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We need clarity over gas pricing, Sashi Mukundan, Region President & Head of Country, India, BP Group Companies

20 Dec 2012

British Petroleum, today, has the largest international oil company presence in India. Not only does the company has a foothold in E&P segment, it also has a strong presence in segments such as lubricants, petrochemicals and oil and gas trading. BP is also investing highly in advanced deepwater technology so as to bring value to its E&P ventures in India. Speaking to InfralinePlus, Sashi Mukundan, Region President & Head of Country, India, BP Group Companies, talks of various facets of the company’s presence in India as well as its future roadmap. Edited excerpts:

Please give a brief overview of BP’s businesses in India today

With an investment of $8 billion and employing over 8500 people, BP today has the largest international oil company presence in India. Apart from E&P, BP’s India activities include lubricants (through Castrol), petrochemicals, oil and gas trading, offshoring into India, staffing and training its global marine fleet as well as recruiting Indian talent for its global businesses.

BP is investing in technology and talent development in India. In E&P, we are bringing advanced deepwater, giant field and gas value chain technology and expertise to India.

In Castrol, a global R&D centre for developing advanced technology for its global operations is planned in Mumbai. For Petrochemicals, BP licensed state of the art technology to manufacture Purified Terephthalic Acid to JBF Petrochemicals in Mangalore and Paraxylene for use by RIL for the world’s largest aromatics complex in Gujarat. In addition, BP is a partner to the Indian Fund for Sustainable Energy (INFUSE) at the Centre for Innovation, at IIM, Ahmedabad.

Last year, you decided to partner with Reliance Industries Ltd. (RIL) in a landmark agreement. What does this agreement mean for both companies and India’s oil sector?

In a historic partnership with Reliance Industries Ltd (RIL) in 2011, BP took a 30% stake in 21 oil and gas production sharing contracts in India, including the producing KG-D6 block and the formation of a 50:50 joint venture to source and market gas in India – India Gas Solutions Private Limited (IGS).

This positions BP as the only international energy company present across the full gas value chain in one of the fastest growing markets in the world. More than a year later, our technical assessments continue to support strong resource potential.

The BP – RIL partnership leverages on unique synergies and creating a win-win scenario for India, RIL and BP. With this deal India gets single largest foreign direct investment, a positive signal for international investors, recognition of its potential oil & gas reserves and more gas in support of India’s growth. For RIL, it provides deepwater technology and experience, access to BP’s integrated gas value chain skills and share exploration risks. And for BP, this partnership offers a distinctive position in India to build on its deepwater leadership and an access to the fast growing Indian gas market.

What has been your experience so far in India? Has the partnership with RIL and your investments worked out the way it was envisaged?

It has been an interesting journey and our experience clearly shows that to succeed in this market, partnerships, perseverance and patience are the key. The highpoints have been agood working relationship and alignment with RIL; rapid buildup of capability to get ready for increased activity and leveraging on unique synergies to create value.

At the same time, challenges exist including the pace of regulatory approvals, gas market reforms, policy framework and tough operating conditions (weather windows, deep-water, high pressure/temperatures).

It has been an exciting journey and we are really keen to partner India in its quest for energy security.

What is your assessment of the potential of oil and gas market in India? How does one go about unlocking this potential?

India clearly has the potential to find more oil and gas if it can attract the investment, technology and capability to find and develop the resources, however changes will be needed.  Market distortions need to be removed, fiscal and contract stability is required, and the right incentives need to be put in place to attract more energy investment.  India’s significant untapped oil and natural gas resources hold real potential to make an ever increasing contribution in the future. To bring this resource to market will require a never before experienced investment inflow along with technology transfer, infrastructure, and capability build-ups. 

What are the few key things needed to kick-start the Indian E&P sector?

Across the globe we see governments stimulating growth by addressing policy issues in key sectors. First, they provide absolute clarity on the regulatory regime, and honour the contracts they put in place.  Second, they make the government approval process as efficient as possible, focused on partnering with the industry to drive development.  Third, when trying to attract major investment, they put in place a generous fiscal regime with globally competitive pricing.  Last, they push local talent towards it – putting in place scholarships, encouraging entry, so that they can make this both a local and international sector.  I believe that if India took these steps, the E&P sector could expand rapidly and help bring clean, affordable energy to Indian consumers.

The critical synchronization of resource supplies, infrastructure build-up, and market development need enabling factors and policy consistency to drive activity. The momentum for all this can come from better energy policies, regulations, and administrative capabilities to enhance the existing risk/return balance more in favor of India as opposed to other parts of the globe. Better collaboration between the Government of India, its energy regulators, and both domestic and global industry players, is the need of the hour.

What is the future roadmap for BP’s upstream venture into India? What would you need to achieve this?

Since forming the partnership in 2011, the BP-RIL combination has been working to increase E&P activity across different basins in India.  We have so far developed options to extract more from the existing fields under production in the D6 block and are poised to execute the “Next Wave” of projects to bring over 5 tcf (trillion cubic feet) of discovered gas resources to market.  We are getting ready to restart exploration drilling to discover more resources.  In addition, to import LNG, IGS would leverage BP to secure global supply and set up infrastructure to receive and market gas in India.

To be able to unlock this prize and facilitate further investments there are a few areas that require clarity and support from the Indian government.  We need clarity around gas pricing in order to enable the very material ($10 billion gross) investments to bring the “Next Wave” of already discovered gas to market, enable new exploration, and provide flexibility to manage the risk/reward balance in a dynamic oil price world.  An oil-linked price as in the case of oil, petroleum products or LNG will provide the incentive and economics to explore and develop the deep water and frontier basins since E&P costs closely track oil prices.  We also need more proactive and enabling decision making to support accelerated activity to bring discoveries to production.

In terms of operations in India, how would you surmount challenges in India?

Beyond 2014, we expect a market-linked gas pricing regime to prevail.  This recognizes that a transparent, arms-length and competitive pricing framework is essential for India to enhance exploration and production activity and develop its own energy security.

To date we have an approved Field Development Plan for the first new satellite development in D6 and also approval for the KG D6 seabed survey work to progress the “next wave” of projects. We will continue to work with the Indian government, authorities and regulators to demonstrate the value that BP brings to oil and gas operations in the country.

Overall how do you see BP getting long term value from its presence/investments in India?

Firstly, from the substantial medium-term opportunities for developing the already discovered gas; secondly from finding new oil and gas through the re-start of exploration activities; and thirdly from establishing our gas marketing joint venture in one of the fastest growing markets in the world.

(InfralineEnergy thanks Sashi Mukundan, Region President & Head of Country, India, BP Group Companies for sharing his valuable insights with our readers. The column 'In-Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)