After NSG rebuff, India falls back on fossil fuels for energy security
After the failed attempt to join an exclusive group of 48 countries that control the trade in nuclear
material and equipment, India is now falling back on its quest for more fossil fuel reserves.
Oil minister Dharmendra Pradhan will visit the US later this month to seek investments and
technology from exploration companies for 67 smaller fields with oil and gas discoveries, which will
be auctioned for commercial production under a liberal and simple revenue sharing agreement, said
an oil ministry official who asked not to be named.
Companies have time from 15 July to 31 October to bid for these fields.
Another official familiar with the plan, also speaking on condition of anonymity, said that once the
auction for the smaller fields are over, the government will get on with the auction of larger fields
under the new Hydrocarbon Exploration Licensing Policy announced on 10 March. The scheme offers
pricing and marketing freedom for oil and gas producers under a simple revenue share contractual
“We cannot mix up auctions for the smaller fields where exploration has already led to discoveries,
with the auctions of larger ones where exploration needs to be undertaken, although the new policy
regimes for both are similar. Auction of larger fields for exploration will commence soon after,” said
the second official.
Simultaneously, diplomatic efforts will continue for picking up stakes in oil and gas fields abroad,
called equity oil, said the first official quoted above.
Although the valuation of oil and gas assets has declined, cross-border asset sales have taken place
in recent months only where the governments concerned enjoyed good relationship with India, said
K. Ravichandran, senior vice-president and co-head, corporate Ratings at ICRA Ltd, an investor
“This is the best time to add to our equity oil portfolio. It is a mismatch in expectations of asset
holders and potential buyers that has slowed down transactions,” said Kalpana Jain, senior director,
Deloitte in India.
India, as part of its climate change plan, wants to limit its dependence on fossil fuels—coal, natural
gas and diesel—for electricity generation to 60% of the total electricity generated by 2030.
Currently, they account for more than 70%. Out of the total non-fossil fuel energy that India wants
to have—40% of electricity output—a third is to be nuclear power.
India cannot rely excessively on renewable sources of energy as it can bring instability to the grid
because of unpredictability in wind availability and sunshine. This, and its abortive bid to enter the
Nuclear Suppliers Group, have brought an urgency to India’s hydrocarbon pursuits.
“Reducing import dependence in oil and gas by 10 percentage points to 67% is a target given by
Prime Minister Narendra Modi (to be met by 2022). We are trying our best to meet this target,” said
the second official.
India consumed 183 million tonnes of various fuels derived from petroleum in 2015-16, 10% more
than a year ago, as per provisional figures from the Petroleum Planning and Analysis Cell, an arm of
the oil ministry. The ministry is seeking to boost domestic production from the existing 37 million
tonnes (2015-16) to meet the rising demand in line with the robust economic growth projected for
the current year of 7.6%.
Due to a slump in global demand for crude, oil field services have become cheaper. State-owned Oil
and Natural Gas Corp. (ONGC) had on 29 March announced a $5 billion investment to develop its
deep-water block in the Krishna Godavari basin.
The current downturn in the global oil industry has been brought on by a variety of factors, including
the US shale oil revolution; the new strategy of Saudi Arabia-led Organization of the Petroleum
Exporting Countries to protect market share rather than balance the market; the lifting of sanctions
on Iran; growing inventory levels of crude oil and refined products worldwide; and expectations of
slower world oil demand growth due to an economic downturn, Deloitte said in a 2016 report titled
The balancing act, on oil market fundamentals over the next five years.