No. 3, 2004

Prof. Vladilen Kashchavtsev, Dr. Sc


New prospects emerge in the energy dialogue between Russia and India

The Indian society recognizes that the foundation of the country's modern oil and gas industry was laid in the second half of the 20th century with the help of Soviet experts. The economic ties between Russia and India weakened by the collapse of the Soviet Union in 1992 are now witnessing a revival of bilateral cooperation in the energy sector on the basis of traditional friendship and trust.

A basis for creation

India's first oil field, in the eastern state of Assam, was apparently discovered in 1860 by hunters following the oily tracks of elephants. Real oil discoveries were made, however, by Soviet experts in the second half of the 20th century. After a successful visit to Moscow in 1955 by Prime Minister Jawaharlal Nehru, Delhi asked Moscow to estimate India's potential oil and gas reserves. Then a group of experts, headed by geologist Nikolay Kalinin, visited India and in 1956 the first geological oil map of the country appeared. Subsequently, the Indian government approved a Soviet-drafted prospecting program and, in 1958, with the help of Soviet experts, the Cambay oil field was discovered, followed by the huge Ankleshvar oil field in 1960. India's special pride, however, are still the big oil fields discovered on the sea shelf after a Soviet team of marine seismologists mapped the Bombay dome structures from aboard the Akademik Arkhangelsky in 1967. Russian geology professor Nikolay Zapivalov, who took part at that time in the marine seismic survey of the Gulf of Bombay, forecast that, within 15 years, oil production in India would reach 180-220 mln. barrels. His forecast materialized, even though the country produced a mere 7.4 mln. barrels of oil at the time.

It may be added that new oil fields were discovered with the help of Soviet experts: Kalol, Galeki, Sobhasan, Balol, Samtar, Lakwa, Lakhmani, Changpang and others. Oleg Glotov, senior advisor to the State Oil Committee of India (1964-1967), who received a high Indian award, Professor Nikolay Yeryomenko, head of the research and training center in Darudun (1962-1969), whose name is borne by a scientific library, and many other Russian experts are remembered kindly to this day.

In the 1960s the Soviet Union helped India to build the major refineries in Koyali, Barauni and Mathura, whose aggregate capacity added up to 176 mln. barrels of crude a year. Subsequently, the Koyali refinery in Gujarat achieved a capacity of 88 mln. barrels a year and became the second biggest refinery in India. There are now 17 refineries in India whose annual aggregate capacity tops 809 mln. barrels of crude.

Until 1955, the exploration and development of oil and gas fields in India was carried out by Western oil companies, mainly Assam Oil Company, Burmah Oil Company and Standard Vacuum Oil Company. Subsequently, the Indian Government decided to concentrate the development of hydrocarbon resources in its own hands. Towards the end of 1955, the Oil and Natural Gas Directorate was formed to become later a huge government-owned corporation for oil and gas exploration and production.

All private companies operating in India were gradually brought under government control. For example, in 1981, the joint venture OIL (Oil India Pvt. Ltd.), set up in 1959 on the basis of Burmah Oil Company and Assam Oil Company with the participation of the Indian government, became fully government-owned. The then enforced government monopoly on oil and gas exploration, development and refining restricted the Soviet Union's direct participation in the development of India's oil and gas industry.

Unfortunately, with the collapse of the Soviet Union in 1992, the economic ties between Russia and India were considerably weakened. The volume of bilateral trade fell by more than two-thirds to only just over $2 bln. a year. The last decade of the 20th century saw a liberalization of the economies of both Russia and India.

On the way to restructuring

India does not possess sufficient explored hydrocarbon reserves to satisfy the country's domestic demand. Given its own production rate of about 700,000 barrels a day, India cannot satisfy its daily domestic demand which has now reached more than 1.6 mln. barrels. The gap between the consumption and production of oil is expected to widen. In order to avoid the country becoming totally dependent on imported oil and other energy sources, in the early 1990s, the Indian government initiated a reform of the oil and gas sector. The first step was a restructuring of the industry with the involvement of both Indian and foreign private companies. The government's share in the country's leading corporations, ONGC and OIL, began to fall. The three biggest refining companies in India - Indian Oil Corporation Ltd. (IOC), Hindustan Petroleum Corporation Ltd. (HPC) and Bharat Petroleum Corporation Ltd. (BPC) - are transferring part of their resources to hydrocarbon production. The emergent alliance between the giant IOC refiner and the leading ONGC producer testifies that industry restructuring involves creating vertically integrated holding companies. Moreover, it is planned to set up joint ventures: for instance, HPC will produce oil and gas within the framework of the Prize Petroleum Ltd. joint venture, as well as together with the French TotalFinaElf corporation. Apart from encouraging joint projects with foreign companies, the Indian government is creating conditions for setting up wholly private companies. India's first private refinery, Reliance Petroleum Ltd., has made its debut. The Indian government has also approached 14 different companies to set up private refineries. The volume of refining in India is not great: the country's refineries turn out only 1.35 mln. barrels a day while daily petroleum products demand stands at 1.5 mln. barrels. In order to remedy the situation, in April 1998, a liberalization of refining and marketing was officially announced in India. For example, the Indian government established a procedure according to which any foreign company that invested over $500 mln. in developing India's fuel and energy complex automatically obtained the right, alongside the government-owned IOC company, to sell petroleum products on both Indian and foreign markets. Moreover, refineries will soon enjoy easy tax treatment.

Thus, reduced government influence in the oil and gas sector during the last decade of the 20th century broadened access to the Indian market, Russia included.

Revival of the energy dialogue

In December 1998, an agreement was signed in Delhi between LUKOIL President Vagit Alekperov and the IOC Chairman Mohammed Asad Pathan on long-term (over a period of 10 years) supplies of oil and petroleum products worth some $1.5 bln. per annum. Prospects emerged for JSC LUKOIL to attract Indian investments into the development of Caspian and Timan-Pechora resources, while IOC offered the Russian partner promising sectors on the Indian shelf. Thus, at the beginning of the 21st century, Russian-Indian relations in the oil and gas sphere began to improve again.

Russia and India entered the new century as strategic partners. Both countries face formidable challenges in their fuel and energy sectors. Proven reserves of hydrocarbons have to be increased through prospecting for and exploration of new fields. There is a need to use enhanced oil recovery methods to increase the payback from old accumulations.

India's priority task is to boost its refining sector. The country's recoverable reserves, as of January 1, 2004, are estimated at 5.4 bln. barrels, and this figure is constantly falling owing to the depletion of the country's biggest fields in the Upper Bombay basin.

Knowing that Russia has experience of integrated basin analysis, the Indian side asked for help in assessing and organizing hydrocarbons exploration on the territory of the other 20 basins.

Agreement was reached between Russia and India on the exploration of oil and gas fields in the Bay of Bengal. A contract was signed with JSC Gazprom on developing the promising gas-bearing block on the shelf of the Bay of Bengal, including the performance, over a 7 year period, of marine seismic surveys and the sinking of exploratory wells to a depth of up to 6000 m. Agreement was also reached on carrying joint prospecting work by India's ONGC and Russia's Rosneft on blocks obtained by the Indian company by winning respective tenders. The Tyumenneftegeofizika company of Russia has won an international tender for carrying out seismic survey on the territory of India, and is currently implementing the relevant contract.

Russian JSC Zarubezhneft and India's ONGC have signed and are now fulfilling a well drilling contract in the state of Assam, and spare parts for well overhaul equipment are being supplied.

Russian construction company Stroytransgaz has signed and is now successfully developing business contacts with public and private Indian corporations for cooperation in constructing pipeline transport facilities in various parts of India.

India and Russia are united by their common interest in the prospecting for and exploration of major hydrocarbon fields in oil- and gas-bearing regions already explored. In addition, considerable attention is being focused on the joint prospecting and development of so-called nontraditional sources of oil and gas accumulations.

Further developing the depleted but still producing oil and gas fields by modern EOR methods is an even more serious problem for India. Whereas Russia has a wide range of such methods that might be used successfully in India.

In the long-term run, the Indian government is planning to move away from petroleum product imports and to concentrate on importing only oil and natural gas. As the country's refining capacity increases, India intends to become South Asia's biggest exporter of petroleum products. There are potential opportunities for Russia to participate in the development of India's refining and petrochemical industries.

Within the Sakhalin-1 project

India attaches major significance to establishing partnership relations with the Russian Far East, where the Sakhalin shelf projects are a major area of cooperation. Leading experts forecast that over the next decade Sakhalin will be one of the most rapidly developing regions in Russia. Oil and gas production on Sakhalin began some 70 years ago. Over the past 20 years, several major hydrocarbon fields were discovered to the north-east of the island: the Odoptu (1977), Chayvo (1979), Lunskoye (1984), Piltun-Astokhskoye (1986) and Arkutun-Daginskoye (1989).

According to preliminary estimates, the aggregate oil reserves of the Sakhalin shelf amount to 29.4 bln. barrels and of natural gas - 340 bln. m3.

The Government of India approached the Russian Government with a request to consider the question of ONGC acquiring the share in JSC Rosneft in the Sakhalin-1 and Sakhalin-3 projects, which were offered for sale to obtain credits. In addition, the Indian ONGC signed a letter of intent with JSC Rosneft-Sakhalinmorneftegaz which holds licenses for developing the Eastern Ossoy, Kaurunani, Eastern Khanguza and Uyglekut fields. An agreement was signed on ceding 50% of the Russian share in the Sakhalin-1 project to the Indian side. Moreover, India undertook to invest in the further development of the project and to finance the remaining 20% of Rosneft's share in the Sakhalin-1 project until it starts to pay back. India has now invested $2 bln. in implementation of the Sakhalin-1 project.

International consortia are now being set up for the Sakhalin-3, Sakhalin-4, Sakhalin-5 and Sakhalin-6 projects, and Indian participation in these is not out of the question.

In a message to Abdul Kalam, President of India, on the occasion of the national celebration of Republic Day, Russian President Vladimir Putin stated that the "many-sided relations of strategic partnership will be further strengthened to benefit our countries and peoples".

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Oil of Russia, No. 3, 2004
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