Oil

India learns its oil lessons

Sudha Ramachandran

The growing Indian economy needs oil and gas in large measures to fuel it and fortunately the people who matter have learnt their lessons well to successfully launch their oil diplomacy. In a major breakthrough during Vice President Ansari’s visit to Turkmenistan important agreement was signed. Not content, the oil diplomacy has also wooed South America and Africa.

India's quest for energy security received a boost last week with its oil diplomacy paying off to varying degrees on more than one continent. In South America, India signed a deal allowing it to participate in a joint venture to drill oil and gas in Venezuela, while in Central Asia, the door was pried open for Indian companies to invest in projects in Turkmenistan. In the same period, New Delhi's wooing of Africa's oil-rich nations moved into top gear as it played host to the first India-Africa summit.

First, Venezuela. India's ONGC Videsh Ltd (OVL), the overseas arm of state-run Oil and Natural Gas Company (ONGC), signed an agreement with state-owned Petroleos de Venezuela SA (PDVSA) to pump 232.38 million barrels of crude over 25 years.

OVL, which will hold 40% stake of the joint venture, will initially invest US$450 million over the next three years in the Orinoco basin's San Cristobal oilfield. Petrolera IndoVenezolana, the new venture, hopes to double daily crude output from the field to 60,000 barrels in next few years.

In Central Asia, India achieved a long-sought breakthrough in its efforts to secure access to the region's gas reserves. Vice President Hamid Ansari's visit to Turkmenistan and Kazakhstan, rich in an exchange of rhetoric, also made progress (especially in Turkmenistan) with regard to furthering India's interests in the region.

Two years of negotiation bore fruit with India and Turkmenistan signing a framework memorandum of understanding (MoU) on bilateral cooperation in the oil and gas sector. So far Turkmenistan has offered off-shore exploration blocks to India. OMEL, a joint venture of OVL and Mittal Energy Ltd holds a 30% stake in Blocks 11 and 12 in the Turkmen sector of the Caspian Sea.

Turkmenistan is reluctant to allow foreign equity in its onshore projects. The MoU opens the door for Indian companies to work with Turkmen firms in projects that are being planned in upstream and downstream hydro-carbon activities. It foresees bilateral cooperation in production, processing and transport of hydrocarbons, including the possible construction of a liquefied natural gas (LNG) processing facility, building refineries and setting up city gas distribution and petro-chemical plants in Turkmenistan.

Exclusive club: Turkmenistan's natural gas reserves were effectively denied to the world community until the death of Turkmen president Saparmurat Niyazov in December 2006. His successor, Gurbanguly Berdymukhamedov, has shown a greater willingness to open to the outside world, although until now it only Russia and China had been granted access to these reserves. India will now join that exclusive club.

As for engagement with Kazakhstan, it does seem that India has now shifted from talking generalities to discussing specific projects. Kazakh President Nursultan Nazarbayev is reported to have told Ansari that India could tap into Kazakhstan's plan to double oil output to 100 million tons in the next 10 years.

On the face of it, the developments on the energy front might seem minor, even insubstantial, especially if one compares it to the giant oil and gas deals that rival China has been sewing up - often at the expense of India.

Still the past week is significant for India as "it signals that the tide in India's oil diplomacy might be turning", a senior official at India's Ministry of Petroleum and Natural Gas told Asia Times Online.

India is on a global hunt for new and reliable sources of oil and gas to fuel its rapidly growing economy, with mixed results. It has suffered several defeats in its attempts to clinch oil and gas deals, losing bids in Sudan, Angola, Indonesia, Ecuador, Kazakhstan and Myanmar, often to Chinese companies. It has also scored significantly in buying equity stakes in Russia's Sakhalin-I project and in Sudan's Greater Nile project.

"The balance sheet [of India's oil diplomacy] shows significant setbacks in the past," the official said. "It is in this context that the developments over the past week must be seen, as these represent a welcome change in fortunes."

The agreement with Venezuela is "very important", said Shebonti Ray Dadwal, research fellow at the Delhi-based Institute for Defense Studies and Analyses, likening the Orinoco basin where India will be investing to a virtual "goldmine".

Venezuela is among the largest oil producers in the world, with about 87 billion barrels of proven conventional oil reserves. It also has one of the largest non-conventional oil deposits (heavy oil) in the world, most of which lies in the Orinoco basin (estimated reserve 1.2 trillion barrels.

Venezuela plans to ship 200,000 barrels of heavy crude a day to India for refining. PDVSA will also be investing in a refinery-cum-petrochemical project in India and other related activities in the oil and gas sector of India

There is more in the pipeline between the two countries. Venezuelan Oil Minister Rafal Ramirez Carreno has promised to consider favorably India's request for stakes in the gas sector for GAIL India Ltd, India's flagship natural gas company. OVL could also get two more oil blocks in the Orinoco basin - one in the Junin fields and the other in Carabobo, subject to technical evaluation, Venezuelan president Hugo Chavez was reported by the Economic Times as saying.

India's quest for access for energy resources in South America has been largely trouble-free. Central Asia has been a different experience, rendering significant the MoU with Turkmenistan. Its importance increases in the context of the proposed Turkmenistan-Afghanistan-Pakistan-India pipeline, which envisages bringing gas from the Daulatabad gas fields in Turkmenistan, through Afghanistan and Pakistan to the Indian town of Fazilka, near the India-Pakistan border. The project is said to have figured in the talks between Ansari and the Turkmen leadership.

Security concerns regarding the TAPI pipeline remain. The proposed route of the pipeline is hardly secure. With the situation in Afghanistan and Pakistan deteriorating by the day, implementation of the project seems distant. "It is likely that TAPI will go the way of the Iran-India-Pakistan pipeline" said Dadwal - that is, it is doomed to be a non-starter.

While describing the MoU with Turkmenistan as a "breakthrough", Dadwal cautions that India must ensure that Turkmenistan has the resources to make TAPI viable. "An independent assessment of Turkmenistan's gas resources is required," she said.

Turkmenistan, whose total gas output is about 60 billion cubic meters (bcm), recently agreed to increase gas deliveries to Russia's Gazprom to about 50 bcm. Turkmenistan is also supplying gas to China. That would leave little gas for transport through the TAP pipeline, possibly making it an unviable proposition.

As for energy ties with Kazakhstan, while both sides "did say the right things during Ansari's visit calling for greater cooperation, there is skepticism in India over what this means in terms of actual deals," the official said.

India's doubts are understandable. Memories of the country's engagement of the Kazakhs in 2005-06 are vivid in Delhi. India was regarded as favorite to clinch a deal to take over PetroKazakhstan. ONGC's bid was around $3.9 billion against China National Petroleum Corporation's $3.6 billion. The deal went to China, which in the event offered $4.18 billion. China's victory was regarded in India as the result of an unfair auction. "The goal posts were moved midway [through the auction] and this is not an appropriate thing to do," India's then petroleum minister Mani Shankar Aiyar said.

India does have influence in Kazakhstan, but this is small compared with China's clout. Indian analysts are therefore cautious in their assessment of the outcome of Ansari's visit to Kazakhstan. "The interaction is welcome," said Dadwal. "Let's see how it progresses."

Indian officials are however pointing to India's improved bidding capacity. If India hasn't had much success in clinching oil/gas deals in Central Asia in the past, it was partly because it lacked deep pockets. "Extending sweeteners is an important part of negotiating with Central Asian officials as it is with their Nigerian counterparts," said a source who wished to remain anonymous. And India lost out as it did not have the kind of deep pockets needed to clinch deals. That appears to have now changed.