Oil exploration: Positive signs

As the country faces the prospect of strong (above 6%) GDP growth in the current year and the foreseeable future, the energy needs of the country too is expected to rise. In the last ten years, the consumption of crude oil in India has risen at a CAGR of 5%, which is more or less in line with the economic growth of the country during the same period. While consumption has more or less mirrored the GDP growth in the last ten years, domestic production of crude has not been sufficient enough to cater to the rising demand. Domestic crude production increased at a CAGR of only about 2% in the last ten years. In order to meet this growing demand, the country is highly dependent on imports (50% of total crude demand in FY93 to about 70% in FY03).

This is despite the fact that India has had a huge potential to produce crude oil indigenously. Earlier, the exploration of oil and gas fields was regulated. Slowly, the government realised the potential in exploration and opened for private sector participation on a competitive bidding basis as per the New Exploration and Licensing Policy (NELP).

Read more on NELP: Will the dream materialise?

In the three rounds of the NELP, the government has offered about 70 blocks for exploration with the fourth round now in progress for deep-sea exploration blocks, which has a lot of potential. The benefits of this initiative, though not yet realised in terms of production, is apparent from the recent discoveries by companies.

Benefits arising from exploration is slowly being realised by other major players in the oil sector. IOC had been awarded 12 oil blocks in consortium in the three rounds of NELP so far. BPCL is planning to invest about Rs 15 bn on the exploration front in the next 3-5 years. HPCL has plans to enter the upstream segment in the oil sector as well. Reliance has also tasted success with the finding of natural gas in the Krishna-Godavari basin.

Though it is premature to say anything on the plans of companies (HPCL and BPCL), globally, it has been observed that all the oil majors are more integrated. The benefit arising out of this is immense. First and foremost is that companies will become more independent in terms of sourcing their crude oil requirements. Secondly, revenues are less volatile due to the presence in exploration and marketing. Third has to be viewed from an economic perspective. India, which currently imports about 70% of its crude oil requirements, would reduce this dependency level in the long term.

However it should be kept in mind that the risk involved in this activity is also huge as it is more capital and technology intensive.