Ashu Sagar, Secretary-General, Association of Oil & Gas
Operators (AOGO) speaks to Neeraj Dhankher on the key
issues facing the oil and gas sector and the focus areas for
the new government.
What, according to you, are
the key issues in the oil and
gas sector which needs urgent
attention of the new government?
How can the same be resolved?
The key issue in Oil & Gas and
Sector is to create the confidence
that the Government can be trusted
to maintain the sanctity of contract,
and that it genuinely believes that
expediting the work to efficiently
explore and maximize production are a
National Priority and in the interests of
Energy Security.
During the last few years the
Government has done all it could to
make the industry suspect Government
intent on all the above counts.
During 2013, Government had taken
proactive actions, in brain storming with
industry on various issues. Jointly some
solutions were proposed to issues which
had been major job stoppers during
the earlier years. Many of these were
half way house solutions but indicated
a sincere desire to trace a new path.
Industry welcomed the effort and the
Government commitment to implement
the same within 2013. During a meeting
with the Oil Minister in November
2013, the industry had boldly expressed
a “cautious optimism” believing the
Government commitments.
In actual practice nothing
was implemented.
When one partner loses faith in the
sincerity of the other partner, the key
issue is obviously to restore that faith. If
it is not done at the earliest, I am afraid
the future of the contracts cannot be
very bright.
The deferral of gas price hike by
the Election Commission has met
with lot of opposition. What are
your views in this regard? Do you
feel, the deferral could/should
have been avoided?
There is a legitimate Government in
position, which has all rights to take
all decisions. It shall remain there till it
resigns post the submission of election
results by EC. Only in case of decisions
that affect the Election process is it
required to get the concurrence of the
Election Commission.
Before the elections were announced,
the decision to implement Rangarajan
Formula for Gas prices effective April
1, 2013 was announced and notified.
The decision envisaged calculation of
Gas Price according to the announced
formula. The calculation based on
this formula was to be carried out
by a Government Department two
weeks before the start of quarter which
therefore falls on March 15, June 15,
Sept 15 & December 15 of every year.
The formula calculation involved
no decision. It was essentially an
arithmetic exercise.
As no decision of any kind
was envisaged, the decision
to seek EC approval was
misconceived and unnecessary.
It seems that the election commission
did not realize that there was no
real decision involved. On the other
hand deciding not to announce the
calculation, shall effectively suspend
sale on the contracts which were valid
only till March 31, 2013. It would now
require the Government to take a new
decision, over-ruling the earlier CCEA
decision that had been already notified.
Now this new decision changing prices
from Rangarajan Formula to earlier
prices may need to be approved by EC.
Thus we are in somewhat peculiar
and uncertain position today on the
legal status of various issues concerning
gas prices and gas sales on the
suspended contracts.
This was wholly unnecessary
and avoidable.
As a representative body of the
upstream oil and gas industry
in India, how do you assess
the investor mood in India to
be today?
As I have already mentioned, there is
a lack of comfort in the Government
honouring the sanctity of contract.
Gas prices are just one of the many
components of this situation.
There are significant issues – to name
a few mineral oil definition and tax,
ring fencing or continuing exploration
subsequent to the start of production
which make little sense in an oil
importing economy.
If the Government does not think
that it needs a benchmark for decision
making, and is seen to uphold it, then
it is unlikely that investors can feel
comfortable and be brave enough to bid
for new acreages.
How do you assess the
development of shale gas in India
so far under ONGC and OIL? Do
you feel shale gas can contribute
significantly to India’s energy
basket?
Exploring tight rocks whether for Gas
or Oil and whether Shale or Sandstone
is a new ball game. There is no magic
lamp that you can rub utter “Open
Sesame” and the Genie shall start the
flow of Shale Gas. It doesn’t matter
whether company prospecting is ONGC
or OIL or a private company whether
Indian or Foreign.
If we want to explore “Tight Rocks”
on a meaningful scale – we need a
“mission czar”, who understands the
“Macro Issues” and has the authority
to move across the Ministries and
Governments, and bring them to a
table to solve these in a time bound
manner. The “Stake holder” and the
“Societal & Environment” issues are
too large to be solved through a drift, or
by any one company, as it seems to be
happening at present.
We don’t know what contribution
“Indian Shale Gas” shall make to Indian
Energy Basket. We don’t know when
it shall make the contribution. We also
don’t know anyone who seems to know
the answer to it.
where the rate of return on risk capital is
most attractive. At the present there are
more attractive destinations.
What kind of technological
innovations and interventions
are required to tap the Indian
sedimentary basin for oil and
gas? How can the private sector
contribute in this regard?
We have not yet seen a company not
being able to procure a technology
provided it was willing to pay the price.
What is required at this time are the
“Operating Environment” measure
like separating facilitation, regulation
and policy making, providing a stable
administrative and fiscal environment,
transparency in decision making
where all stakeholders can sit together
and find solutions.
On the other side it is most important
to make exploration competitive.
It requires strong measures to cut
unnecessary costs and taxes on this part
of the activity, as well as de-risking
the Geology. Very little has been done
in these areas, and what is proposed is
on a very slow burner. Apparently we
are not yet appreciating the full extent
of our needs.
How do you see the LNG industry
in India shaping? There has
been an effort on the part of the
government to involve domestic
shipyards in manufacture of
LNG ships. Do you feel it is a
good move?
LNG is the short to medium term
solution to balance the hydrocarbon
basket, and sustain the growth. It
has a higher certainty than frontier
exploration. The Government needs to
do all it can to encourage this industry,
whether it is building transport or
FSOs, Shared Regassification terminals,
Pipelines, Dedicated consumption
hubs etc. All we can say at this time that as
long as USA and China keep finding
and producing adequate Tight Rock
Hydrocarbons, the global demand
pressures shall moderate and we shall
be able to import energy at relatively
reasonable prices.
Companies like ONGC have not
been able to increase input from
its oil and gas fields for so many
years, resulting in large scale
import of both crude oil and gas.
Do you feel domestic reserves are
enough to cater to the increasing
demand or looking for overseas
equity a better option?
First of all, India has a very challenging
Geology. Second, very small fraction
of it is explored at all. Third, almost
nothing can be said to be very well
explored. Our well densities are
amongst the lowest in the world.
Fourth, there was a time whether
current high production economies
China were in the same boat. They made
it a mission and got out of the situation
by extraordinary measures. Whether
we can do it or not is an open ended
question, requiring political will to bite
the bullet. There is however no doubt
that it is a huge challenge that requires
extraordinary measures.
Equity Oil overseas is a huge relief
against Forex impact on the country
and should be pursued. It does not
add anything to fulfill the domestic
demand. For catering to domestic
demand you need lot of money in USD
to buy oil, and hope for a sustained
peace and adequate global availability
of Hydrocarbons to meet the global
demand. To give equity oil the flavor of
a strategic reserve, we need to diversify
sources, encourage private equity in the
game and most importantly create naval
capacity to guard our sea lanes.
The domestic production therefore
has its own unique position, which
equity oil cannot replace. As far as
private capital is concerned, it shall go where the rate of return on risk capital is
most attractive. At the present there are
more attractive destinations.
What kind of technological
innovations and interventions
are required to tap the Indian
sedimentary basin for oil and
gas? How can the private sector
contribute in this regard?
We have not yet seen a company not
being able to procure a technology
provided it was willing to pay the price.
What is required at this time are the
“Operating Environment” measure
like separating facilitation, regulation
and policy making, providing a stable
administrative and fiscal environment,
transparency in decision making
where all stakeholders can sit together
and find solutions.
On the other side it is most important
to make exploration competitive.
It requires strong measures to cut
unnecessary costs and taxes on this part
of the activity, as well as de-risking
the Geology. Very little has been done
in these areas, and what is proposed is
on a very slow burner. Apparently we
are not yet appreciating the full extent
of our needs.
How do you see the LNG industry
in India shaping? There has
been an effort on the part of the
government to involve domestic
shipyards in manufacture of
LNG ships. Do you feel it is a
good move?
LNG is the short to medium term
solution to balance the hydrocarbon
basket, and sustain the growth. It
has a higher certainty than frontier
exploration. The Government needs to
do all it can to encourage this industry,
whether it is building transport or
FSOs, Shared Regassification terminals,
Pipelines, Dedicated consumption
hubs etc.