India's quest for Russian energy
By Siddharth Srivastava
NEW DELHI - India's quest for energy resources has seen the country knocking on
Russia's door to propose forming an exploration venture with the country's
natural-gas behemoth Gazprom, as well as seeking a stake in the Sakhalin III
oil-and-gas project.
In exchange, New Delhi has promised to buy 50 million tons of crude oil
annually from Russia, offer incentives to Russian companies to build refineries
in India, and support Moscow's bid
to participate in the proposed US$7.4 billion Iran-Pakistan-India (IPI) gas
pipeline.
India annually imports 110 million tons of crude, and that will have to rise to
200 million tons by 2015 if the country is to sustain 8-10% economic growth.
During his recent meeting in Moscow with Russian Industry and Energy Minister
Viktor Khristenko, Indian Petroleum and Natural Gas Minister Murli Deora said
New Delhi would like to set up a 49%-51% venture between state-run Oil and
Natural Gas Corp (ONGC) and Gazprom, the world's largest natural-gas company.
Deora was on a two-day visit to Russia to attend the Moscow Energy Dialogue
during International Energy Week.
The ONGC-Gazprom venture would explore for oil and gas in India, Russia and
other countries and look to bid for tenders held for exploration and production
activities in Russia.
India is also looking to set up a project with the Russian gas giant to liquefy
gas found in Russian offshore fields and ship it to India, Deora said.
In addition to offering to form a partnership, Deora said Russian firms have
been invited to participate in India's downstream oil sector and could purchase
a stake in Indian Oil Corp's proposed $4 billion Paradip refinery and
petrochemical project in Orissa.
According to reports, the Russians have been invited to increase Indian Oil
Corp's refining capacity from the current 52 million tons a year to more than
80 million tons. The process will include building a new refinery, which will
produce 15 million tons annually. India will maintain the majority stake in the
project.
Deora said that producers and consumers must forge enduring partnerships for
mutual growth. He also dismissed oil scarcity as a myth.
"No shortage of oil has been experienced. However, policymakers will not lose
sight of the fact that record energy prices are due to capacity constraints in
production, refining and logistics. There is a need to recognize the structural
shortcomings in the supply chain and address these aggressively,'' Deora said.
He also said India plans to double its refining capacity from its current 2.7
million barrels per day over the next five to six years to cater to the gap
between global demand and refining capacity.
Inviting Russian companies to invest in the refining sector in India, he
pointed out that Indian refineries are producing high-quality, environmentally
friendly fuels.
New Delhi is pushing for Indian participation in the Sakhalin III project. The
structure of the Sakhalin I and II projects have already been decided and
Russia is planning to invite bids for the Sakhalin III, IV, V and VI projects.
"We would like a stake in Sakhalin III," Deora said.
India's only success in the Russian oil-production business was in the
ExxonMobil-led Sakhalin I venture in June 1996, when ONGC picked up a 20%
stake. ONGC will ship its first crude oil from Russia's Sakhalin I in the first
week of December.
"Our entitlement from Sakhalin I is three parcels of 700,000 barrels each in
October-December," a company official said. "The first cargo will be processed
at ONGC's subsidiary Mangalore Refinery and Petrochemicals Ltd, while two
others [will] be sold to ExxonMobil of the US."
Sakhalin I will reach the peak rate of 12 million tons per year once a new
onshore crude processing unit is commissioned next month. Recently,
ExxonMobil's Russian Sakhalin I project signed a preliminary agreement with
CNPC on natural-gas supplies. Under the deal, Sakhalin I could sell up to 10
billion cubic meters of gas to China over 20 years.
Deora also supported Russia's pursuit of an equity stake in the proposed IPI
gas-pipeline project, which is currently stalled over differences on key issues
such as pricing and security. In early September, Iran gave India and Pakistan
a two-month ultimatum to agree on the pricing of gas. No consensus has yet been
arrived at.
Khristenko expressed his country's interest in the project during the meeting
with Deora, who said that Russia could give the venture greater financial
muscle. It remains to be seen whether Iran and Pakistan will welcome the
Russian stake in the project, but Deora said he did not believe there would be
any objections.
However, New Delhi and Moscow will have to act fast. According to reports,
Royal Dutch Shell, Europe's biggest oil company, may pipe gas into the United
Arab Emirates from Iran, as the US is putting pressure on countries to impose
sanctions to check Tehran's nuclear program. Shell and RAK Petroleum are
"looking at the whole supply dynamics of the UAE in the context of supply
opportunities in Iran", Philip Turberville, chief executive officer of the
UAE-based energy company, recently said.
Supplying Iranian gas to the UAE is an "option'' being considered, said
Jonathan Charles, a Shell spokesman in London.
The export output was originally planned for the IPI pipeline, which has
remained in the planning stages for more than a decade.
In a move that will not please New Delhi, reports also say that China and
Pakistan have agreed in principle to build a trans-Karakoram oil pipeline along
the Karakoram Highway to connect the Middle East with northwestern China
through Gwadar in Pakistan's Balochistan province.
According to reports, the pipeline could be an effective conduit for oil from
landlocked Central Asia to the world market. On the pattern of the Trans-Alaska
Pipeline, it would be possible to build an oil grid comprising Turkmenistan,
Kazakhstan, Tajikistan, the Wakhan corridor, the Ashkoman Valley, Gilgit and
Gwadar.
Matching China
Observers say that India is keen to match China's energy diplomacy with Moscow;
China National Petroleum Corp (CNPC) and state-owned Russian company OAO
Rosneft recently formed a joint venture, Vostok Energy, to carry out oil
exploration in Russia.
The Chinese company was one of the three "strategic" subscribers to Rosneft's
controversial initial public offering this year. On its part, India has been
trying to join up with Rosneft in an oil-exploration project for more than two
years.
"India's agitation is easy to understand. Chinese companies have recently
created a venture with access to Russia's subsoil and got Udmurtneft," Alfa
Bank analyst Konstantin Baturin said. "But China offered advantageous terms of
cooperation to Russia. And the price paid for Udmurtneft was unthinkable."
Indian analysts have said that it was the creation of Vostok that prompted
Deora to visit Moscow. India's efforts to obtain gas from Myanmar have also
been stepped up.
India's proposal to Gazprom is very similar to the incorporation of Vostok
Energy to explore and extract resources from Russia's subsoil. "We have
proposed a joint venture with either Rosneft or Gazprom or both for exploration
and production of oil and gas,'' said R S Butola, managing director of the
overseas arm of ONGC, ONGC Videsh (OVL).
As with the OAO Rosneft-CNPC venture, the Russian company would hold a 51%
stake in the proposed venture, while ONGC would have the remaining 49%. While
the Rosneft-CNPC venture was primarily focused on exploring for oil in Siberia,
ONGC has proposed looking for oil in all of Russia and even other countries.
Separately, OVL has proposed teaming up with Rosneft to bid for the giant
Sakhalin III project, he said.
Siddharth Srivastava is a New Delhi-based journalist.
