Time to turn on the gas

The challenge before the Indian upstream oil and gas industry is to rapidly increase domestic production and wipe out imports. I would venture so far as to say that ONGC, Reliance, Cairn, and GSPC can together more than double India’s gas production in less than five years.

India has what the industry would term “difficult gas”. Our incremental assets primarily lie deep in the ocean (the biggest being the Krishna-Godavari basin in the Bay of Bengal) or in small pockets called “marginal fields”.

India also has some reservoirs of unconventional hydrocarbons such as shale sands, tight sands, and coal bed methane but these, except for the last-named, would be even more expensive than deep sea and marginal gas assets. To double gas production, the fields that will most likely come into play are listed in the table.

To get to some of the more promising fields in the KG basin, one has to travel more than 60 km into the sea. Here, the water depth is more than 2 km, the ecology is sensitive, and the weather is prone to hurricanes. The installation window is a mere five months and missing a project schedule by a week can push a multi-billion dollar programme by an entire year. In such a location, the drilling crew aims for an area little bigger than the size of a table tennis table from the height of an airplane.

An analogy to the shale revolution in the US is apt. It has been known for several decades that shale sands can carry hydrocarbons but it is only in the last 10 years that revolutionary breakthroughs in horizontal drilling have made these hydrocarbons extractable. In deepsea as well, the technology is rapidly evolving.

The latest trend is that of putting the entire production infrastructure on the seabed where it is expected to operate for 10-20 years with minimal, and that too robotic, intervention. The cost of a land rig is about ₹12 lakh per day. The corresponding cost of a deepwater drillship is about ₹3.5 crore per day. Depending on the depth and complexity of the well, drilling a single deepwater exploration well can cost ₹500-1,000 crore. Imagine the wherewithal it takes to invest this kind of money in something and have only a partial chance at success.

A typical deep sea well costs 20-30 times that of a land well. Accidents such as what happened in the Gulf of Mexico a few years ago can quickly wipe out tens of billions of dollars from the company’s balance sheet.

Those investing in such risky ventures expect suitable returns as compensation. India’s energy needs are massive and every bit of our considerable, though difficult, resources should be exploited for the nation’s benefit.

India’s policy should encourage national oil companies such as ONGC as well as domestic and international players of suitable stature. Global players, in many cases, also have the knowhow to execute complex projects. The only way to bring costs down in the long run is to build scale. This will benefit Indian manufacturing. Long term viability of the high-end oil industry will encourage equipment manufacturers to set up shop in India, which in turn would be used for exports.

Many of those who have worked their lives in the oil and gas industry internationally often muse how the industry globally is full of Indians, but ironically how similar opportunities in India are sorely lacking. This could change. India’s downstream industries of fertiliser, power, and transportation are energy hungry. Analysis shows that each molecule of incremental gas, even at higher prices, can be cost effectively utilised by one downstream industry or another. Even at an average price of gas that is higher than $8/mmbtu, the country as a whole stands to gain more than ₹30,000 crore annually due to increased production.

The writer is CEO (Oil & Gas), GE South Asia

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