India learns its oil lessons
By Sudha Ramachandran
BANGALORE - 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.
Sudha Ramachandran is an independent journalist/researcher based in
Bangalore
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