Size does matter: Why govt wants ONGC to think big

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Size does matter: Why govt wants ONGC to think big

New Delhi: The National Democratic Alliance government is said to be considering the sale of 149 small and marginal oil and gas fields of Oil and Natural Gas Corporation Ltd (ONGC). Mint looks at the rationale behind the move.

Size does matter: Why govt wants ONGC to think big

What is the big plan of the government?

Media reports say the government wants ONGC, which accounts for 73% of India’s oil and gas production, to focus on 60 big fields and consider selling 149 small and marginal oil and gas fields to those private and foreign firms that offer the maximum share of their output to the government. These fields were awarded to ONGC and Oil India Ltd on a nomination basis. The move is aimed at boosting domestic output and securing India’s energy needs. The state-run explorer has declined to comment. Till September, India imported 4.5 million barrels a day in the current fiscal.

What is the objective of the plan?

While ONGC received 95% of output from 60 large fields, 149 smaller fields contributed a mere 5%. The plan aims to leverage the expertise of private and foreign firms to grow domestic production and help meet India’s demand for energy. Between 2013 and 2017, India’s demand for petroleum products grew at a compound annual growth rate of 5.5%. In March 2015, Prime Minister Narendra Modi set a target of reducing import dependence on crude oil by 10 percentage points to 67% by 2022. According to Care Ratings, price of Brent crude could range from $68 per barrel to $73 per barrel in the next few months.

How much is India’s share in the global oil demand?

Opec expects global demand to surge 33%, or 91 million barrels oil equivalent per day (mboed), between 2015 and 2040. Of this, 24%, or a 22 mboed jump, is expected from India.

Why does India need to reduce oil imports?

Any rally in global oil prices will hurt India’s oil import bill and trade deficit. Every dollar increase in oil prices has the potential to push up the import bill by about ₹10,700 crore on an annual basis. While crude prices jumped 50% in dollar terms and 70% in rupee terms since last year, the prices have fallen from the four-year highs reached earlier last month. The benchmark Brent crude was trading at $71.11 per barrel on Monday as Saudi Arabia announced a cut in December supplies.

Also read | From backwardation to contango, where do we go now on oil prices

Will India depend less on imports in future?

With domestic production unable to cater to the ever-increasing demand, India will depend on imports in the foreseeable future. The government has opened up markets to the private sector for retail outlets, implemented the discovered small fields policy, the Hydrocarbon Exploration Licensing Policy and the Open Acreage Licensing Policy and allowed marketing and pricing freedom for gas produced from deep and ultra deep water areas and coal-bed methane fields.

source: livemint