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New Indian policy liberalises oil and gas exploration

30/03/2016 by

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It has been reported that a previous change in India’s law regarding oil and gas exploration is allowing companies to make new investments in previously restricted areas. Oil & Natural Gas Corp. (ONGC), the state-owned energy organisation, said there are plans to invest $5 billion in a new deepwater block on the east coast of India.

It’s been three weeks since Prime Minister Narendra Modi changed energy policies to allow competitive pricing and marketing of hydrocarbon fuels coming from regions with particularly high exploration costs. Before this, difficult terrains were not viable investments. At the moment, gas prices in India are valued at $3.8 per million British thermal units, an uneconomical level in difficult regions. Now, areas including categories of ultra deepwater, deepwater and high pressure/high temperature will be more accessible for companies.

Currently, ONGC has timetabled their completion date on the latest project for June 2020. Operations would only involve the exploration of the second cluster of three in the organisation’s deepwater gas and oil block. One of the things holding them back is an ongoing gas migration dispute in the first cluster, which involves block neighbour, Reliance Industries.

However, for the second cluster, ONGC expects that gas production could start as soon as June 2019. Meanwhile, crude production would begin around March 2020. Overall, oil production from the area should be around 23.5 million tons, with peak daily production averaging 77,305 barrels. Gas, meanwhile, should reach 16.56 million cu. meters per day, with total production estimated at 50.7 billion cu. meters. In total, this would account for 28% of ONGC’s gas production, and 17% of their oil output.

Once the project is completed, the post-tax annual profits gained by ONGC are believed to be around $600 million. The news comes at a time when the third quarter for the current financial year revealed a 64% year-on-year slide for the organisation. Overall, low crude oil prices resulted in net profit falling to $188 million.

The changes to India’s oil and gas policies should help the country produce more of their own energy. Currently, with a population of 1.3 billion, almost 80% of their oil and 35% of their gas is imported. Gas production has also declined, with the 40.66 billion cu. meters produced in March 2013 sliding by 17% to 33.65bcm in March 2015.

Until now, most of the nation’s own energy supplies have been caught in difficult areas, which have been too expensive to even think of developing. However, the latest policy review could reverse that trend in coming years.

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