Falling oil prices renewed hopes for India’s energy economy, security ….writes Biswajit Choudhury
For India’s energy sector, the past year held promise, thanks to a commendable fall in electricity shortage, a global recognition for the country’s focus on renewables, a grand plan to shore up the finances of state-run utilities and a sharp fall in the cost its oil import basket to the lowest level since 2014.
At the same time, there were some misses as well, notably on the oil exploration front which still awaits the new policy for auction of oil and gas blocks and the announcing of the premium to be paid on natural gas for all new discoveries in difficult deep-sea areas.
The government, late in the year, did manage to circulate a consultation paper inviting comments, about easing doing business in exploration that proposed to free domestic natural gas pricing and replace the existing production sharing contract by the revenue-sharing model for all future hydrocarbon acreage auctions.
The price of domestic natural gas fell this year on applying the NDA government’s new formula for calculation, and was cut 18 percent, from $4.66 per unit to $3.82 per unit, for six months starting October 1.
What defined India’s petroleum sector in 2015 was the plunge in global crude oil prices driven by a supply glut that saw the Indian basket of crude oils fall by over 60 percent from levels of well over $100 a barrel to less than $35. While this reduced foreign exchange outflow and improved the country’s current account deficit position, producers piled up major inventory losses.
In the second half of the fiscal, the government approved auction of 69 small and marginal oil and gas fields on a new revenue sharing model, where bidders will quote the revenue they will share with the government at both low and high ends of the price and production band. The new revenue sharing model will replace the controversial production sharing contracts (PSCs) – by which oil and gas blocks are awarded to those firms which show they will do maximum work on a block – that has governed bidding under the earlier nine New Exploration Licensing Policy rounds.
Domestic gas producers continued the wait for a decision pending from the year before. While approving a new gas pricing formula in October 2014, the government had decided that new gas discoveries in deep-water, ultra-deep sea or high-temperature and high-pressure areas will be given a premium over and above the approved price.
The year also saw Reliance Industries, which had made four consecutive gas discoveries with close to 500 billion cubic feet of in-place reserves, surrendering its Krishna Godavari basin gas discovery block, KG-D3, owing to operational restrictions placed by the defence ministry.
Moving to the wider energio scenario, the country’s electricity shortage also fell to its lowest level ever from 8.5 percent in 2011 to 2.4 percent in October, while the peak shortage dipped to 3.2 percent from 10.6 percent, as per official data.
The focus, nonetheless, was in the renewable energy space.
At the beginning of 2015, the Government has up-scaled by more than double the targets set for renewables at 175 GW by 2022 — which includes 100 GW from solar, 60 GW from wind, 10 GW from bio-power and 5 GW from small hydro-power.
“India is graduating from megawatts to gigawatts in renewable energy production,” Prime Minister Narendra Modi said. India also made a commitment that 40 percent of its cumulative capacity will be from non-fossil fuel based resources by 2030 if it gets low cost technology and international financing.
At the UN climate change talks in Paris last month, Modi launched an alliance of 120-odd nations to tap solar energy better and asked the rich nations to shoulder their responsibilities in protecting the environment, with funding and transfer of clean technology to poor and emerging economies without further delay.
Oil continued to slide, stepping up pressure on India to acquire assets abroad and build its strategic petroleum reserves at home.
The year closed with India signing major deals last week with its time-tested ally Russia, where the former returned after six years for a slew of oil deals worth around $2-3 billion. Rosneft, the world’s largest publicly-traded oil company, formalised sale of 15 percent stake in its subsidiary Vankorneft to ONGC Videsh (OVL) for $1.3 billion. The deal gives OVL access to Rosneft’s Vanko, Russia’s largest onshore field developed in the past 25 years. This was followed by agreements for giving OVL partnerships in other onshore fields.
In December, the government allowed Oil and Natural Gas Corp. (ONGC) to convert Rs.5,000 crore of existing loans to its overseas arm OVL, into equity in order to expand the exploration and production business abroad, including by acquisition of oil and gas assets. The company is currently running 36 projects in 17 countries and has 13 producing blocks.
The year closed also closed with the realising of a major milestone for the wider region by starting construction of the long delayed 1,735 km-long gas pipeline from Turkmenistan through Afghanistan and Pakistan to India (TAPI).
Along with India’s Vice President Hamid Ansari, others present at the ground-breaking ceremony earlier this month in Mary in Turkmenstan were Turkmen President Gurbanguly Berdimuhamedow, Afghanistan President Ashraf Ghani and Pakistani Prime Minister Nawaz Sharif.
* Global crude oil prices plunge from well over $100 to below $35
* Nod for auction of small and marginal oil and gas fields on a new revenue sharing model
* Government proposes replacing production sharing contract by the revenue-sharing model for future hydrocarbon acreage auctions
* Electricity shortage falls to lowest level, from 8.5 percent in 2011 to 2.4 percent in October
* Target for renewable energy production more than doubled at 175 GW by 2022
* Modi launches “solar alliance” of 120 nations to tap solar energy better
* ONGC signs oil deals potentially worth around $2-3 billion with Russia’s Rosneft
* Construction started in December of the long delayed TAPI gas pipeline from Turkmenistan through Afghanistan and Pakistan to India.