New Delhi moves to pool oil firm resources
|Oct 23, 2008|
Strapped by ever increasing energy shortages, New Delhi is seeking to work out a strategy to take on Chinese companies in winning oil and gas stakes around the world, even as the two emerging economies slug it out to meet burgeoning energy demand.
Currently, nearly 70 percent of India’s crude requirements are met by imports, a figure estimated to go up to 90 percent by 2030, unless urgent steps are taken.
So far China has mostly emerged victorious in the intense competition to buy into energy resources, combining superior financial muscle with aggressive state backing.
Pushed into an ever-tighter corner, the Indian government is finally waking up to reality. The federal petroleum ministry is working on a plan with domestic state-run oil companies to effectively compete and enhance bargaining power against the Chinese oil behemoths, while taking on competition from Russia and European firms.
Speaking to Asia Sentinel, a senior official of the federal petroleum ministry said that state oil firms such as explorer Oil & Natural Gas Corp (ONGC), Oil India Ltd, GAIL, Indian Oil Corporation, Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), have agreed to pool their financial, technical and management resources in order to win hydrocarbon equity in foreign locations. The approach is to offer a complete package, including spin offs such as infrastructure and support in pipeline or road projects, by adopting a consortium approach to bids.
New Delhi has also been worried over the pace of overseas projects taking off, thus requiring combined efforts of resources available. Even though state firms are present in more than 22 countries in about 80 blocks, with investment of more than Rs320 billion, production of oil and gas has begun only from seven OVL (the overseas arm of ONGC) projects in Vietnam, Sudan, Russia, Colombia Venezuela and Syria, from 11 blocks.
Official sources say that New Delhi is in the process of constituting a high level joint working group of oil companies for coordination and support through the Indian embassies abroad. Recently, federal petroleum secretary RS Pandey briefed the chiefs of oil firms about the need for oil firms to share intelligence on possible takeover targets.
Pandey proposed to tackle the competition, especially from China, by bringing on board other public sector units (PSUs) during the bidding and has suggested that the consortium could extend to chemical, power and fertilizer firms.
One successful consortium that Pandey cited is Videocon with BPCL, India’s second biggest refiner, which struck crude oil in a field in Brazil. The two companies acquired a Brazilian oil firm last month for US$165 million.
GAIL India chairman and managing director U D Choubey also recently made a strong case for setting up a separate company exclusively to pursue exploration & production (E&P) opportunities abroad. A consensus on this has not yet emerged in the petroleum ministry, but there is considerable thought being put on this as well.
Choubey said that although India and China have collaborated on some energy projects, the efforts so far have been piecemeal and India needs to work out an independent strategy quickly.
These latest moves come about even as state oil firms have lined up plans to play big abroad. For example, ONGC is looking at acquiring oil and gas properties in Latin America, CIS (Commonwealth of Independent States) countries and West Coast Africa. Countries in focus include Brazil and Angola.
“There is hunger for growth and the appetite is huge,” ONGC Chairman R S Sharma recently said. “We are looking for quality acquisitions. We are not going here, there and everywhere. We are going on a concentrated way,” he added.
Official sources told Asia Sentinel that ONGC has set a target of crossing 10 million tonnes of equity oil production abroad, in the next two years. State oil firms also have to keep up with competition that is emerging from within the country as well. Private players such as Reliance and Essar have been investing in overseas oil and gas blocks.
Reliance has a presence in Oman, East Timor, Australia, Peru, Columbia, Kurdistan and Yemen, while Essar has projects in Vietnam, Myanmar, Madagascar and Nigeria.
Tense About China
Yet, the main concern is about Chinese firms walking away with energy blocks. So far, in the rivalry between Indian and Chinese firms for prime oil and gas properties overseas, the latter have largely been victorious, with OVL facing repeated defeats.
New Delhi, however, has been emboldened by OVL’s successful acquisition of Britain's Imperial Energy Plc with assets in Russia for US$2.8 billion. Chinese firm Sinopec or China Petroleum and Chemical Corp is believed to have made a counter offer and joined the race. Imperial Energy has confirmed interest by one more firm.
Nonetheless, it is Chinese firms that have mostly scored over India. Last month, Sinopec beat ONGC to acquire Tanganyika Oil in a deal that values the Canadian company close to US$2 billion. OVL lost out on Canadian firm Encana’s properties in Ecuador when a Chinese consortium bid $$1.42 billion. OVL also lost PetroKazakhstan – a Canadian firm with a base in Kazakhstan, to China National Petroleum Corp’s (CNPC) US$3.6 billion bid. In Angola again, it lost out on taking 50 percent of BP-operated Block 18 when the African nation preferred China.
In India’s neighborhood, despite efforts, China has beaten India in Myanmar for gas and to New Delhi’s chagrin has expressed interest in the Iran-Pakistan-India (IPI) pipeline too. Beijing has said that it is open to the pipeline being re-routed from Pakistan should India back out.
Indeed, the specter of China will continue to haunt. National oil companies of Russia, China and India are eyeing an €5-billion stake that has been put up for auction in Repsol, the Spanish oil giant. PetroChina, China National Offshore Oil Coro (CNOOC), Russian and European majors, apart from ONGC are reported to be in competition for the block.
OVL is holding talks with the Iranian government for exploring an oil block in the northern part of the country. Sinopec is also believed to be in the race for the block. In Iraq ONGC faces competition from CNPC apart from a host of other companies such as Royal Dutch Shell, ExxonMobil, Chevron, ConocoPhillips, British Petroleum and Total.
In this context, pooling of resources by state oil companies is not a bad move at all. The big question, however, is how soon would such plans find fruition, given New Delhi’s lethargy and delays in decision making.
Will the government allow the state firms the flexibility and independence to make quick decisions, essential to take on the global hydrocarbon giants, is another big issue?
(Siddharth Srivastava is a New Delhi-based journalist. He can be reached at email@example.com)