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Domestic crude our only saviour. - Views on News from Equitymaster
 
 
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  • Jul 3, 2000

    Domestic crude our only saviour.

    The oil import bill of India has ballooned YoY, following the sharp rise in petroleum imports & prices. The major contributor to the import bill is crude oil as a large part of the petro–product imports has been replaced by domestic production. In fact, India now is an exporter of petrol, naphtha and diesel. The setting up of the 27 m tonne refinery by Reliance Petroleum (RPL) has contributed significantly to this trend.

    The sharp rise in crude prices without the corresponding increase in petro-product prices has adversely impacted the oil pool account (OPA). It is imperative that we increase domestic production if are to reduce our dependence on crude imports. This will have multi-fold benefits for India.

    • It will reduce the impact of oil shocks as witnessed in the 70’s and early 90’s.
    • The trade deficit will be greatly reduced as oil imports represent 20% of India’s import bill.
    • It will save our precious foreign exchange reserves.

    However, it seems that these benefits have not been very evident to the Government. India’s performance in exploration & production (E&P) has not been very encouraging post liberalisation.

    The Government it seems has finally taken cognisance of this fact of increasing domestic production. It has directed Oil & Natural Gas Corp. (ONGC) to draw up an oil recovery plan based on highest yield, quickest recovery and lowest cost. It has framed the New Exploration Licensing Policy (NELP), under which returns are based on market determined prices. This initiative is mainly to attract the international majors.

    The ONGC has been allotted six deep water exploration blocks under the NELP. However, due to Government delay it has not been able to tie up with international majors. The Government has also been slow of the blocks in tendering the remaining oil fields. With crude oil prices remaining firm this is an opportune time to attract private investments in E&P as the viability of the field improves with increase in crude prices. It would benefit both the Government and private investors should the Government put the fields on the block.

     

     

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