The Hindu Business Line : One more oil deal

ON THE HEELS of the project to build a gas pipeline from Myanmar to India via Bangladesh, comes a deal with Venezuela by which India will operate an oilfield in the South American country and import the output. Specifically, as announced by the Venezuelan President, Mr Hugo Chavez, recently on a visit to India, ONGC Videsh Ltd, the overseas subsidiary of Oil and Natural Gas Corporation, and Petroleos de Venezuela have signed the agreement to jointly explore for, and produce, oil in Venezuela, 51 per cent of the output to be retained by the host country with the remaining oil and the responsibility for operations being taken up by India. Mr Chavez said the San Cristobal oilfield, with a potential of 100,000 barrels a day, had been selected for the purpose.

This is a good augury for New Delhi as the Venezuelan oil will contribute its bit to reducing the gap between the supply of Indian crude resources (including domestic and Indian-owned foreign crude) and the total consumption. The country used 2.46 million barrels a day in 2004 and is set to burn 2.53 mbd this year. Around 70 per cent of the oil used is imported, and this is expected to rise to 85 per cent in the next two decades if the economy grows at 7-8 per cent a year. Till now, the quest to acquire oil-production rights abroad was limited to Russian and West Asian oilfields; understandable given India's long association with these regions. The Venezuelan foray is explained by Mr Chavez's keenness to diversify oil links, till now monopolised by the US (of Venezuela's daily crude output of 2.4 mbd, 1.6 mbd is shipped to the US). Already, on his invitation, China has entered the Venezuelan oil market, which only means India will have to fight to keep its toehold. The Petroleum Minister, Mr Mani Shankar Aiyar, has said that New Delhi will offer Venezuela equity participation in Mangalore Refinery and Petrochemicals, ONGC's subsidiary. But the deal would still be insignificant compared to the economic presence Beijing has established in that country. China operates two oilfields and is to develop 15 declining fields, buy 120,000 barrels of fuel oil a month, and build a plant there to produce boiler fuel used in Chinese power plants. Beijing has also been asked to explore in the Orinoco belt, said to have one of the world's largest deposits of heavy crude oil.

Yet, the deal has its advantages for India. Apart from augmenting "domestic" crude resources, India stands to gain in money terms as Venezuela produces heavy crudes which are substantially cheaper than the light varieties. Around two-thirds of India's crude imports are of Dubai heavy, the remaining being the costlier Malaysian Bonny Light. It will be in the economy's interest to expand cheaper sources of heavy crude, though there is the problem of inadequate refining capacity for such varieties, especially if one excludes the 33 million tonnes per annum private refining installation at Jamnagar (the public sector refining capacity is around 127 million tonnes). This means the economy's refining capacity needs a re-look. It is not surprising that China is keen on learning more about Venezuelan heavy-oil refining technology because, as experts see it, much of the oil that will be available in future will be "tar-like" requiring a complex and expensive refining process.

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