India's Marginal Oil and Gas field policy remains at the Margin

India’s oil and gas sector remains moribund with new polices falling flat

India’s energy sector particularly the coal and solar sectors have been on a roll while wind energy has also taken off in the last one year. The dramatic performance of these sub sectors has pushed India from a chronic deficit situation to a surplus situation. Though the surplus is causing headache for power generators looking to sign PPAs with discoms, it is a happy problem to have for the Indian economy where electricity is now becoming cheap and abundant.

Unfortunately the same cannot be said of the oil and gas sector which remains in a moribund state. The pricing policy for gas has not been too good, leading to losses for companies that produce gas. A complex formulae for gas has led to the price of domestic gas falling to $2.5 per mmbtu, which means that companies with even exiting fields are losing money. This means that nobody with the right mind is going to invest a single dollar in India’s gas sector. The government has doggedly refused to revise the policy as it fears it will come under political attack for favoring large industrial groups which have an interest in gas exploration and production (read Reliance). No big global oil and gas major is investing in India with BP having burned fingers after investing in the KG-6 oil and gas basin recently.

BPCL Refinery

While the policy to provide subsidized gas to India’s stranded gas power plant using cheap LNG has worked somewhat, increasing oil and gas production in India remains a dead project. The government’s new policy of auctioning marginal  oil and gas fields that state owned firms are not willing to invest has fallen flat on its face. Despite numerous roadshows and hoopla, the government department has failed to generate enough interest in the 61 oil and gas fields that have been placed in the public domain.

The government is now extending the date of auction as not enough bidders have expressed interest in putting in bids for these fields. India needs a radical makeover of its oil and gas policy rather than going for piecemeal actions like this marginal field policy. Trying to sell leftovers to investors does not make sense. Having a transparent policy with good enough incentives for explorers is the way to go, particularly when  the world is awash with good opportunities in the face of falling oil and gas prices. Nobody is going to put millions if not billions of dollars in India which is not a great place for prospecting anyway.

Fearing poor response, the government is likely to extend by at least one month the last date of bidding for the auction of 46 small oil and gas fields that were “given up” by state-owned ONGC and Oil India. There are apprehensions about the response after prospective bidders complained about the quality and amount of data being made available on the fields that have been put on offer, sources privy to the development said.

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