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NELP: Will the dream materialise? - Views on News from Equitymaster
 
 
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  • Apr 9, 2003

    NELP: Will the dream materialise?

    The government has recently announced that it is going to offer around 32 blocks under the fourth round of New Exploration and Licensing Policy (NELP). This stimulates us to look back into the success of the government's new policy.

    Before going any further, consider some key facts. The consumption of crude oil in India has increased at a CAGR of about 13% between FY98-FY02 and currently stands at 110 MT (million tonnes). However, domestic production has remained stagnant during the same period at around 32 MT. This gap between production and consumption was met through import of crude oil from the international markets. Since there has been no significant discovery in India in the recent past, we are highly dependent on import to satisfy domestic crude demand. To put things in perspective, the import dependency has increased from about 65% in FY98 to 70% in FY02. In the current fiscal year, India imported 78 MT of crude oil, which works to an import bill of Rs 840 bn.

    Based on the above facts one can understand the government's thrust on moving towards self-sufficiency in crude oil. India, with 26 sedimentary basins including deep-water areas, has an estimated crude reserve capacity of 28 bn tonnes. However, 41% of the basins have not been explored at all. With the increasing reliance on imports, the government felt a need to evolve a strategy wherein both public and private participants are involved in exploration activities and compete on equal terms to obtain the exploration license. The larger objective is to reduce import dependency, which is why the New Exploration and Licensing Policy (NELP) was introduced.

    Three rounds under NELP have been completed till date and the fourth round is due to commence this month. In the earlier three rounds, the government has awarded around 70 blocks. Under the fourth round, around 32 blocks are on offer. The details under the earlier three rounds are as follows:

    NELP in brief
    (US$ m) Blocks on
    offer
    Amount committed
    for investment
    Amount invested
    till date
    NELP-I 22 1,100 423
    NELP-II 25 775 111
    NELP-III 23 1,050 -
    NELP-IV 32 proposed - -

    NELP has already started showing some signs of successes in a very short span of time with Reliance's gas discovery in the NELP-I block of Krishna-Godavari offshore block. The gas reserves estimated by Reliance were over 7 trillion cubic feet (tcf). Scottish multinational, Cairn Energy, has recently discovered oil and gas reserves in Balmer district of Rajasthan. The discovery is estimated to have reserves of about 20 m tonnes. In another move, Cairn Energy has also found gas in three structures in Cambay offshore. ONGC has struck huge oil and gas reserves west of its gigantic Bassein gas field, off Mumbai. Another discovery by Reliance was reported in the Kutch off shore gas field. This discovery is estimated to have the capacity to the tune of about 5 tcf.

    Although it will take time for the commercial production to kick start, it will give a fillip to the production of domestic crude and reduce the import dependency. Also, with private and international players actively increasing their exploration activities, prospects look promising for the long run.

     

     

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