Speaking exclusively to INFRASTRUCTURE TODAY, Prof Kirit Parikh, Chairman Integrated Research and Action for Development (IRADe) and author of the seminal report on pricing methodology for diesel, domestic LPG and PDS, believes that though the federal dispensation is presently offering lucrative terms to investors in the oil and gas sector, it must also ensure that those commitments are adhered to.
Oil production in India is bogged down by an ageing infrastructure. What is your own take on the regulation scenario?
I do not agree that oil production has stagnated because of an ageing infrastructure. I think we need to be slightly realistic when we say that we have not seen enough success in explorations. Despite being offered fairly generous terms, leading international players are not coming to explore in India. Now you might ask, why? Two possible explanations can be given. One, they consider that in India, government and policy risks are high. Two, maybe, they perceive that Indian basins hold less oil and so it is not worth their while to spend money exploring. Both are issues that we should really be concerned about. We need to investigate if the lack of success that public sector firms met with in drilling was due to inadequate efforts put in or if it was because they lost their best personnel to private sectors.
The demand for oil is growing faster in India, which is all set to outpace China for the third consecutive year in a row.
To encourage new entrants, discussions on licensing are also going on. In this background, will the country be able to attract the desired level of foreign investment into the sector to unlock almost $11 bn worth of reserves, thus lowering its reliance on imported crude?
It is a question of how foreign markets perceive Indian potential and policies. India is certainly offering very generous terms, but there is a need to instil confidence that we will stick by them. Unfortunately, our history has not been very encouraging in this aspect, and that is why we are paying a price for it.
With 45 expressions of interest (EoI) being submitted by August 2017 for oil and gas auctions, do you think the government's Open Acreage Licensing Policy (OALP) has met investors' expectations?
There is no point in asking me, as it all depends on how the investors react. That will tell you whether it has met their expectations or not. We should wait and watch.
Can you elaborate on this point from your perspective, as the Union Minister of Petroleum and Natural Gas says the response has so far been overwhelming?
Whether that response gets translated into actual action or not is to be watched. I do hope that they actually get the transfer because I think perhaps this government has created a little bit more confidence in investors about its intentions and policy stance and perhaps that is why it has received a very good response.
Do you see the government successfully bidding out fields as proposed by December this year?
Yes, why not? I don't see any reason why they should not be able to do that.
In 2016, the federal government announced $20 bn investment in deep water natural gas developments over the next few years, targeting over 20 TcF of reserves. What kind of opportunity does this create for industry players?
Whether the gas output comes in or not is the question. If it comes, we need to build gas pipelines, we need to think about gas use in industries and so on. My view is that we must completely free up gas prices; let the market determine them. We should have a really good open access gas pipeline and then we will see how the market develops.
Where all do you see significant opportunities in this regard?
City gas supply is really a very important opportunity because what happens is that, in a competitive market, people will buy piped gas over LPG as it is very convenient. We need to do it as a long-term energy strategy as well because we need to free the LPG for rural consumers. I do not believe that power sector is a good place to get into because we already have several stranded gas-based power plants, and if we have renewables like solar and wind, we will need some kind of balancing power with gas and so on. Other than that, you could look at other sectors such as ceramics where gas is an important and critical input.
What could this phase likely augur for India as public-sector undertakings presently account for the bulk of market share in the upstream, midstream and downstream crude oil and natural gas businesses?
There are both pros and cons here. I think one of the major cons is human resource. Often the culture of one player is very different that of another. The merger of Indian Airlines and Air India is still not sorted out. Therefore, trying to merge two public sector organisations is extremely complex.
So, could the next Rosneft or Sinopec be from India?
Yes, it is certainly possible! You could clearly say Reliance is doing a fantastic job. They have set up one of the world's largest refineries for production of gas in record time. Subsequently, they messed it up or it got messed up, we do not know. But they have shown huge amount of entrepreneurial ability to get things done. That is one possibility. Similarly, ONGC is also doing many things. Although presently we do not have very large players from international platforms, as our objectives perhaps slightly differ, that may still happen.
On the differential pricing between petrol and diesel, what developments are we likely to witness going forward?
The minister has listened to us and recognises that there is no politically correct way to put more tax on petrol than diesel. I am expecting some more progress in that direction.
What is your view on the government's biofuel policy? Can it have any significant impact on the oil and gas sector?
I do not think biofuel from ethanol, sugarcane and other crops is a non-starter in India. First, we have scarce land and unless you open up duty free import of alcohol, biofuel should not be made mandatory. Second, we need to explore if cellulosic ethanol can be a possible option since we have the potential to produce 100 million tonne of it in a year. But it is only possible provided you work out the logistics of collecting straw and developing a manufacturing technology that is economically viable.
- Manish Pant