To strengthen ONGC’s anchor role in the dynamic energy space, its Chairman Arun Kumar Singh, has chalked out five main focus areas for the public-sector integrated energy giant. These areas are deepwater exploration, enhanced oil recovery (EOR), renewables, carbon capture, storage, and sequestration (CCUS), and hydrogen, where it can collaborate to add value to its business.
Singh, who took charge as the Chairman of the Energy Maharatana on December 7, 2022, wants to navigate the operations of the company more in alignment with the national energy strategy and adopt a more collaborative approach, which could be in any form—service providers or partnerships.
In a conversation with businessline, Singh said, “Unless there is a level playing field in gas pricing, exploration and production players will not invest.” Excerpts:
Research analysts see 2023 as a defining year for ONGC. How do you see that?
You are right; ONGC fields are mostly mature fields, and it takes a lot of effort to keep production at the same level. But good news for ONGC is that beginning in 2023–24, it will add oil production from the Eastern offshore asset to its overall output. Next year should be good for ONGC.
Talking about the East Coast, certain areas are very challenging, and ONGC has been talking to international players to collaborate. Do we see some progress in 2023–24, especially with reference to ultra-deep discovery – UD1?
KG-DWN-98/2 has three clusters: I, II, and III. Most production will come from Cluster II, which is not a very difficult area.
Cluster III: Yes, because of the higher water depth, the complexity is higher. We are exploring there because reserves are there, but technical challenges have to be worked out. Some of the global players have the technology to do so. We are looking at developing some collaboration with them.
You have tie-ups with the likes of Exxon and Chevron. Who will be the chosen one for Cluster III?
We have a tie-up with five players; why only two? It depends on what happens at the bilaterals: whoever is better equipped, can deliver faster, is a better strategic fit, and do at good terms will be considered. Collaboration is a different world. ONGC is willing to collaborate with anyone who has technology and a risk appetite.
Will you go more for a service provider, or will you give equity to future partners?
Answering your question in one line is not possible. We can possibly have both. In some areas, we can have service providers, and in some areas, we have real partners, including financial partnership.
Do you think an energy conference like India Energy Week is a good place to find partners? Is ONGC eyeing the upcoming India Energy Week, slated for February 6–8, for giving concrete shape to these collaborations?
ONGC has matured and discovered fields where collaboration is required for cutting costs and enhancing production, and for the new finds, collaboration is required.
There are five areas where we can explore at such conferences. Our priority remains exploration. We have to explore fast, and deepwater explorations are harvesting good dividends globally, so we are asking people to join us for it.
Enhanced oil recovery and increased oil recovery are another area. We have some expertise there and can share our knowledge and data. The third area is renewable, fourth area is carbon capture and sequestration. The fifth and final area now is hydrogen. We would look for partners in all segments.
It has been a long-standing demand of ONGC to create parity in gas pricing. How do you see the recommendations of the Kirit Parekh Panel on gas pricing? What could be the way forward to make it a market-determined price?
ONGC is comfortable with the recommendations for two reasons –
a. It covers ONGC’s cost for production and also leaves little money on the table to take up further exploration and make up for the production requirement.
b. It has recommended benchmarking the price of natural gas produced from ONGC and OIL’s old fields at 10 per cent of the cost of crude oil imported into India. This rate would, however, be subject to a ceiling or cap price of $6.5 per million British thermal unit until a full deregulation of prices is implemented in 2027.
The market-calibrated price is the best part of this report, as it will also encourage many to explore more gas in the country. Basically, the imported LNG price is what all Indian producers should get, and then there will be a level playing field. Unless a level playing field is created, E&P players will not spend here.
Discussions are also happening around diversifying the crude basket. Are the PSU refiners at a disadvantage compared to private refiners when buying crude, cost wise?
World over, whatever may happen Indian refineries will continue to be very strong because of the domestic demand. So whether we have domestic crude or not, refining will be strong. Last few years the refining segment has also been making money.
Now, for crude sourcing, it has diversified already. For example, the amount we procure from Russia has increased. West Asia, the US, and now a good number from Russia are coming, besides the domestically produced crude. So, the basket is already diversified. Indian refineries, particularly ONGC Group refineries, are capable of handling diversified crude.
As regards pricing, the PSU procurement system is an open pricing system—a bidding system. Forty per cent of spot purchase is through competitive bidding – market discovered price. Remaining is term crude. However, term-crude purchase is dependent on the company’s strategy. This is matter of subjectivity. Term crude oil mostly comes from West Asia, which is a live market to which is an Official Selling Price as a marker and premium for Asia.
Yes, when Venzeualan and other difficult crudes were available, there was a challenge vis-a-vis private players, but not anymore.
In India, we have integrated refining and marketing companies. Do you think verticals should be separate?
In fact, the way things are, earlier exploration and production and downstream were hedging for each other. Now, in the new phenomenon, even refining and marketing are hedge for each other.