India Opens Up Oil Market and Pushes Pipelines and Import Sources

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). A focus on India's long-term energy needs has caused a re-appraisal of domestic oil production and the means to secure reliable foreign sources for the long-term importation of oil. India's crude oil output in 2001 was 32 million tons and demand was 96 million tons. It is estimated that by 2025 demand could rise to 368 million tons and production levels might only hit 60 million tons.

In mid November, winners will be announced by the oil ministry from India's third licensing round for onshore and offshore blocks. Of the 28 blocks offered for bidding, 18 attracted more than one bid, and four attracted no interest. Among the larger companies who submitted bids were Cairn Energy (LSE:CNE) (Edinburgh, Scotland), Premier Oil (LSE:PMO) (London UK), Reliance Industries (BOMBAY:RELI) (Bombay, India), Indian Oil Corp (BOMBAY:IOC) (Bombay, India), and Oil and Natural Gas Corp and Gas Authority of India. Contracts should be signed by January 2003. More bidding rounds are anticipated in 2003. The Indian directorate general of hydrocarbons reports that more than a third of India's 1.2 million square miles of sedimentary basin area with oil potential is still unexplored.

The government plans to slash as many as 5,600 jobs (out of a total of 49,000 jobs) in the large state run oil companies, Oil and Natural Gas Corporation (ONGC), India's major oil producer, and Bharat Petroleum Corporation (BPLC). This was announced by the petroleum minister in line with the government's plans to open up the country's oil market. A decision is also expected by the end of November on the sale of state owned refiners Hindustan Petroleum and BPLC.

By the end of October, the Indian oil ministry is hoping that ONGC Videsh (the company's overseas arm) will have completed the purchase of Canada's Talisman Energy's (TORONTO,NYSE:TLM) (Calgary, Alberta) stake in their southern Sudan oil concession. Indian pressure to complete the deal is part of its strategy to expand exploration and production operations across the globe. Talisman has a 25% stake in the 225,000 bpd Sudanese oilfield. The Greater Nile deposit has estimated reserves of between 660 million and 1.2 billion barrels. This would boost ONGC-V's crude output by at least 10%.

The Canadian's have been increasingly coy about confirming any offers from the Indians for their stake that is estimated to be worth $750 million. Following the signing of the peace accord between the Sudanese government and the southern rebel groups in July, Talisman could well be looking for a higher price to exit its Sudanese holdings, which have exposed the company to strong criticism from human rights groups and church lobbies for allegedly favoring the Arab government in its war against the animist and Christian South.

Talisman's joint venture partners China Petroleum Corp, Malaysia's Petroliam Nasional, and Sudan's Sudapet have first refusal on the sale but are reported to have no interest in buying the stake. At the recent Osaka International Energy Forum, India's oil minister insisted that the negotiations for the purchase of the stake have 'by and large been completed' and that the final elements are under discussion such as the band of the price and other 'minute' details.

Also at the Osaka conference the minister made a plea for the concessional pricing of crude oil and liberal credit terms for developing countries to offset the spurt in global crude prices. He said the oil markets were in turmoil since the OPEC quota had fallen from about 5 million bpd between 1998 and 2002 while oil demand during the corresponding period had grown by 2.5 million bpd.

He discussed the pricing pattern for oil with Japanese officials in relation to different prices set by Middle East producers for North America and Europe compared to countries located east of Suez. Under the present pricing methods FOB crude costs $1.5 to $2 dollars more per barrel for eastern countries in comparison to prices paid by the western countries.

The Indian government has successfully completed a LNG gas supply deal with Qatar. The 25 year supply contract will deliver 7.5 million tons equivalent of gas and will be served by terminals now under construction. An Indo-Iranian pipeline plan is being pushed through feasibility studies. Bangladesh has approved a pipeline plan which will bring gas from Myanmar through that country to India. A number of other supply schemes are under inspection as part of India's drive for long-term energy supply security.