability to completely stop those imports, an anonymous source told Bloomberg.

As India prepares to tackle the upcoming sanctions, the country still needs to make sure there is enough oil for its own consumers. IndianOil Chairman Sanjiv Singh told Bloomberg that “we have [a] Plan B, Plan C, and Plan D.” He believes that Saudi Arabia is quite capable of covering most of the world’s supply shortfall, should Iran’s oil exports dry up. In addition, a narrowing spread between Brent crude and Dubai oil gives OIL even more options, according to Singh.

“We have a very wide crude basket. There’s nothing we can’t procure, there’s nothing we can’t process,” Singh said. “So, even if Iran supplies get disrupted, the supplies to the Indian market will still continue. That’s assured.”

“Plan B” seems to be importing as much Iranian oil as possible, prior to the November sanctions. India imported 771,000 bopd from Iran in May, a 35% increase from the previous month, according to tanker tracking and shipping data compiled by Bloomberg. This stockpiling may be going into storage at Mangalore, an Arabian sea port in Karnataka, on the southwestern coast of India, Fig. 1. “The situation is changing every day,” Singh suggested. “We have to wait and watch how things unfold with time. We can manage, and we will manage.”

INCREASED OPERATIONAL AUTONOMY

Open acreage licensing policy (OALP) is a bidding process for exploration acreage, similar to the OCS Oil and Gas Leasing Program in the U.S. India’s program is in line with Modi’s goals of reducing import dependency on oil and gas; to promote ease of doing business with India; and to increase operational autonomy through a new revenue sharing model. This bidding process falls under the Hydrocarbon Exploration and Licensing Policy (HELP). Oil Minister Dharmendra Pradhan launched OALP in 2017. Bids were submitted last November, and finalists were chosen in December. Final bids were then chosen based on several factors, including revenue commitments, Director General of Hydrocarbon Atanu Chakraborty told the Hindu Business Line.

Fig. 2. Formed by two large east coast rivers, Krishna and Godavari, the KG basin is in Andhra Pradesh, and considered one of the most prolific basins in India, comprising 5,791 mi² on land and 9,652 mi² offshore. Map: Direcorate General of Hydrocarbons.

Fifty-five blocks were awarded in June, during the first OALP, with a total area of 22,888.91 mi². Out of those blocks, Vedanta (Cairn) won 41, OIL took nine, and ONGC picked up two. Hindustan Oil Exploration Company (HOEC), Gas Authority of India Limited (GAIL) and Bharat Petroleum (BPRL) each won a single block. It was reported that 110 bids had been received, according to the Directorate General of Hydrocarbons.

MAJOR PLAYERS

ONGC is India’s largest oil and gas producer. Ranked No. 197 in the Fortune Global 500 list, the company boasts $51.2 million in revenue, and has 32,000 employees. This ranking is due to robust performance in fiscal year 2018, despite volatile global oil prices and operational challenges faced by the company. ONGC improved its gas production 6.3% from operated fields, and kept oil production nearly constant despite ageing assets. The company also set an efficiency record by drilling 503 wells and hitting 12 discoveries, monetizing many of these to quickly augment output.

The state-run company has JVs in oil fields in Vietnam, Norway, Egypt, Tunisia, Iran and Australia, and deepwater exploration off the east and west coasts of India.

ONGC’s largest project, in a deepwater block of the Krishna-Godavari (KG) basin, along the east coast (Fig. 2), has been delayed, an anonymous source told Bloomberg in February. The $5-billion project delay stems from incomplete and unsubmitted tenders. Once production finally begins, it will be gas first, followed by oil a year later.

Fig. 3. Transocean drillship <i>Dhirubhai Deepwater KG1</i> is in the Bay of Bengal, supporting Reliance Energy, which is reinvesting in the Krishna-Godavari basin to revive gas production. Photo: Transocean.

Production from the Bay of Bengal’s KG-DWN-98/2 Block is critical to Prime Minister Modi’s goal of cutting India’s oil imports and doubling the share of gas in the country’s energy mix to 15%. ONGC plans to spend about $170 billion by 2030 to raise output. The company aims to produce 530 MMcfgd and 77,000 bopd from the block. In addition, other companies, including Reliance Industries (RIL), continue to suffer from eroding natural gas production in the KG basin (Fig. 3).

February was a busy month for ONGC, as the company also spudded well BE No. 95 at Bokaro, Jharkhand, in the eastern region of India. The one-year drilling plan includes 30 development wells (22 vertical and eight directional), with a depth range of 1,312 to 4,593 ft. Bokaro field development strategy includes drilling 141 development wells, with a goal of producing 26.5 MMcfgd. Early monetization is planned for first-quarter 2019. The overall target is to drill 350 wells and produce about 70 MMcfgd from all four coalbed methane blocks currently in operation.

Project KG DWN 98/2 spudded its first well in April. Well No. KDG-A is the first of 34 wells planned for this project. The deepwater well has a target depth of 7,697 ft, and is expected to produce around 5,000 bopd. The cumulative production is expected to be around 186 MMbbl of oil and 1.6 Tcf of gas, with peak production of 78,000 bopd and 529.7 MMcfgd. First gas is expected in 2019, and oil output will begin by 2020.

ONGC drilled 503 wells in 2017–2018, as of May, (the second year in a row that the company has drilled over 500 wells), which is the highest number of wells drilled in the last 27 years. Of this, 119 were exploratory, and 384 were developmental, at a cost that is 11.5% lower than the budget outlay, according to Bloomberg. “We have taken measures to improve our operational efficiency by using better well designs, inducting new technologies, improving cycle speed, standardization of well testing procedures, and minimizing idling periods of rigs,” Shashi Shanker, chairman and managing director, ONGC, told Bloomberg.

SAFETY

ONGC found a gas leakage on an unmanned offshore platform, S1-6, in the southern field of Mumbai, 112 mi from shore, in the Arabian Sea. With help from the Indian Navy, a team of engineers was transported by helicopter to plug the leak, Fig. 4. As a safety measure, the platform team immediately shut down the well platform to bleed off pressure in the pipelines. Firefighting vessels were deployed instantly near the platform, to provide water blanketing by spraying continuously.

OIL turned 60. OIL, a Navratna PSU, is the second-largest national oil and gas company in India, as measured by proved total plus probable oil and gas reserves and production. OIL is a fully integrated company, and has a presence in the entire hydrocarbon value chain. Besides having a Pan–India presence, OIL has participating interests in blocks in nine countries overseas, including Libya, Gabon, Nigeria, Yemen, Venezuela, U.S., Mozambique, Russia and Bangladesh.

Fig. 4. A team from the Indian Navy transports ONGC engineers to platform S1-6 to repair a leak. Photo: ONGC.

Last February, an article published by The Assam Times, and featured on the OIL website, reported that OIL plans to make a five-year investment in India’s E&P sector. The company plans to increase crude production and other infrastructure developments in Assam. Under India’s new Hydrocarbon License Policy, OIL has bid on 10 blocks in the North East, one in Rajasthan and one in the KG basin, but none offshore. As the capital investment for offshore exploration is high, OIL is considering limited partnerships and JVs for future offshore projects.

OIL celebrated its 60th year at Naharkatiya Well No. 1, in the northeastern area of Assam Dibrugarh, about 570 mi northeast of Bangladesh, in March. India’s first oil field was declared an “Oil Heritage Well” by Chief Minister Tarun Gogoi during OIL’s golden jubilee celebration.

In the same month, OIL began a seismic survey in Manipur. Out of 471 mi, only 3 mi have been surveyed so far. Then, the company assigned Asian Oil to complete the work, but they were unsuccessful. There are plans to resume the survey.

In May, OIL hit its second hydrocarbon discovery in the onshore KG basin NELP VI Block: KG–ONN–2004/1 2018 at well Thanelanka-1 in Andhra Pradesh, about 290 mi southwest of Hyderabad. Earlier, a gas discovery was made at well Dangeru-1 in Andhra Pradesh. This is the first HPHT drilled by OIL. It has encountered multiple sands in the Gollapalli formation and one zone in the Raghavapuram formation. Upon testing, the HPHT zone in the depth range between 16,115 and 16,925 ft in the Gollapalli formation produced 45,900 cfgd through a 16/64-in. choke.

Cairn. Based in the UK, 20-year independent operator Cairn Energy has been focused historically on South Asian oil discoveries, as well as development and production in Mangala field in Rajasthan (Land of Kings), India. Discovered in 2004, the field was the largest onshore discovery in India for more than 25 years. A long-term investor in India, Cairn sold the bulk of its interests in 2012, including 40% of Cairn India Limited (CIL) to Vedanta Resources Limited. Cairn’s business operations are now focused in North West Europe, North West Africa, the North Atlantic and the North Sea.

Vedanta. Last April, Vedanta Founder and Chairman Anil Agarwal merged the company with CIL in a deal that started in June 2015. The merged company will preserve the “Cairn” brand, the two companies said.

Mangala, Bhagyam and Aishwariya fields, the three major discoveries in the Rajasthan Block, together have gross hydrocarbons in place of about 2.2 Bboe. Oil and gas are being produced from Rajasthan, Ravva in Andhra Pradesh and Cambay in Gujarat, according to the Vedanta website.

TAX DISPUTE

India has sold a part of Cairn’s stake in Vedanta Ltd. as part of a tax dispute.

The Indian Income Tax Department (IITD) forced its retrospective tax claim against Cairn while the UK-India Bilateral Investment Treaty arbitration has been ongoing, according to the Cairn website. As of July, the IITD seized dividends due to Cairn from its shareholding in Vedanta Limited totaling approximately $155 million. Cairn was notified by the IITD that it sold part of Cairn’s shareholding in Vedanta, realizing and seizing proceeds of $216 million. Cairn has disputed the Indian tax department’s demands. Cairn is seeking $1.3 billion from the Indian government, including the value of its investments in India after they were seized in 2014, according to Bloomberg. The dispute arose following a restructuring of units by the then-Cairn India in 2006 in preparation for the Indian unit’s IPO. Cairn accounted for about 25% of India’s domestic crude oil production in fiscal year 2017–2018. The final arbitration hearings were scheduled for late-summer in The Hague.

REDUCTION IN COAL USE

 Coal supplied 80% of India’s total power mix in 2016-2017, according to Forbes. As extracting LNG is more expensive than coal, gas struggles to compete as an easily accessible and competitive source of energy for the country. The people of India want electricity in their homes, and to reduce pollution due to coal use. They also want their country to thrive and compete with the other major players in the world. As the people buy-in to progress and modernization, the country moves forward.