Chapter II – India’s Search for Energy: Issues and Emerging Concerns – India: The Emerging Energy Player

Chapter II

India’s Search for Energy: Issues and Emerging Concerns

India’s search for energy beyond the borders has brought its security on energy policy agenda. In the formative phase of the energy policy, Indian concerns were confined to mobilize investment for exploration and production of domestic, onshore and offshore reserves. over the years, though domestic production did move up, demand outpaced it, forcing the country to look for external supplies. The sluggish growth in domestic supply and the growing reliance on imports transformed the energy context dramatically. India’s energy policy, thus, acquired an external dimension. In this process, India became susceptible to the changing dynamics of the world energy market. It was demonstrated amply during the Gulf War in the nineties, when the rise in the price of oil forced it to reassess energy policy parameters. It became necessary for the country to have a medium to long-term policy perspective to meet the new challenges of external sourcing of hydrocarbon. Consequently, the government of India spelled out its energy concerns in a holistic frame in a report called the Hydrocarbon Vision 2025. A synoptic view of the report given below demonstrates the range of the concerns and the policy direction it envisages:

  • Focus on oil security through intensification of exploration efforts and achievement of 100 per cent coverage of unexplored basins in a time-bound manner to enhance domestic availability of oil and gas.
  • Secure acreages in identified countries having high attractiveness for ensuring sustainable long-term supplies.
  • Pursue projects to meet the deficit in demand and supply of natural gas, and facilitate availability of liquefied natural gas (LNG).
  • Maintain adequate levels of self-sufficiency in refining (90 per cent of consumption of middle distillates).
  • Establish adequate strategic storage of crude and petroleum products in different locations. Create additional infrastructure for distribution and marketing of oil and gas.
  • Open up hydrocarbon market so that there is free and fair competition between public sector enterprises, private companies and other international players.
  • Create a policy framework for cleaner and greener fuels.
  • Have a rational tariff and pricing policy, which would ensure the consumer getting the petroleum products at the most reasonable prices and requisite quality, eliminating adulteration.
  • Announce a long-term fiscal policy to attract required investments in hydrocarbon sector.
  • Restructure the oil sector PSUs with the objective of enhancing shareholder value and disinvest in a phased manner in all oil sector PSUs.

The Vision document underlines the need to recognize both the internal and external facets of energy security in the Indian policymaking. With energy sourcing becoming increasingly external, its ramifications have to be factored in defining the foreign policy agenda. Thus, energy security so far rarely counted in the Indian foreign policy concerns, acquired strategic dimension making the Indian external affairs minister to resolve that ‘India’s external affairs and petroleum ministries will be working in close tandem to conduct oil diplomacy and ensure the country’s energy security.’1 To further sharpen the focus, it is proposed that ‘the Hydrocarbon Vision 2025 be recast into a new document titled “India Energy Security Vision 2025”.’2 The Planning Commission of India has recently brought out a draft report on ‘Integrated Energy Policy’ where it has defined energy security in a comprehensive way by taking into consideration the Indian context. Accordingly it observes, ‘The country is energy secure when we can supply lifeline energy to all our citizens as well as meet their effective demand for safe and convenient energy to satisfy various needs at affordable costs at all times with a prescribed confidence level considering shocks and disruptions that can be reasonably expected.’3 One of the key words of the definition is the insulation from shock and disruption. And this becomes a challenge when the shock and disruption are emanating from the domain where the state has very little or no influence. India, as it moves on its growth trajectory, has to address such eventualities. According to the former Petroleum and Natural Gas Minister Mr Aiyar, ‘India’s only hope for poverty eradication would be to ensure energy security through integration with the Asian hydrocarbon economy. And since the Asian hydrocarbon economy is an integral part of the global energy economy, any Asian regional cooperation would have to seamlessly merge into global energy cooperation.’4

Today India meets more than 70 per cent of its hydrocarbon needs from foreign sources and, hence, is vulnerable to global market. Its stakes are high in the global hydrocarbon regime. It would be looking for a regime that ensures regular flow of oil at sustainable price. But energy trade is not governed by market forces alone. The geopolitics has been its critical determinant and continues to be so despite the ascendancy of geo-economics. But the changing pattern of global consumption and production of energy, the emerging mix and the investment requirements are redefining its geopolitical contours. The market fundamentals have changed drastically. The oil industry is facing a major structural shift. ‘Mutual sense of interdependence, vulnerability and win-win opportunity’5 have converted the conflict element of the competition into a cooperative mould. Further, the Asian dimension of the global energy market is impinging upon the security obligations as well. The regional players who are going to be the major beneficiary of the enhanced energy traffic both on land and by the pipelines will have to pitch in their resources. India has emerged as a leading energy consumer in Asia. It has little choice but to invest resources, financial and diplomatic, to keep the flow going. This makes implications for foreign policy quite obvious. This chapter addresses these concerns.

Changing Dynamics of Energy Demand

The growing pace of the Indian economy has not only led to a rise in energy consumption but a shift in its energy mix too. India ranks sixth, accounting for 3.5 per cent of the world commercial energy consumption. But its energy consumption is still very low compared to many developing countries when measured in terms of per capita consumption estimated at 479 kg of oil equivalent (kgoe).6 It is projected to be going up by 145 per cent by 2010, but will still be much lower compared to the consumption levels of the developed countries.

In its energy composition, the non-commercial sources of energy still constitute over 30 per cent of the total energy supply, but the share has been going down due to increasing substitution with commercial sources of energy. In 1953–54, the share of non-commercial energy was 71.6 per cent, which came down to 40.8 per cent in 1990–91 and projected at 23.65 per cent by 2011–12. Correspondingly, the commercial energy component has been going up and is likely to move from 25.48 per cent in 1953–54 to 76.4 per cent in 2011–12.7 Among the commercial sources, gradually the mix has shifted in favour of hydrocarbons as can be seen from Table 2.1.


Table 2.1 Changing Pattern of Energy Mix (In Percentage)

Source: Up to 2011 from Technical Note on Energy, Planning Commission, Government of India (1998–99). Beyond this period the figures have been extrapolated. Quoted in ‘Domestic Resourcing of Energy, Gulf and Future of Global Energy’ by B. K. Chaturvedi, Secretary, Petroleum Ministry. Unpublished paper presented in a seminar at Jawaharlal Nehru University, New Delhi, India.


The share of coal has come down from 55 per cent in 1997–98 to 50 per cent in 2001–02, while the share of oil and gas has gone up to 47 per cent. India has very limited hydrocarbon reserves estimated to be 5.6 billion barrel accounting 0.5 per cent of the world’s proven reserves in 2003.7 It has 26 sedimentary basins including both onshore and offshore. It is estimated that the country has 30 billion tonnes of hydrocarbon resource base out of which 6.8 billion tonnes have been established through exploration. Apparently, the production has been stagnating at 33 mt. The outlay on exploration has been on decline for five successive years since 1994–95. The recovery rate in India is 28 per cent compared to the world average of 40 per cent. The estimates are that, given the R/P ratio, oil will last for nearly 20 years compared to the world average of 41 years.8 The natural gas reserves are estimated at 30.1 trillion cubic metres (tcm) in 2003 accounting for 0.59 per cent of world reserves. The current production is 31 bcm and the R/P ratio indicates that its life is expected to be 28.4 years compared with the world average of 67 years.9

The future energy needs estimated by the Planning Commission are showing a rise from 563.21 mtoe to 723.93 mtoe during the plan period. This is based on economic growth projected to be around 8 per cent during the plan, decline in energy elasticity to the gross domestic product (GDP) ratio due to increase in service sector in the GDP vis-à-vis the manufacturing sector and increase in energy efficiency due to usage of more efficient practices and energy devices and growth in population.10 The EIA estimates are that the oil consumption will grow to 2.8 mb/d by 2010 from 2.2 mb/d in 2003.11 The natural gas consumption is moving up a bit fast and is expected to register a rise from 0.6 trillion cubic feet (tcf) in 1995 to 1.2 tcf by 2010 and 1.6 tcf by 2015.12 The Indian estimates are given in Table 2.2.


Table 2.2 Estimated Energy Demand

Source: Tenth Five-Year Plan Document, Government of India.

Note: mt: million tonnes; bcm: billion cubic metre; bkWh: billion kilowatt hour.


The growing consumption and limited domestic supplies have led to deficit in the energy account to be met by imports. As shown in Fig. 2.1, the gap has been widening and will be further going up as the economy accelerates its growth momentum.


Figure 2.1 India’s Energy Balance

Source: US Energy Information Administration.


Recognizing the growing deficit in energy balance, the Indian government announced New Exploration and Licensing Policy (NELP) in 1997–98 reorienting the regime, seeking participation of the private sector both from India and abroad. It has already identified 48 blocks for private sector participation. It is expected that by 2010 exploration work will cover about 1.2 million sq km sediment. Annually, an investment of about US$ 500 million is taking place in exploration of these areas. In the first week of January 2005 under the NELP-V round India offered 20 blocks including 6 deep water ones for exploration. As observed by the petroleum and natural gas minister ‘the NELP-V bidding would provide an attractive investment opportunity particularly in the backdrop of huge oil and gas finds made by Reliance and Niko Resources Ltd in Krishna Godavari deepwater, Cairn Energy in Rajasthan and Reliance in the north-east coast offshore. He noted that since the launch of NELP in 1999, the gas reserves in the country had risen by 50 per cent.’11

Oil players, both from India and abroad, have shown interest in the Indian markets particularly in deep-sea exploration. In the first bidding of NELP in January 2000, the major successful bidders were Reliance Industries, Niko Resources of Canada, British independent Cairn Energy, Russia’s Gazprom, the US firm Mosbacher Energy and Geopetrol of France.12 So far, exploration has been in the Western offshore where the sea bed depth, even up to 300 km from the shores, is less than 80 m. With the new finds at Krishna Godavari Basin the prospects for meeting the demand for gas appears reassuring. The eastern sea basin of India is rated highly. It has remained largely unexplored so far, but has the potential to provide high degree of self-sufficiency in gas consumption.

Though the deficit in domestic supply has been met by imports, but over the years India’s petroleum, oil and lubricants (POL) imports have become the largest imports having critical bearing on the balance of payment accounts. As Table 2.3 shows, India could successfully move towards self-sufficiency by 1985–86, but since 1990–91 the import dependence has been going up, reaching to 70 per cent in 2002–03. The import of oil and gas has its implications for balance of payment of the country. In 1991, it was the oil bill that made India accelerate the pace of market-based reforms. The IEA estimates are that India’s dependence on oil imports will grow to 91.6 per cent by the year 2020.

However, with the growing refining capacity, India has been able to cut down its import of petroleum products. In fact, it is exporting middle distillate like diesel. Table 2.3 shows the growth in product exports, and India as net exporter on petro product account from 2001–02. Despite the burden of oil bill, Indian economy has acquired the capacity to meet its oil burden.13

India imports oil from 28 countries out of which 5 countries; Nigeria, Saudi Arabia, the UAE, Kuwait and Iran account for more than 75 per cent of it. The Persian Gulf region alone supplies more than 65 per cent of imports. The highly skewed nature of sources becomes clear from Table 2.4. Nigeria is one of the leading suppliers accounting for as high as 27 per cent of the total imports in 1999–2000 though it is saudi Arabia that has been the principal source of imports prior to 1999–2000, and in 2002–03, it provided crude oil and petroleum products amounting to 18.816 million metric tonnes (mmt) worth approximately US$3.6 billion making around 23 per cent of India’s crude requirements. Given the volume of reserves, the cost and distance, the region will remain the major source of supply.


Table 2.3 Self-Sufficiency in Petroleum Products (In mmt)

Source: Quoted in ‘Domestic Resourcing of Energy, Gulf and Future of Global Energy’ by B. K. Chaturvedi, Secretary, Petroleum Ministry. Unpublished paper presented in a seminar at Jawaharlal Nehru University, New Delhi, India

Energy: The Security Challenge

India is vulnerable to the security risks associated with the supplies and prices. Its energy security is impaired by the temper and the rhythm of the global market, the regional suppliers and bilateral linkages with the individual supplier. It needs to evolve a multipronged policy addressing multiple risks. This involves hedging against the risk factors associated with the supply and price. From the changing dynamics of the oil market and industry as spelled out in Chapter 1, it is clear that the supply-side risks are not likely to be as much associated with the volume of global hydrocarbon reserves which is fairly large as with the infrastructure such as the narrow passages or inadequate pipelines. India and Iran have not been able to trade in gas because of the pipeline factor. Similarly, Central Asian hydrocarbon is hostage to the pipeline politics. However, large reserves by themselves do not ensure the supplies. The market needs to have spare capacity to meet deficit. The present price hike has been attributed to the exhaustion of surplus capacity and the rapid rise in demand from China, the inventory build-up in view of uncertainties in Iraq and its fall-out in the region. IEA has ‘warned of a drop in oil production and shortfall in supplies if there is not a huge investment, totalling US$3 trillion in the next three decades, in everything from developing new fields to building more tankers, pipelines and refineries.’14 It is observed that in 76 mb/d in the global market, there was spare capacity of 10 per cent to rescue but in 2003 it came down to 5 per cent due to rise in demand to 78 mt. It has further declined to 2 per cent.15


Table 2.4 Direction of Crude Imports (In mmt)

Source: Draft Report of the Expert Committee on Integrated Energy Policy, Planning Commission, Government of India, December 2005.


Rise in prices have been a source of concern for India. The growing POL bill has affected its external balance account. In the early seventies, when OPEC asserted to decide for oil price hike, India supported the move as third-world solidarity but paid heavily. Its oil bill went up by more than 50 per cent. Similarly, the adverse consequences were felt by the rise in current account deficit from 0.2 per cent in 1979–80 to 1.5 per cent in 1981–82 due to the ‘second oil shock’. The classic case, however, was the Gulf War of 1991, when the net value of the import of oil rose by 50 per cent and that of petroleum products by as much as 72 per cent. The increase accounted for as much as a third of the total export earnings for the year. Clearly, any abnormal rise in oil prices is bound to create difficulty in the balance of payment account. For instance, in 1988–89, India did sustain the oil bill of $5.9 billion and could have had no difficulty in 1999–2000 if it would have remained at the expected level of $8.2 billion. But its rise to $10.2 billion became a burden following the abnormal rise in the global market. In normal times, the rising oil bill creates problems because of the limited paying capacity, but a country maintaining buoyancy in trade account can meet the rising energy bill with less difficulty. It may be noticed that though the trade deficit has gone up to $13.36 billion from $7.45 billion in 2003–04, which included the rise in imports oil bill to $2.52 billion, the invisible receipt increased to $25.43 billion from $17.05 billion.16 Today, India is in the position to meet its normaltime oil bill with the help of surging exports of software alone, which is likely to be more than 30 per cent of the Indian exports. However, with Indian oil pricing moving away from administered price regime, any extraordinary rise could have a cascading effect on domestic prices with wider social and political ramifications. According to IEA, a rise of $10 per barrel in crude price could lead to loss of GDP by 1 per cent and contribute 2.6 per cent to inflation.17 Thus, the issue of affordable price becomes very critical for low per-capita income and high oil-importing countries like India. The rise in import bill is impacted more by the oil prices than the rise in volume. As pointed out in the Economic Survey 2003–04, ‘the spurt in oil imports by 26 per cent in 2002–03 was contributed more by increase in international crude oil prices (around 20 per cent) than by enhanced volume of imports (3.2 per cent).’18 Significantly, despite the price effect, the volume of import went up in the year 2001–04. Hence, ‘the volume impact (11.3 per cent) dominated with average already-high international crude oil prices rising further on an annual average basis by 5.4 per cent.’19 The import of oil and gas has its implications for balance of payment of the country. In 1991, it was the oil bill that made India accelerate the pace of market-based reforms. The oil import bill accounted for more than 78 per cent of total imports. In 1998–99 oil import bill was $5.9 billion, and in 1999–2000 it was estimated at $8.2 billion, which was revised to $9.8 billion but was expected to be $10.8 billion. In 2006–07, it moved up to $46.9 billion.20 However, of late, India is also exporting petroleum products. In 2003-04, India exported 14 mt of petroleum products for INR 161.01 billion compared to 10.28 mt exported in the previous year for INR 108.68 billion. Thus, a new dimension is added to Indian efforts to reduce the oil deficit by exporting value-added petroleum product. This changes the profile of India as petro-product exporter requiring a different approach in the global market.

Clearly, sheer magnitude of oil import has linked it to the national security, as the Economic Survey 1999–2000 says, ‘it is essential that in the energy sector, long-term investment and annual plan allocations and budgetary decisions are taken with a greater weight to strategic and energy security considerations than with undue faith in market forces and undue persuasions of periodic and temporary low-price situations.’21 Significantly, the large volume of Indian demand has given it the leverage of market size particularly when the traditional markets are no more buoyant. In the first half of the twenty-first century with Asia emerging as a major market, India is seen as the leading destination. Nevertheless, a country so hugely dependent on external supplies has to have a proactive energy security policy ‘with near-term actions and long-term initiatives addressing both the supply side and demand side including diversification of energy supply resources, which would enable it to escape from recurring energy crises.’

The ‘Hydrocarbon Vision 2025’ has recognized the centrality of oil and gas sector in resurgent India. It appreciates the vulnerability imposed by the dependence. Hence, it aims at ensuring energy security by achieving self-reliance through increased indigenous production and investment in equity oil abroad. The new policy regime envisages the urgency to enhance domestic sources both onshore and offshore to minimize reliance on external sources. But the document also admits that the domestic supplies are not likely to be adequate at least in the short run to meet the growing demand. Hence, it emphasizes the importance of global market and the need to expand interaction with the global players. The foreign policy objective of the new energy policy could be identified as follows:

  • Mobilization of investment for the domestic sector
  • Ensuring the existing supplies by consolidating the energy ties
  • Expansion and diversification of the foreign sources of oil and gas supplies

Towards a Foreign Energy Policy

India is not a global power but its hydrocarbon security is driving it to go global. It has to stretch out its energy engagement ‘sourcing raw materials from around the world, integrating vertically or horizontally, producing to international specifications, exporting products, or establishing full-fledged operations in overseas markets.’ This opens new vistas and new encounters demanding diplomatic dialogue, negotiations and manoeuvring with small and big countries across the continents as far-flung as Ecuador, Cuba, Sudan, Angola, Russia, Kazakhstan, Libya, Iran and Ivory Coast. The need for a well-conceived foreign energy policy is thus more than obvious.

India is emerging as an important stakeholder in the hydrocarbon market. The seventh largest consumer of oil, it is poised to be the fourth largest market after the United States, China and Japan. The growing share of gas in total energy and rapidly increasing world LNG trade, cutting cost in pipelines, have enhanced possibilities of gas imports from Iran, Bangladesh, Myanmar and Central Asian republics. Ironically, while technological developments are making long-distance trade competitive, the enhanced security risks are affecting the flow both physically and by adding to the cost caused by risk premium. The issue of safe navigations of hydrocarbons through pipelines and tankers is yet another dimension of the security concerns. In the case of pipelines, security even involves the participation of local communities besides the need for protection forces.22 The issue of marine security has been further compounded by the growing collaboration between terrorist outfits and pirates.23 Thus, in defining the parameters of foreign energy policy, these issues have to be taken into account.

In expanding its newly defined hydrocarbon engagement with the global market, India faces tough competition. The competitors are well entrenched in the market. With China emerging as an aggressive consumer, the intensity for energy search has become more fierce making it a kind of scramble for control. India is a latecomer in the arena and has limited capacity. Yet its presence is sought particularly by the new producers like Central Asia and Africa. Oil deals are not known for their fairness and transparency. The mighty oil majors have been using their market clout to influence the terms of transactions. It is precisely here that the presence and partnership of countries like India could be of help to emerging energy-exporting countries. Hence, it has to carefully plan the road map maximizing on its leverage. The experience gained over the years in operating beyond Indian shores, competing with multinational players and the skill acquired has provided the sole canalizing company, the Indian Oil Corporation (IOC) with necessary wherewithal to bid in successfully in competition. But the task is much more arduous. While supply security is compelling to explore new areas, it also carries with it the potential risks. The apprehensions of vulnerability have to be hedged by calculated risks. But a player like India cannot stretch much due to its limited profile. Oil deals are not clinched by economic considerations alone, this means going for engagement beyond the market domain. Here, the state has a crucial role to play by creating enabling conditions. It has to visualize a strategy premised on integration and diversification, which ‘includes upstream exploration and production, especially in countries where Indian companies have better opportunities to enter.’24 Hence, it is logical to start with the markets where India could have fair competitive advantage. Apparently, India is pursuing a three- step strategy, beginning with the exports of services followed by products and then physical assets and infrastructure. The underlying assumption is that sequencing helps to minimize the risks involved in conducting business in overseas markets.

The thrust of the Indian strategy is to create a niche market for itself. By promoting a capacity-building approach, India looks at the market in a wider perspective of energy cooperation and partnership. It is targeting on providing ‘technical services’ to a number of countries with a view to contributing to the local capability-building, training manpower, skill generation and introducing the brand name for itself. The leading entries made by it include services like process and product engineering, construction, commissioning, maintenance and operations to Emirates National Oil Company, Dubai. IOC is also implementing the Integrated Management Systems at the Oman Refinery Company.

The expansion in refining capacity has created surplus capacity, encouraging India to look for overseas market for petroleum products particularly the middle distillates like diesel. The market for these products is not far as the neighbouring states import these products. The proximity provides India the advantage to supply them at competitive price. According to officials, ‘the countries to be targeted were those where we had strong existing relationships as a result of our trading businesses, countries in the region where we had a logistical advantage, those with a large Indian diasporas and others, which were well disposed towards us.’25 India is pursuing aggressively possibilities of term contracts in South Asia. The strategy seems to be working as the Indian company, IOC has signed term contract for a year with Ceylon Petroleum Corporation of Sri Lanka for exports of petroleum products in July 2002. Subsequently, in December 2002, a wholly owned subsidiary Lanka IOC Pvt. Ltd was incorporated. The subsidiary has 150 retailing outlets and proposes to add 100 more. It has already captured 25 per cent of the market share, supplying 30,000 tonnes of diesel and 10,000 tonnes of petrol. Bangladesh is another market near home where the Indian company has been able to finalize a term contract on March 2004. In Nepal, Indian products have been in the market but the new initiative taken is the forming of a joint venture with Nepal Oil Corporation for retail marketing and LPG bottling and pipeline laying. Even with Pakistan, the prospects of diesel exports are rated as being quite good.

Outside the South Asian continent, in Mauritius, Indian Oil (Mauritius) Ltd is the wholly owned subsidiary having 25 per cent of the market share. It is engaged in downstream marketing, including the setting up of an oil terminal, aviation-fuelling facilities, LPG storage, bottling and distribution, and retailing of petroleum products. From here, India intends to explore markets in East Africa, in places like Tanzania, Kenya, Uganda and Ethiopia. Other markets on its radar include Singapore, Malaysia, Thailand, Cambodia, Laos and Philippines. In West Africa, it proposes to make Ghana the gateway to enter Senegal, Nigeria, Togo and Guinea. A synoptic profile of the Memorandum of Understanding (MoU) by the IOC is given to provide a view of the Indian expansion*:

  • Marketing of petroleum products in Sri Lanka and Mauritius through wholly owned subsidiaries, namely, Lanka IOC Pvt. Ltd and Indian Oil (Mauritius) Ltd.
  • Export of bulk petroleum products to Sri Lanka and Bangladesh.
  • SERVO marketing in Nepal, Malaysia, Bangladesh, Mauritius, Sri Lanka, Dubai and so on.
  • Lube blending and marketing in the Middle East and East Africa.
  • Export of bitumen to Bangladesh, Myanmar and China.
  • Management of oil terminal at Ndola, Zambia and aviation stations in Bhutan and Maldives.
  • Specialized training imparted to international oil companies like Petronas of Malaysia, Qatar General Oil Company, KNPC of Kenya and Caspian Pipeline Consortium (CPC) of Sri Lanka.
  • Secondment of manpower for commissioning of ENOC’s refinery at Dubai.
  • Technical Services help provided to countries like Dubai and Trinidad.
  • Consultancy Services in Algeria.


With a view to be a part of the world market Indian major oil company, IOC has signed a series of agreements collaborating with leading oil corporations as joint ventures, MoU overseas and in India. Besides, as the following chart shows these collaborations cover a range of activities ranging from refining petrochemicals to training and R&D activities.

Memorandum of Collaboration/Memorandum of Understanding (India)*

  • MoU with Gas Authority of India Ltd (GAIL) for marketing tie-up for transfer of LPG through pipeline from Kandla/Jamnagar to Loni.
  • MoU with NTPC for petro fuel-based power projects.
  • MoU with Indo Rama Synthetics Ltd for supply tie-up of PTA from the proposed PX / PTA plant at Panipat. Joint Statement of Intent with Hindustan Lever for supply tie-up of LAB from the proposed LAB plant at Gujarat refinery.
  • MoU entered in May 2003 with National Iranian Company for cooperation in the Hydrocarbon Sector.
  • MoU with GAIL for development of City Gas Distribution Project in Agra, Lucknow and Bareilly in May 2004.
  • MoU with the government of Andhra Pradesh for development of LNG project in Andhra Pradesh in January 2001, which is expiring in July 2004. Now this is under extension.
  • MoU between IOC and Hindustan Petroleum Corporation Ltd (HPCL) to pursue the projects in the areas of exploration and production (E&P), refining, sharing of infrastructure in grass-root or expansion projects in refinery, petrochemicals, LNG, consultancy services, and so on.
  • Memorandum of Collaboration (MOC) between IOC and Engineers India Ltd. (EIL) for ‘products upgrading project in Tehran and Tabriz refineries of NIOEC, Iran’.
  • MOC between IOC and Larsen and Toubro (L&T) for establishing collaboration for new onshore/offshore projects, facilities and retrofitting/modernization of existing onshore/offshore plants for crude oil/gas (NG, LPG, LNG and so on) exploration, drilling, processing, production, transportation and distribution. Also, establishing collaboration for pipeline projects, operation and maintenance, petrochemicals projects, training, and consultancy, and so on.26

Memorandum of Collaboration/Memorandum of Understanding (Overseas)*

  • MOC with Marubeni Corporation, Japan in the areas of refining, petrochemicals, power and pipelines.
  • MOC with Petronas, Malaysia for petrochemicals, refining, blending, LNG, training, R&D opportunities and LPG import.
  • Technical Services Agreement renewed with ENOC for providing consultancy services in various fields of hydrocarbon sector.
  • MoU with Premier Oil Pacific Ltd for development and production projects in northeastern states of India.
  • MoU with Elf Antar France for manufacturing and marketing of fuel additives and R&D assistance.
  • MOC with Enbridge International Inc., Alberta, Canada to explore methods and avenues of cooperation in pipeline design, construction management, operation and maintenance techniques, software development, training and consultancy in India and abroad.
  • MoU with Petronas Carigali for development/production projects.
  • MoU with Pertamina, Indonesia for collaboration in hydrocarbon sector.
  • MoU between the government of India and the government of Mauritius for IOC entry into downstream petroleum sector in Mauritius.
  • MoU with Ceylon Petroleum Corporation for IOC entry into downstream petroleum sector in Sri Lanka.


The Indian companies have also signed joint ventures with different countries as shown in Table 2.5 given below. Efforts are to create hydrocarbon suppliers’ stake in the Indian market by encouraging their investment. It allows 100 per cent foreign direct investment (EDI) both in refining and marketing.

A new dynamism can be discerned in India’s energy ties with its suppliers in recent times. Efforts are being made to make the oil transaction enduring in nature by entering into long-term agreements and evolving the relations into partnership. With some leading suppliers, the energy relations are projected on the premise of strategic alliance also. Broadly, in its foreign oil relations, India is pursuing a three-dimensional policy simultaneously—consolidation of the existing ties reorient the oil deals that once played a vital role in bilateral energy relations and explore new sources to diversify the supplies. The Gulf region including Iran falls in the first category, Russia in the second and Africa and Central Asia in the third. In promoting its energy ties, India is also actively engaged in acquiring stakes in overseas oil fields. The underlying thrust is to maximize returns by leveraging historical, cultural, strategic and economic depth of relationship developed over time.

Consolidation of Ties

The historical commercial ties with the Gulf region moved to a new phase in the seventies when the region experienced the construction boom. Indian workforce and their remittances emerged as the most dynamic component of the India-Gulf relations. However, with Indian economy facing deficit in energy balance, it is hydrocarbon that is defining the relations. India is making all efforts to engage the region in a wider framework of collaboration and cooperation. India currently imports nearly 50 per cent of its oil from the GCC region and the share is likely to go up further. The Gulf region and its hydrocarbon industry after nearly three decades of oil revolution of the seventies is poised for a generational change. The priorities are towards energy expansion projects. According to recent estimates by Abu Dhabi-based Arab Monetary Fund, regional oil producers will have to pump at least 25 per cent of the nearly $950 billion needed for oil capacity expansions worldwide.27 The economies are engaged in the process of restructuring including the hydrocarbon sector. The largest economy, Saudi Arabia, is looking for active participation from the international companies in the downstream sector with the future promise for upstream as well. According to Petroleum and Mineral Resources Minister Ali Naimi, ‘those who help Saudi Arabia to expand its industrial base today will probably be the ones that will be involved when, and if, the upstream is available for investment. With the kingdom sitting on estimated reserves of 260 billion barrels of oil, it is a prize most will consider worth waiting for.’28 Similarly in Kuwait, the government has opened upstream sector for the first time since nationalization of the country’s oil industry in 1975. The government is liberalizing the regime to mobilize $7 billion of outside investment to help efforts to increase Kuwait’s oil production capacity by 45 per cent from 2.4 mb/d to 3.5 mb/d by the year 2005. The objective is to double production in the country’s northern fields to 900,000 b/d involving tertiary and enhanced oil-recovery techniques. The UAE is also passing through similar phase of regime change. ‘New approaches to development are also in vogue in the UAE. Abu Dhabi National Oil Company (ADNOC) has been restructured into five core businesses that may in the long term assist the private sector to become more involved in the oil and gas sector. Gas development is very much to the fore.’29 The big project is the UAE Offset Group’s ambitious Dolphin Project. This envisages an investment of about $8–$10 billion over seven years to increase activities along the whole gas chain, from development of gas in Qatar’s North Field to the creation of new industrial areas that will obtain their power from plants generated by gas supplied from those fields. Dolphin is geared to meet gas demand in both Abu Dhabi and Dubai and to handle the future needs of industrial ventures. The export potential of gas is also considerable. Qatar with proven natural gas reserves estimated at 300 tcf—the vast bulk of which are located in the North Field, is pinning its hopes on the LNG, and new petrochemical ventures start to flow to the government. Oman is trying to develop its most ambitious project extracting its own gas and piping it from Fahud and Saih Rawi in the interior to Sohar and Salalah on the coast. The projects are expected to help in diversifying the economy. India and the GCC countries have resolved to sign a ‘Framework Cooperation Agreement’ focusing on broad-based economic cooperation to augment the terms and reference of interaction between them. Consequently, a decision has been taken to explore the possibilities of conceiving a Free Trade Agreement between Indian and the GCC.30 Apparently, Indian stakes in the region are going to go up. India will be more concerned about the supply disruption from the region. Ironically, the region is moving towards uncertainties. Following 9/11, the US policy towards the region has been more destabilizing. Regime change in Iraq does not promise better prospects. India cannot afford to be indifferent to destabilizing consequences. It has to look towards the regional stability but not from security perspective. The region is moving but the direction is not certain, and it is here that India along with other Asian powers can play a role. The regional countries too are keen to move towards reforms but are not steered by the United States. This would require pushing India-Gulf relations beyond the limited frame of state-to-state relations. The cultural and historical depth could be leveraged in determining the future course of the relationship.


Table 2.5 Joint Ventures: India and Foreign Companies


Energy has emerged as a dynamic component of Indo-Iran relations. The two countries conceive their energy relations beyond the limited parameter of commercial exchange. They share strategic concerns regarding the emerging dynamics of global hydrocarbon regime. It is well documented that there are efforts by global energy players to control the hydrocarbon resources of the region. What is alarming is the emboldened resolve of the dominant power to designate a regime friendly or rouge with an ulterior view on ‘secured’ oil and gas supply. Recognizing the implications of the new doctrine for the region, the leadership in both the countries is actively engaged in redefining the relationship to empower each other to play their regional role. Energy in this sense has become a critical factor in this evolving relationship. The Indian prime minister’s visit to Tehran in April 2001 and the return visit by the president of Iran as the chief guest on the occasion of Republic Day in 2003 do underline the new strength of this relationship. The ‘Tehran Declaration’ signed by Prime Minister Vajpayee and President Khatami of Iran in 2001 is an eloquent testimony that the age-old Indo-Iranian relations are going to move to contemporary mode.31

In accordance with the letter and spirit of the ‘Tehran Declaration’ of 2001 to have enduring oil tie-up, a long-term agreement was signed in 13 May 2003 by the Indian Petroleum and Natural Gas Minister Mr Naik in his visit to Iran. The agreement envisaged 100,000 barrels of oil per day (BOPD) for a trial period of one year and 5 mt of LNG annually for 25 years. It also envisaged that Iran would offer discovered and semi-discovered gas fields for Indian investment. Naik said the commercial terms for the LNG deal would be worked out later though initial purchase will be in two phases of 2.5 mt. The deal worth $22 billion with supply from 2009 was signed when the Indian minister visited Tehran in June 2005.32 The significance of the 13 May agreements lies beyond the oil-gas deal because it provides for other important energy contracts like ‘cooperation, exchange of experience in the field of compressed natural gas (CNG) production and reconstruction of refineries.’33 Transporting gas from Iran by a pipeline is going to be a major project in the evolving energy partnership. Iran has been bargaining hard on these proposals despite being under the American pressure. Significantly, promotion of Indo-Iranian relations is not viewed kindly by the American establishment. It cannot be ruled out that at some stage of consequence, the United States might make its stand against the Indo-Iranian relation in clearer terms. The point made is that in pursuing its energy relations with Iran, India has to calculate the risk factor without compromising its energy interest, which amounts to safeguarding the national security interest.

Re-energizing the Old Ties

The contribution of the Soviet Union in making of Indian oil industry is well documented. In the changed context too, with Russia as the world’s third largest oil producer, largest reservoir of natural gas, energy has once again emerged as vital component of their relationship particularly when the two share global and regional strategic concerns in the post-Cold War world. Russia is engaged in promoting and diversifying its export market and Asia is the emerging market for it. In 1999, LUKOIL signed a 10-year agreement with IOC to supply up to 10 mt of crude oil a year. It is valued between $1 and $1.5 billion. LUKOIL will also supply India 2.5 mt diesel per year.34 Russian gas giant Gazprom and GAIL of India have initiated 20- year agreement for prospecting and developing gas fields in Bay of Bengal. Gazprom has also agreed to the Indian request ‘to consider participation in the next round of exploration blocks India would offer in January. The Russian company is currently partnering GAIL in a block offered in the first round of India’s New Exploration Licensing Policy (NELP).’35 A new boost has been given to Indo-Russian energy cooperation by forming an Indo-Russian energy forum.36 During the visit of the Russian president in December 2004, the two countries further elevated their energy relations by signing a comprehensive agreement on development cooperation with energy as one of the central component.37

Nigeria has been on the Indian priority agenda. It is even identified as ‘central to achieving national energy security through diversified programme.’ India looks at Nigeria to acquire strategic balance in the procurement policy of hydrocarbon.38 The deal would eventually supply oil to India at the rate of 120,000 barrels a day on an annual basis. The importance of it lies in assured supply. IOC is planning to buy 6 mt of crude oil from Nigeria annually at the official selling price that is likely to save $25 million on middlemen margin. NNPC has agreed in principle to supply high-quality sweet crude. In 1999–2000, IOC bought 15.4 mmt through tender. Nigeria provided 15.4 mmt of the total requirement of sweet oil of 19.1 mt.39 However, India so far has had limited success in cultivating Nigeria. Partly, this could be attributed to the local political conditions, but the Indian approach too has been lacklustre. It has not been innovative based on sound risk calculations. Nigeria is indeed a high-risk market but too good a source, both in volume and in quality, to ignore.

Diversification of Sources

Africa and Central Asia are emerging as important suppliers of oil to India. Apparently, India is cultivating these regions as a part of its strategy to diversify the sources. It is expanding the crude basket by adding, ‘10 new crude oils to its trail basket, and is now planning to add the new crude Murban of Abu Dhabi in its term contract for 2004–05. IOC has diversified the crude oil supply sources by broadening the regular basket with addition of three Angolan crude oils, namely, Cabinda/Nemba/Girassol, one Nigerian crude Odudu blend and one Equatorial Guinea crude Ceiba in low-sulphur category during 2003.’40 In Africa, the Indian concern has been to reach other emerging African countries like Angola and Sudan. With energy gaining priority in African development agenda, the governments are equally keen to diversify their energy ties. There is an obvious synergy of interest between the two. In its strategy for overseas equity participation, India places high significance to Africa. ‘Africa is our major destination for equity participation in the oil and gas sector as countries like Libya, Sudan, Algeria, Angola, Nigeria and many other small republics of Africa are having considerable oil and gas reserves.’41 However, here too India needs to have an innovative approach, tilting more towards development. While going for equity acquisitions, India ought to safeguard local developmental aspiration.

Central Asia is another region that is rated very high in the Indian search for diversification. In the post-Soviet era, both India and the Republics have been keen to rejuvenate their relations. Energy is the key element in the emerging potential of economic relations because the region needs a market for its oil and gas and India is the emerging market. Ironically, the Central Asian hydrocarbon is highly politicized by global interests in the region. Hydrocarbon is emerging more as resources to finance security regime than development regime. Consequently, its developmental impact has been very limited. India too has demonstrated its intent to be in the regional energy arena accompanied by a growing involvement in the region’s security. It has a military base in Tajikistan and has helped the country against the Taliban. But such security contribution coming from the United States, China and Russia has not stabilized the region. The rich hydrocarbon of the region still is with high-risk zone to make safe long-term investment. In fact, the recent regime threat has further pointed out that unless development is not accomplished, peace and stability would remain a distant goal. Since religious radicalization of the region could have a spillover impact for India and other neighbouring countries, it is time that the stakeholders review the context and devise a suitable strategy—using hydrocarbon resources.

India along with Russia and China could explore the possibilities of redefining the role of hydrocarbon for regional development by linking it to the wider frame of development cooperation.

Sourcing Equity Oil Overseas

India intends to go overseas to acquire equity stakes to safeguard the supply risks. It proposes to invest to the tune of $25 billion42 to augment its oil production by 60 million metric tonnes per annum (MMTPA) from equity oil by 2025.43 Indian state-owned company, Oil and Natural Gas Commission (ONGC), has created a wholly owned subsidiary ONGC Videsh Limited (OVL) to actively pursue its interest in the world energy market in particular to look for overseas reserves. As nodal agency, OVL is assigned the task to augment production of hydrocarbons by sourcing equity oil and gas from abroad. It has acquired 14 properties in 10 foreign countries and is striving to further spread out in Vietnam, Russia, Sudan, Iraq, Iran, Libya, Syria, Myanmar, Australia and Ivory Coast. It is further pursuing oil and gas exploration blocks in Algeria, Australia, Indonesia, Nepal, Iran, Russia, the UAE and Venezuela. It has spent $1 billion a year in the last three years and plans to invest at least as much in the next few years. Its capital expenditure on overseas projects in 2004–05 is expected to be INR 75 billion ($1.6 billion).44 The total assets acquired by OVL at the end of 2004 are estimated at $3.5 billion. And the revised target from overseas fields is fixed at 20 mt of oil and gas by 2010 in place of 2020.45 OVL is actively engaged in dialogue and negotiations with more than a dozen countries spread over in the continents of Asia, Africa and Latin America. In 2003–04, total production was 3.345 mt of crude and 0.5 mt of gas.46 It expects to produce 400,000 b/d from its overseas properties by 2010–11, which includes its share of output from the Greater Nile Oil Project (GNOP) in Sudan and Sakhalin-1 in Russia. As strategy, OVL mostly buys part equity in oil and gas fields. It has 40 per cent in Iran, 60 per cent in Syria, 49 per cent in Libya, 25 per cent and 23.5 per cent in two blocks in Sudan, 20 per cent in Sakhalin-1 in Russia and 45 per cent in Vietnam. Only in Iraq, it is 100 per cent ownership. It has close ties with various oil multinational companies like British Petroleum, Exxon and Petronas. ‘Such partnerships allow leveraging on the local experience and expertise of partners.’47 An overview of the Indian equity is given below*:

  • Production Sharing Contract in Vietnam for gas field having reserves of 2.04 tcf, with 45 per cent stake in partnership with BP and Petro Vietnam. Gas production has commenced from January 2003.
  • 20 per cent holding in the Sakhalin-1 Production Sharing Agreement. The US$ 1.77 billion investment in Sakhalin offshore field is the single largest foreign investment by India in any overseas venture and the single largest foreign investment in Russia. It is scheduled to go on production during 2005–06.
  • Acquired 25 per cent of equity in the GNOP in Sudan, the first producing oil property. ONGC Nile Ganga BV, a wholly owned subsidiary, has been set up in the Netherlands to manage this property. Around 3 mt of crude oil is coming to India annually from this project. This is the first time that equity crude of a group of companies in India is being imported into India for refining by the group.
  • Discovered a world-class giant gas field ‘Shwe’ in Block A-1 (where OVL has 20 per cent share) in Myanmar, with estimated recoverable reserve of 4–6 tcf of gas.
  • Besides taking equity in oil and gas blocks and looking for stakes in E&P companies, OVL is also bagging prospective contracts (like the refinery upgradation and pipeline contracts in Sudan awarded to OVL on nomination basis due to its performance in that country), which will increase ONGC’s equity oil basket. ONGC’s strategic objective of sourcing 20 mt of equity oil abroad per year is likely to be fulfilled much before 2020. In fact, OVL is now eyeing a long-term target of 60 mt of oil equivalent per year by 2025.
  • Going by the investments (Committed: US$2.708 billion, and Actual: US$1.919 billion), ONGC is the biggest Indian multinational corporation (MNC).


Apparently, equity oil has become an important component of energy security strategy of India. Besides an investment of $2 billion for strategic acquisition of mid-sized companies for participation in exploration and production activities,48 India is also planning to participate in overseas refining capacity-building. In Yemen and Kenya, it is modernizing the refineries and in Nigeria looking for setting up of refining facilities.49 The proposals in pipeline include the projects in Libya and Syria. Libya’s proximity to Europe has tempted India to seek equity participation in the project. Similarly, refining projects in Iran could be the gateway to Central Asia. Two Indian companies are in the process of finalizing the $l billion project regarding Tehran and Tabriz refineries on nomination basis.

Sakhalin is the major equity investment made by India. The Sakhalin-1 project has three offshore fields: Chayvo, Odoptu, and Arkutun Dagi. Its hydrocarbon resources are estimated at 2.3 billion barrels of oil and 17.1 tcf of gas. It is operated by Neftegas Limited, which is a consortium of three companies namely Exxon Mobil with 30 per cent share, the Japanese consortium SODECO, 30 per cent; RN-Astra affiliates of Rosneft Russian state-owned oil company, 8.5 per cent, Sakhalinmorneftegas-Shelf, 11.5 per cent; and the Indian state-owned oil company ONGC Videsh Ltd, 20 per cent. The investment over the life of the project is calculated at US$12 billion, which is going to be one of the largest single FDIs in Russia. It will be developed in phases. In the initial phase, the Chayvo field will be developed and the production will start from the third quarter of 2005. It also includes a dedicated oil pipeline and terminal facility at DeKastri on the Russian mainland. The export of crude oil is scheduled from early 2006.

India has made a $1.7 billion investment in Sakhalin. This was the highest Indian investment in any single overseas project. This has been further enhanced by additional $1.07 billion and could go up to $3.5 billion. India has shown interest in Sakhalin-3 block and Russia has given its clearance. ‘India reportedly is mulling investing $1.5 billion in the Sakhalin-3 gas field and another $1.5 billion in the joint Russian-Kazakh Kurmangazy oilfield in the Caspian Sea, which has a potential of up to 1 billion tonnes of oil. India’s interest in the geographically close Caspian region hardly comes as a surprise. However, the Russian invitation to India to join the Sakhalin-3 project is indicative, notably because Moscow removed a US oil major from this giant gas field.’50

The second success story is the deal with Sudan on the GNOP. It is located near Khartoum, 435 miles away, south—west in the Muglad Basin. Port Sudan is the nearest export terminal on Red Sea. This is 930 miles away from the field. The project is owned by a consortium with China National Petroleum Corporation ( CNPC) having a share of 40 per cent, Malaysia (Petronas Carigali Overseas Sdn BHD, PETRONAS) 30 per cent and India (OVL) 25 per cent, and remaining 5 per cent with Sudan (Sudan National Oil Company, SUDAPET). OVL acquired Talisman’s 25 per cent participating interest in the GNOP on 12 March 2003. The upstream segment of the project is guided by the Exploration and Production Sharing Agreement (EPSA), while the downstream by Crude Oil Pipeline Agreement (COPA). With over a billion barrels of reserves, GNOP’s current production from 10 fields is in excess of 270,000 BOPD. The oil is pumped through 28 inches, 1504-km-long buried pipeline from Heglig Field to Port Sudan Marine Terminal. The project plans to add to the reserves by exploring in Blocks 1A, 2A and 4 to augment the production capacity to 300,000 b/d in the next five years. In the long run, the project aims to sustain this crude production capacity for at least three years.51

OVL achieved its first breakthrough when its Vietnam Project, involving the Lan Tay and Lan Do fields, started production in late 2002. Vietnam is OVL’s first partner country and ‘OVL is the first Indian company to produce oil and gas overseas.’ The project has been declared among the top three projects of national importance in Vietnam. OVL signed a petroleum sharing contract with Petro Vietnam on 19 May 1988 for three blocks 06, 12E and 19 in Nam Con Son Basin about 370-km offshore of Vietnam. Apart from Petro Vietnam, British Petroleum is a partner in this project. The seismic survey was started in the same year and data for 6,000 line kilometre (LKM) was acquired in the three blocks. The delivery of gas began in December 2000 from an offshore project in Vietnam to power utilities inland. The gas will be used to generate 40 per cent of Vietnam’s electricity needs. The exploration in South China Sea in 1992 and 1993 led to the discovery of the Lan Do and Lan Tay gas fields. The project, which has reserves of around 58 bcm, will yield about three billion cubic metres of gas a year.52 According to OVL sources, ‘OVL achieved a significant milestone when its gas sales revenue from Block 06.1 Vietnam project crossed US$100 million in December 2004. In addition, OVL has realized about US$11 million from condensate sales from this project so far. The project has also passed the planned gas production of 2.377 bcm for the year 2004, the actual for 2004 being 2.591 bcm.’53

In Myanmar, OVL in partnership with Daewoo (60 per cent), GAIL (10 per cent) and Korea Gas Corporation (KOGAS) (10 per cent) has acquired 20 per cent share in an offshore Block A-1. This is located about 75–100 km away from Rakhine coast of Myanmar near Bangladesh. It has the depth of approximately 50 m in north-east and 1000 m in south-west. In January 2004, the first well drilled in the block led to the discovery of 4–6 tcf of gas. The exploration plan is for more than five years, which started in October 2000. OVL is also engaged in to acquire Scottish Cairn Energy’s stake in the Sangu gas field in Bangladesh. Apart from the Sangu field, OVL is also interested in other blocks in Bangladesh and is in touch with the state- run petroleum corporation Petrobangla and the government.54

In Iran, three Indian companies, namely, OVL with 40 per cent of share, IOC with 40 per cent and Oil India Limited (OIL) with 20 per cent share as a consortium signed a contract with National Iranian Oil Company (NIOC) on December 2002 for exploration service. Having completed the first phase in time, the second year of exploration work is reported to be in progress. In four years’ time, the consortium has to undertake at least Minimum Work Obligation Study of 2,200 line kilometre LKM of previous two-dimensional (2D) seismic API of 17,000 line kilometre LKM D/Equivalent 3D and drilling of four exploratory wells. This marked the first step in India’s involvement for exploration of hydrocarbons in Iran.55

Iran has offered 20 per cent equity to India in its Kushk-Husseinieh oilfield. This will enable India to have 60,000 b/d. This is a semi-discovered oilfield in Iran and is expected to produce 300,000 b/d. OVL will do a detailed evaluation of this offer. GAIL, the lead agency for negotiating LNG imports, has already held three rounds of talks with the National Iranian Gas Exporting Company (NIGEC) on the term sheet for LNG SPA. A 20 per cent equity participation of GAIL in the LNG project is also being discussed with NIGEC.

Recently, IOC has negotiated a $3 billion deal to develop a gas block, one of the thirty phases of 500 sq. miles in South Pars gas field with estimated 436 tcm of gas reserves and to sell LNG from it. Indian company along with Petropars of Iran will undertake the project. The two companies are also going for a liquefaction plant that is dedicated to export 9 mt LNG every year to India and third-world countries.

In Iraq, India has signed a contract for the exploration and development of Block-8 in Western Desert on 28 November 2000 at New Delhi. Estimates suggest that the block has the reserves of 645 millian barrels. The contract provides that phase 1 would aim at reprocessing and interpreting of existing 2D seismic data, acquisition processing and interpretation of seismic survey of 1000 LKM of 2D and 300 km of 3D seismic survey. The period of the contract could be extended to three years. The minimum expenditure obligation for the contractor during the phase is envisaged at $15 million.56 In Libya, OVL has 49 per cent participating interest in two exploration blocks NC -188 and NC-189.The first is located in the Ghadames Basin 250 km south of Tripoli. It is rated as a relatively upcoming area with E&P activities. Five exploratory wells drilled in the block area show presence of oil and gas and two have oil discoveries. The second block is 800 km away from Tripoli in the Sirte Basin, which has well-established infrastructure. Both the basins have producing oil and gas fields. In February 2000, under the EPSA, exploration blocks were awarded to TPOC (subsidiary of TPAO, national oil company of Turkey) for 25 years with an initial exploration period for five years.57

Apart from OVL, other Indian companies too are going overseas for acquisition. HPCL, the second-largest public sector refiner from India, too has plans to acquire exploration and production acreage abroad.58 It is argued that overseas acquisitions are necessary to convert the company into a fully integrated oil company. Reliance Industries, the largest Indian private company, has been in Yemen and is looking for acquiring oil and gas blocks in Gulf of Oman and Qatar. ‘We look at all opportunities. There is a huge opportunity for India in emerging oil and gas fields in the Middle East and West Africa,’ Chairman Ambani told reporters.59 ONGC and Reliance had jointly bid for a field in Iraq during Saddam Hussein’s regime. ‘There is plenty of oil out there and there is enough for both of us to buy as much as we want,’ Raha (the then chairman and managing director) told Reuters. He said that ONGC might team up with Reliance for such projects.60

The emerging profile of the Indian search for hydrocarbons in the overseas suggests that despite competition, India gradually has been able to make entry. However, given the pressure of global oil regime especially in the emerging sources of supplies like Africa, the task is full of challenges.

Building Strategic Reserves

The strategic reserves are built to provide cushion against any emergency to provide temporary relief to price hikes of an extraordinary nature due to some mishap. As IEA makes it clear, this is ‘not intended to be deployed as a means to change the commercial terms in a market.’ So far, it has been used for emergency purposes only once during the Persian Gulf War in 1991. It is highly expensive proposition. Countries decide its volume on the basis of their risk assessment. America keeps six months of its oil consumption as reserves. ‘As of June 2004, the SPR, which has already cost the United States $20 billion, held 661 million barrels of oil, about 94 per cent of its full capacity. This oil, stored in limestone caves and salt domes in Texas and Louisiana, would cover in case of emergency just about 52 days of oil imports. According to the DOE, oil could be drawn from the SPR at a rate of 4.1m b/d for the first three months, falling progressively for the next seven months until reaching zero. Alternatively, it could be drawn down at a rate of one m b/d for a year and a half.’61

India is also working on creating such reserves due to its increasing dependence on external supplies. Besides heavy external reliance, excessive sourcing from the Gulf, which is perceived as volatile region, enhances its vulnerability. Currently, Indian reserves are to cover 19 days’ need besides a 45-day stock of petroleum products with oil companies which cannot be called the SPR in strict terms of its meaning. Indian assessment is to have the reserves up to 45 days. To find out suitable location, the government of India appointed a five-member team, which has identified Rajkot, Mangalore and Vishakapatanam with total capacity to stock five million tonnes of oil to have storage for two weeks.62 The cost for the storage facilities has been estimated at INR 16.4 billion. IOC is implementing it. India is consulting IEA on the subject, the latter is helping in this project. The Petroleum and Natural Gas Minister Ram Naik at one stage indicated the possible collaboration with the United States. Reportedly, he explored such possibilities during his visit to Bryan Mound Strategic Reserves in Texas in June 2003 and later sent a technical team to study the storage system there. The facilities are to be fashioned after US storage depots.63 India will be the first country in South Asia to construct strategic oil reserves.

The Growing Competition

The energy market is witnessing new competition with two Asian players taking bulk of the additional demand. While the impulse of the new competition could be felt across the global market, it is more visible in the Persian Gulf and Central Asian regions though Africa too is not free from it. The competition is more acute in buying overseas stakes. Apparently, India being a new and small player is looking for the residual market, which also happens to be the target of China. Hence, on many occasions India is facing China as its competitor. While India could make entry in the Sudanese project despite the Chinese efforts, it lost to China in Angola. In the Persian Gulf region, Iran again is the test case where the two Asians are bidding at cutthroat levels. China is new to the region but it has the clout of being a global power with membership of the Security Council and a track record of giving the United States not an easy time. Chinese presence in the Gulf region is impinging upon Indian negotiations. Reportedly, the official from IOC observed, ‘I see more difficulties in procuring LNG from Iran at a lower price now. The situation was very much different six months ago, but now with the coming of the Chinese who are buying LNG at a higher price, and also with the firming up of global crude prices, the situation has gone from bad to worse. The difference between our claimed price and their (Iran) offered price is set to increase further.’64

Chinese import of crude from the region has gone up to more than 50 per cent and Iran accounts for 13.6 per cent, second to Saudi Arabia that accounts for 16.7 per cent. ‘Analysts point out that once the MoU signed by China and Iran on the Yadavaran Oil-field Development Project is implemented, China is likely to overtake Japan and European countries in the area of international oil and gas development in Iran, becoming one of the largest investors in Iran’s oil and gas field.’65 The MoU envisages Syncope Group will buy 250 mt of LNG for over 30 years from Iran and develop the giant Yadavaran field. Iran is also committed to export 150,000 b/d of crude oil to China for 25 years at market prices after commissioning of the field. Recognizing the clout of China, the oil minister of Iran Zanganeh said in so many words that, ‘Iran wants China to replace Japan as its biggest importer of oil and gas.’66 Saudi Arabia is another country on Chinese radar. It is the number-one foreign supplier of crude oil. Here too, China has been using its clout and even used arms trade to build ties to be used in energy transactions. ‘As far back as the mid-1980s, China began to engage in military commerce with Riyadh, selling it 36 intermediate-range ballistic missiles, building two missile bases south of the Saudi capital, and deploying Chinese security personnel to maintain them. Though the missiles were highly inaccurate, they endowed Saudi Arabia with a military potential its neighbours could not ignore. With a range of 1,800 miles and capable of carrying a nuclear warhead, they could be used to strike any location between New Delhi and Tel Aviv.’67

China is engaged proactively in making its presence in Central Asia also. Oil in Central Asia is critically linked with pipeline investment. The Chinese have already undertaken the job of 1,300-km pipeline from Atasu in eastern Kazakhstan to Alashanku in China’s western Xinjiang province. ‘Atasu is already connected to Kazakhstan’s Caspian wells by a pipeline so when the Alashanku project is completed sometime next year, some 75 million barrels of oil will be pumped into China from more than 3,000 km away. A natural gas pipeline is also now under active consideration. Kazakhstan wants to lessen its dependence on the Russian route for energy exports; China’s insatiable appetite provides the perfect answer.’68 In Africa too, the Chinese stakes are growing. Africa provides 6.9 per cent of its oil imports. It has also contributed in the development of several oil fields, ‘built a 930-mile (1,512-km) pipeline, a refinery and a port. By far, Sudan represents China’s largest overseas investment, worth three billion US dollars.’69

The intensity of the competition is likely to escalate further and may even gravitate towards conflict situation. This will not weigh in favour of India. In the regional power configuration, Central Asia and the Gulf region are apprehensive of the US presence and hegemony due to its destabilizing consequences. The concerns have further heightened due to pre-emptive doctrine with which the region has suffered. A high Chinese stake will certainly compel China to take stand. Thus, China is perceived as the counterweight. Sudan, for instance, perceives that China would oppose any attempt to impose sanction on it. Yet, the countries would not like to be eclipsed by the power of the Asian giant. China with its emerging profile is seen as the power with hegemonic aspiration. The regional interest would be better served if the power asymmetry is corrected. India becomes relevant in this context. India has high stakes but does not have the might to defend it. But the region, as pointed out above, would not appreciate a mighty presence. Thus, its moderate capacity could become the strength if it is leveraged judiciously. This would require redefining the thrust and idiom of Indian diplomacy. Recognizing the limitation and strength, India is gradually pitching its policy in favour of cooperation than competition. The challenge for its diplomacy is to transform the emerging Asian competition into Asian cooperation.

Transnational Pipelines

Indian energy concerns demonstrated new dynamism when the Indian government decided to explore and execute transportation of natural gas from pipelines. Pipelines by their nature are a high-risk venture, but their impact both on development of the region through which it passes and on intra-regional conflicts have been positive. Therefore, many times these are described as peace pipelines. Certainly, they involve high diplomacy because more than one sovereign state is involved. They are vulnerable due to a tight chain, which means each interruption affects the whole chain and has high interdependence between seller and buyer and the transit country. As it is a transnational project, the risks are added up. But despite the constraints, the pipeline regime of gas transportation is growing fast.

Indian experience of offshore gas pipeline so far has not been successful. Oman and India explored the idea during 1993–96, but could not pursue due to technical difficulties.70 However, India has expressed the desire to revive the project. The Petroleum and Natural Gas Minister Aiyar reportedly said that laying a deep-sea pipeline would be difficult, but India and Oman could join hands to attempt it. ‘It is imperative for India and Oman to go for technological cooperation in this area so that we can go ahead with the prestigious project.’71 However, the prospects of pipelines have brightened up with India and Pakistan realizing that their energy interest would be better served if they look at them in positive frame. Both are aware that in the next 10–20 years, progress critically hinges upon imported energy. This was rightly reflected in the joint communiqué issued at the end of the three-day Islamabad-New Delhi energy talks held in June 2005, ‘there is a general realization that the three gas pipeline projects—IOI, QPI, and TAPI—should be taken up because energy needs of the two countries will increase with the growth of their economies. The transnational pipeline projects should be given top priority as they carry substantial advantages for the two countries.’72 India is currently working on four proposals:

  1. Iran-Pakistan-India
  2. Myanmar-Bangladesh-India
  3. Turkmenistan-Afghanistan-Pakistan-India
  4. Gulf-South Asia pipeline

The negotiations in case of the first proposal are relatively at a more advance stage. All the three partners are keen for its implementation; however, delay due to American intervention cannot be ruled out. So far, both India and Pakistan have underplayed the US factor and are moving ahead with it. The second proposal appears to be moving with steady progress. The 290-km pipeline brings gas reserves at Shwe field in Block A-1 in offshore Myanmar as well as volumes that are expected to be discovered in its adjacent Block A-3. This would pass through Arakan (Rakhine) state in Myanmar and the Indian states of Mizoram and Tripura before crossing Bangladesh to Kolkata. The third proposal supported by Asian Development Bank (ADB) too has received a boost with Turkmenistan and Afghanistan agreeing to speed up work. India, so far not partner in the project, has expressed its intent to join it as it has given up the demand for transit facilities for its goods and products ‘to Afghanistan and beyond through Pakistan as a pre-condition.’73 The US$3 billion Gulf-South Asia (GUSA) also described as Qatar-Pakistan-India (QPI) pipeline is likely to be 1,186-km long, with one intermediate compressor station at Diba in the UAE. Initially, the gas flow would be 1,600 million cubic feet per day (mcf/d) and would reach Pakistan’s Jiwani near Gwadar. ‘The Sharjah-based Crescent Petroleum submitted a draft agreement to Islamabad in July last year for a 1,610-km offshore pipeline along the Iran-Pakistan coastline up to Jiwani, near Karachi, to transport 1.6 billion cubic feet of natural gas with an off-take of 1,000 mcf/d from 2005 onwards.’74 A high-level Qatari delegation, led by minister of state for foreign affairs during its visit to India in June 2005, met the Indian Minister of Petroleum and Natural Gas Mani Shankar Aiyar formally and invited India to be a part of the Qatar-Pakistan gas pipeline.75

Looking at the South Asian energy demand, all the four proposals need fructification. However, given the politics of these pipelines, care has to be taken that these proposals do not evolve into mutually competitive frame. Apparently, the United States would be keen to lend support to Turkmenistan-Afghanistan-Pakistan (TAP), Pakistan might find more comfort with Qatar, and India might show inclination towards eastern flank. The economics does weigh in favour of first proposal, but the political variable might escalate political cost. This underlines that nuance energy diplomacy does not ask for compromising on hard bargaining but demands delicate handling of the sensitivities of these projects.

Having outlined the dynamics of Indian concerns, a detailed account of the regional perspective given in the following chapters would help to evaluate the emerging profile of India as the energy player.