The Indian government is considering extra energy imports from the United States, days before Prime Minister Narendra Modi’s visit to the country and a scheduled meeting with U.S. President Donald Trump. Modi will visit the U.S. on February 12-13 and hold bilateral talks with Trump, India’s ministry of External Affairs had said on Friday.
The U.S. is the fifth-largest crude exporter to India, following Russia, Iraq, Saudi Arabia and UAE. However, Indian refiners are open to buying crude from anywhere if the economics are compelling. Whereas Trump has pledged to lower fuel prices, he faces a conundrum considering that U.S. oil production is entirely in the hands of independent producers rather than a national oil company.
“The state can influence the pricing decisions in Russia and the Middle East, where national oil companies dominate. In the US, it’s the private producers, and Trump can’t instruct them on how to price their crude,” a refinery executive told the Economic Times.
Nevertheless, experts have predicted that Modi’s upcoming visit to the U.S. will result in a rise in India’s imports of oil from the U.S., subject to factors such as the type of crude oil available, freight costs and discounts offered by producers.
“India will import more oil from the US but (Indian) companies would evaluate options and preferably prioritise Middle East suppliers. The final call would be based on the economics of it including freight charges and discounts provided by the countries,” said Prashant Vasisht, vice president and co-head, corporate ratings, ICRA.
India is a net importer of crude oil with over 85 percent of its domestic demand being met by shipments. However, the country is looking to sharply ramp up production in the coming years. Last year, India’s oil Minister Hardeep Singh Puri called for oil majors to step up oil and gas exploration in the country to help cut India’s reliance on imports and make affordable fuel sustainable.
“E&P offers investment opportunities worth USD 100 billion by 2030,” he told a conference at Urja Varta.
Big Oil Kicks Off India Exploration
Currently, only 10% of India’s 3.36 million sq km wide sedimentary basin is under exploration. However, the country is richly endowed with fossil fuels: back in July, S&P Global Commodity Insights revealed that four largely unexplored sedimentary basins in India could hold up to 22 billion barrels of oil. In effect, lesser-known Category II and III basins, namely Mahanadi, Andaman Sea, Bengal, and Kerala-Konkan contain more oil than the Permian Basin, which has already produced 14 billion barrels of its 34 billion recoverable oil reserves.
Rahul Chauhan, an upstream analyst at Commodity Insights, has emphasized the potential of India’s unexplored Oil & Gas sector, “ONGC and Oil India hold acreages in the Andaman waters under the Open Acreage Licensing Program (OALP) and have planned a few significant projects. However, India still awaits the entry of an international oil company with deepwater and ultra-deepwater exploration expertise to participate in current and upcoming OALP bidding rounds and explore these frontier regions,” he has declared.
India boasts significant discoveries in the Krishna-Godavari, Barmer, and Assam basins, but exploration in other areas has been slower to develop. Of India’s 3.14 million square kilometers of sedimentary basins, 1.3 million sq km are in deep waters. India had its first foray into deepwater exploration in the Bay of Bengal earlier this year in the Krishna-Godavari Basin, courtesy of India’s state-run Oil and Natural Gas Corporation (ONGC). ONGC said it was planning to spend over $10 billion developing multiple deepwater projects in its KG-DWN-98/2 block in that basin.
Meanwhile, state-owned upstream company Oil India Ltd is looking to start exploration activities in Nagaland
“We have a total of 30 blocks under the OALP. We have already drilled all wells under the awarded OALP blocks, except in Nagaland. We are pursuing the ministry and they have set up a high power committee involving OIL,ONGC, government officials, to discuss the issue with the Government of Nagaland and resume exploration,” the official said.
Thankfully, India is likely to have little trouble attracting the oil and gas majors. Indeed, British energy giant BP Plc (NYSE:BP) has been hunting for more opportunities in the country. BP has forged a joint venture with Indian multinational conglomerate Reliance Industries to operate 1,900 fuel retail stations across India and produces oil and gas from a deepwater block in the Krishna-Godavari basin. The JV has teamed up with ONGC to bid for exploration rights for an offshore block in India.
National oil companies (NOCs) account for 58% of global reserves and 56% of production. However, International Oil Companies (IOCs) also play a major role in the energy sector by contributing to the general economic and social development of the host country. Indeed, IOCs are obliged through the Production Sharing Agreement to pay royalty fees to the host country.
By Alex Kimani for Oilprice.com
