India plays energy catch-up

 By Deborah Yedlin, Calgary HeraldMarch 24, 2010Be the first to post a comment

 

 

If the last 18 months were characterized by Chinese energy players inking deals around the globe and securing reserves and production, is 2010 going to bring a spate of transactions by India's oil and gas companies aimed at reaching the same goal of quenching an insatiable thirst for oil and natural gas?

The short answer is that the pace would have to pick up significantly if India's energy sector is to lay the same claim on global energy assets as China has.

At last count, the value of the deals done by Chinese national oil companies -- whether as outright purchases, joint ventures or oil-for-loans arrangements -- was sitting in the $30-billion US range.

India hasn't even come close to that number in terms of deal value, even though its consumption is on an equally impressive upward trajectory.

As things stand, India imports about 75 per cent of its oil needs, all of it from Middle Eastern sources, making it vulnerable to the political instability endemic in that part of the world.

It's ironic, then, that the Indian Oil Corp. and Oil India are bidding for a company with producing assets in Syria. The bid, if successful, wouldn't signifi-cantly diversify India from its exposure to Middle East politics.

What sets India apart from China -- as Robert Johnson, director of energy and natural resources of the Washington-based Eurasia Group, points out -- is its lack of a sovereign wealth fund that can be used to buy assets along the lines of what the China Investment Corp. has been doing. In fact, it is the only one of the so-called BRIC nations that lacks a sovereign wealth fund.

It also doesn't have the stable of national oil companies acting at the behest of the government, nor has the country undertaken an in-depth, segmented analysis to fully understand all aspects of its future energy demand picture, as China has done.

"They don't have a worldwide energy model, whereas the Chinese government recognized long ago that commodities were going to be integral to the country's growth profile and they made a concerted effort to understand the drivers behind every commodity -- not just oil and gas," said one industry player.

India's approach to the commodity plays has been largely characterized as reactionary, while the Chinese approach has been to get ahead of the curve, wherever possible.

The fact the Chinese didn't shy away from signing oil supply deals in early 2009 when oil prices were flirting with $30 per barrel certainly underscores that view. Now, with natural gas prices under pressure around the world, the focus has shifted toward that commodity. The joint bid with Royal Dutch Shell to buy Australia's Arrow Energy for its coal bed methane reserves and the partnership to develop shale gas in Sichuan province are evidence, again, that China is taking advantage of the current ebb in the natural gas cycle.

While part of these differing approaches can be explained by the differing political structures of the two countries -- it's tough to mandate that kind of focus in a free enterprise market such as India's -- the lack of action has many individuals puzzled.

From a Canadian perspective, the last time a deal was done involving an Indian energy company was in 2003, when ONGC Videsh bought Talisman Energy's 25 per cent interest in the Greater Nile Petroleum Operating Co. in Sudan for $750 million. They also tried to get in on the bidding for Petrokazakhstan in 2005, but were beaten out by the China National Petroleum Corp., which paid $4.2 billion.

Otherwise, the only transaction of note in recent months has been the acquisition by ONGC of Imperial Energy for $2.1 billion.

While three Indian companies were recently part of a winning consortium bidding on the two parcels in Venezuela's Orinoco basin, the 25 per cent interest they collectively ended up with pales in comparison to the scale of deals undertaken by Chinese companies. Moreover, it's not like dealing in Venezuela isn't without its risks; what's to say the assets don't revert to the government, as has happened before, when the capital investments have been completed.

The same logic holds true regarding the initiative that could see ONGC enter into partnerships with Russian energy players Gazprom and Rozneft. Meetings have been taking place in Moscow exploring these possibilities, but the risks associated with investing in Russia are not unlike those faced in Venezuela; it makes one ask whether these kinds of decisions are the ones that would advance India's presumed objective of enhancing its energy security.

What could happen, suggests Johnson, is an Indian company taking a strategic interest in the Gateway pipeline.

"The country has been adding heavy oil refiners and the same logic being applied to why China might be interested in Gateway could be applied to India, as well."

And it's not like Indian oil players haven't been kicking the oilsands tires for quite some time -- but any deal has yet to surface.

Whether it's the apparent lack of urgency, the absence of a sovereign wealth fund or a comprehensive energy strategy -- or a combination of all of the above -- it's clear India is firmly in the position of playing catch-up to what Chinese energy players have been aggressively pursuing. With India's economy continuing to grow, however, one has to conclude that it's only a matter of time before India is forced to take a more proactive approach to ensuring its energy future.

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Gopinath S
Chief Executive
nRG Consulting Services, Bangalore
http://business.vsnl.com/gopinath
http://nrgcs.blogspot.com/
+91 99161 29728