Prime Minister Narendra Modi’s meeting with top global energy companies chief executives on Monday is significant in more ways than one. While reform in the energy sector has been systematically pursued by the Modi government, there may still be areas that need policy back up to realise the full potential in the Indian market that’s on an exponential growth curve, given that India's demand for fossil fuels remains unsatiated.
Top oil and gas conglomerates like Rosneft, BP, Exxon Mobil, Saudi Aramco, Royal Dutch Shell, Schlumberger can add a lot of heft to the already well-diversified oil and gas business in India. Unfortunately, over all the new exploration licensing policy (NELP) rounds, none of the global majors ever entered the Indian market. It was left to fringe players like Cairn Energy, Niko Resources and Hardy Oil to partner Indian companies.
Well, private companies like Reliance Industries and Vedanta have already sunk billions of dollars into the hydrocarbons value chain. State-run oil companies led the much-required depth to the hydrocarbons industry evolution. Given that India will become the biggest oil and gas guzzling market by 2040, there’s every reason for Modi to tango with the world’s best in oil business.
Divergence in views between the industry and government agencies on oil and gas pricing as well as regulatory issues is very well documented. Finding a meeting ground with consumers’ interest in mind is the key. Unwarranted pricing benchmarks sought to be set during the two terms of UPA for both gas and petroleum products at contractual level turned out be duds. No corporate oil entity will come into Indian market for charity. While reasonable profit making should serve as the motivation, profiteering at the cost of consumers should not be allowed. Case in point was the exorbitant gas prices offered by Reliance-BP that got rejected notwithstanding the supportive recommendations by the then experts panel headed by former RBI governor Chakravarty Rangarajan, support from then finance minister Palaniappan Chidambaram and Sonia Gandhi-Manmohan Singh.
The road ahead for oil and gas industry players at exploration and development level have not smoothened out completely. Both, Indian government and the oil companies will have to work in the spirit of partnership and profits sharing to take the hydrocarbons industry to the next level.
Secondly, retailing and marketing of petroleum products has more or less become smooth given the pricing road map offered by Modi government. Given that subsidies have virtually been extinguished for retail prices are being linked to market gradually, more global players will have immense scope for a retail play. Thirdly, standardisation of contracts for all parties concerned is a big issue that needs to be ironed out. Unless concerns of government and retail consumers are taken on board; global, domestic private and state-run oil companies cannot make profits. Fourthly, technology transfers, dealing with seismic data that was often stolen from ONGC and bringing in fresh funds through innovative financing mechanisms will have to be addressed by all stakeholders without any delay.
On the policy front, the government’s hands are already full. Putting together an integrated energy policy framework with options like electric mobility and bio-fuels will be in India’s interest.
While devising the new policy framework, securing India’s energy interests through market expansion, acquisitions and mergers abroad will be the right option. The multifarious strategy will also insulate Indian economy from volatility in global energy markets especially due to conflict in Islamic world.
Not only the acquisition of energy assets, getting access to cutting edge hydrocarbons technologies will provide sharp focus to India’s ambition for evolving as a major player in hydrocarbons industry. Technology innovation and indigenisation will provide an impetus to the proposal for setting up a natural gas hub in India. New areas like carbon sequestration, shale gas exploration, joint bidding for assets globally with buyback arrangements must be looked at very seriously. Ultra-nationalist right wing BJP-led government under a leader like Modi is the perfect setting to secure India’s defensive and offensive energy interests.