How India can meet its challenges in oil & gas space?

India needs to march towards becoming energy self sufficient to meet its burgeoning demand for oil and gas, failing which, its current account deficit will reach unsustainable levels and the economy will be at a risk of collapse. A robust and coherent policy, that supports investments in projects, along with technology acting as a catalyst can enable India to overcome its energy crisis. To meet the burgeoning demand for oil and gas the Directorate General of Hydrocarbons (DGH) has outlined the hydrocarbon vision 2025. One of the major initiatives under this was the opening up of the hydrocarbon market. So that there is free and fair competition between the public sector enterprises, private companies and other international players thus aiming to reduce imports by 50 percent by 2020, 75 percent by 2025 and eventually achieve self-sufficiency by 2030.But to encourage private and foreign investment, the government needs to get its policy on exploration in place. DGH acted as a nodal agency for the implementation of New Exploration Licensing Policy on NELP, which was conceptualized by the Government of India during 1997 to 1998 to provide an equal platform to work public and private sector companies and exploration and production of hydrocarbons. Before implementation of the New Exploration Licensing Policy or NELP in 1999 a mere 11 percent of Indian sedimentary basins were under exploration, which has now increased extensively over the year. Nine rounds of NELP have been completed till now. The private or joint venture companies contribute about 46 percent of gas and 16 percent oil to the national oil and gas production. The Mangala fields in Rajasthan and Krishna Godavari basins have been the major source for oil and gas. However, NELP hasn’t been the game changer for the sector that it was expected to be. As only 16 of the awarded have been developed so far as well as the dwindling output from these blocks has further intensified the problem. The country has an estimated sedimentary area of 3.14 million square kilo meters comprising 26 sedimentary basins. As per the statistics of the Directorate General of Hydrocarbons or DGH at the end of the FY2010-2011 about 34 percent of these total sedimentary areas were either unexplored or poorly explored. So, the need of the hour is to tap this huge potential for hydrocarbon discoveries by a well thought-out policy on exploration coupled with advance technology to tap unexplored basins. So, how can the country meet its challenges in the oil and gas space? CNBC-TV18’s Shereen Bhan sat down with Banmali Agrawala, President and CEO-South Asia, GE; Vipul Tuli, Director, McKinsey & Company; SC Tripathi, Former Oil Secretary; Vikram Singh Mehta, Chairman of the Brookings India Institute and P Elango, CEO of Cairn India to discuss the issue. Shereen: Do you believe in that sense that 2013 has been a turning point because for perhaps the very first time the government has tried to address the disease and not the symptoms that ail this sector?Mehta: I think you are right. We give credit where credit is due and there is no doubt the government has taken some very important incremental steps but we should also recognize that – I do not think it had any other alternative. The fact of the matter is that the oil companies were facing an under recovery, which is euphemism of loss between 150,000 crore to 175,000 crore; this was completely unsustainable. The fact of the matter is that if the fiscal deficit needed to be put under control, we would have to bridge this gap between the price at which we buy or the cost at which we buy and the price at which we sell petroleum products. So, the formula of incremental price increases and the capping of LPG cylinders is one that it is politically feasible. It is also something that was inevitable but unfortunately I have to say that this has come too late in the game because there has been a lot of investment that has not taken place because of the losses incurred by these companies. Shereen: As the former oil secretary, would you agree that while it’s a step in the positive direction, it is perhaps as Vikram Mehta was pointing out, too little too late. Investor confidence has been hurt so badly specifically with regards to the oil and gas sector and that is because we have gone back and forth as far as policy is concerned. Hence this is an issue; this is sector that needs to be dealt with, needs to be addressed on an urgent basis and I hope committees or another committee is not the answer because that certainly seems to have been the problem?Tripathi: It is too little too late and let us look at the overall energy scenario and then place hydrocarbon sector. Hydrocarbon, India is not very rich in hydrocarbon deposits, according to geologists; we have only about 1 percent of global reserves. So, while we should do our utmost to find hydrocarbons here and have policy parameters, which encourage risk capital and best technology to explore and produce, I think we should go outside also, acquire oil assets, explore and produce and we should focus on coal and nuclear as well because with the best intentions and with best policies, we will continue to be a major importer of hydrocarbons. I do not believe we can ever become self-sufficient in hydrocarbons. Shereen: Do you believe that at this point in time we are better positioned. We may not get to the DGH vision 2025 but at least we are better positioned in terms of being able to attract critical technology as well as critical foreign direct investment?Agrawala: Certainly things are better than they were before. There is realisation that we need to do exploration over here. What we also need to understand is that high technology also comes with its own cost and therefore it needs to reflect in pricing in one go the other. The second is about scale. I think when we talk about exploration and we compare India with other parts of the world, unless and until we do things on scale, we will not be able to attract the best of technologies, the best of people to come and work over here and make investments here. Shereen: On both those issues – on scale as well as pricing at least as far as pricing is concerned, do you feel better today than you did 12 months ago because there have been changes that have made specially as far as gas is concerned for instance?Agrawala: Certainly, I feel much better and with the recent decision of the cabinet to increase the gas price. I think that is a sign in the right direction. It should hopefully spur further investment which is so desperately needed in the sector and if we are able to show scale, I would even argue that manufacturing and technology companies would look at setting a base in India for the purpose of further localisation because they see a clear opportunity over here over an extended period.Shereen: What could come in the way of that?Agrawala: It’s scaled relative to other countries, other regions in the world. The other part of course is about skills and trained people. This is a sector that takes in a lot of investment but if you look at the skilled and trained people that are available, I think they are really scarce. So, you need to put in some effort there as well and my sense is that if we can show the opportunity, all this will fall into place.