By R. Sasankan

The pundits have always moaned about India’s rising import dependence on fossil fuels – a situation that has buffeted its economy every time that the crude oil and natural gas markets turn volatile in response to unexpected and unforeseen Black Swan events like the war in Ukraine at present.

But it was not always like that.

Back in the 1980s, with the launch of accelerated production plan at ONGC’s Bombay High offshore oilfield, India’s domestic output soared to a level where it could meet 80 per cent of the country’s crude oil demand. But that brief, self-indulgent period of relative energy security did not last for very long. A combination of several factors twisted the tale into a nightmarish ride into terrible uncertainty.

Production in Bombay High ran into problems because of wrong production practices that wrecked the reservoir. The geologists from the erstwhile Soviet Union who had helped India to identify Bombay High and other fields in the western offshore were dumped in favour of contractors from Japan, South Korea and the west. The colossal levels of corruption among the big-wigs at ONGC and successive petroleum ministers steadily undermined the spirit of discovery that a visionary politician like K.D. Malviya had instilled in the brave hearts who founded and ran the upstream giant in its formative years.

In the absence of a significant commercial oil and gas find since the discovery South Bassein gas field in Bombay offshore in 1976, India’s oil imports have been consistently rising and domestic production steadily falling. Today, India imports 86 per cent of its crude oil requirement. India’s oil demand is expected to grow from the current 4.7 million barrels per day (mb/d) to 6.7 mb/d in 2030 and 8.3 mb/d in 2050. India’s oil imports are projected to rise from 4.1 mb/d to 6.2 mb/d in 2030 and 8 mb/d in 2050.

This presents a very grim scenario. But on the flip side, there is also a palpable sense of excitement triggered by a senior executive of ExxonMobil who recently said that he found the Indian geology highly prospective for oil finds and compared it to the attractiveness of Guyana where oil production is expected to surpass big offshore basins like the US, Norway and Mexico by 2035 with the likelihood that it could emerge as the world’s fourth largest offshore oil producer. (I will come to this a little later.)

I deliberately chose to highlight the dismal oil scenario in India – offering this as a realistic backdrop to petroleum minister Hardeep Puri’s recent effusive comments about the $ 58 billion of investment in India’s exploration and production sector as the country aims to double the net geographical area under exploration by 2025.

In Puri’s view, oil giants like Chevron, ExxonMobil and Total are keen to invest in India. The government has reduced the prohibited or no-go areas in India’s exclusive economic zone [EEZ] by 99%, opening up nearly 1 million square kilometres for exploration to attract the domestic and overseas investors. The country’s upstream major ONGC, which has an exploration area of 170,000 sq. km, plans to add around 100,000 sq. km annually to take the total exploratory acreage to 500,000 sq. km by 2024-25. On paper, this looks great.

Puri sounds sincere and his personal integrity – a quality that he shares with his pre-1970 predecessors - remains a highly positive factor in an otherwise disappointing oil and gas scenario. But I want to caution him against a reckless, aggressive exploratory drilling strategy in domestic basins. He should do everything legally possible to attract oil multinationals and encourage domestic E&P companies to step up exploration efforts. But he must not allow himself to be taken for a ride by statements made by devious oil pundits and business executives.

Permit me to recall a development in the early 1980s when the renowned international magazine Time carried an article which made the outlandish claim that India’s Godavari offshore was floating on oil. It stoked so much excitement that the then finance minister R. Venkatraman made a statement in the Lok Sabha, the lower house of parliament, to the effect that India would pre-pay a controversial structural adjustment loan that India had taken from the IMF if “Godavari blesses”.

For the record, ONGC drew a blank in all the wells it drilled there. And finally, after 40 years of effort, it discovered a small field which is now under development. In comparison, other areas or basins turned out to be far more prospective. I can understand Venkatraman’s insufficient understanding of the oil industry. But this episode shows how even a shrewd politician like him could be so easily taken for a ride.

This is precisely what happened in Vietnam. After its liberation, almost all the oil majors rushed to that country stating that Vietnam was rich in crude oil reserves. The communist country welcomed all those multinationals and almost of all of them drew a blank. Not very long ago, BP’s resident executive made a statement that the deep water Krishna-Godavari (KG) basin was rich in natural gas. None of these oil majors, however, turned up to bid for these exploration blocks when they were put up for auction. Chevron was the only one to participate in the first round of bidding in the 1990s. It pulled out after drilling a wildcat well.

India’s state-owned ONGC and Oil India have been drilling intensely for all these years. My understanding is that ONGC has even created a record recently in drilling the largest number of dry wells among all leading E&P companies in the world. These Indian PSUs draw up an annual plan and they strive to meet their ambitious drilling targets as failure to do so will be considered a lapse on their part. This is done on the basis of prognosticated reserves which are nothing but overblown guesstimates.

ONGC has a genuine problem. It is saddled with rigs that cannot be allowed to rust. The political bosses and the ONGC management found a lot of virtue in buying oil rigs. But, these assets later morphed into gigantic liabilities. In a country like India that is not perceived to be rich in hydrocarbon reserves, the most sensible policy should have been to limit drilling to highly prospective areas. But this begs a question: what will happen to the staff and the rigs? Can the country afford such a criminal wastage of resources? I expect minister Puri to apply his mind to this issue. The sad truth is that India has limited hydrocarbon reserves. No expert has ever questioned this assessment so far. The ExxonMobil executive now strongly differs with this perception. He should be given a chance to prove himself right by putting the bucks where his mouth is.

Whatever be the exploration efforts in the domestic basins, India should continue to explore other options. Indian companies now go all the way to the US to buy crude oil and, of late, the US has started to purchase petroleum products from India. Being a former diplomat, Puri will have a better understanding of what this ultimately means. Instead of importing crude oil, why not buy oil fields in the US? Oil and gas fields are available for outright sale in the US. Alternatively, India can opt for the equity participation route by joining a consortium that bids for oil concessions.

According to Puri, oil giants such as Chevron, ExxonMobil and Total are keen to invest in India. BP is already present as a joint venture partner with the Reliance group. Here is an opportunity for him to link foreign interest in the Indian market to acquisition of upstream hydrocarbon assets overseas. This is what China has done. China’s current primary energy consumption is four times that of India. India has a lot of lessons to learn from China: the first and foremost is that you cannot become an upper middle- income country with a per capita energy consumption below 30% of the global average.

India has a long haul ahead – and Puri has his task cut out if he is firm in his resolve to achieve India’s ambitious energy security objectives.