Step on the gas in Latam

Latin America has remained on the periphery of India’s political and economic strategy. In this century, however, exchanges in the energy sector have been significant.

Leading partners in India’s quest for energy security have been Brazil, Venezuela, Mexico and Colombia. There are other areas with significant potential awaiting Indian official and corporate attention.

According to India’s Ministry of Petroleum & Natural Gas (MPNG), India’s total reserves of crude oil (proven and indicated) are 760 million tonnes (mt), ranking it 19th worldwide. Production was around 38 mt in 2011-12, projected at 41 mt in 2012-13.

In financial year 2012-13, India imported 33.8 mt of crude oil from five Latin American countries — Venezuela, Mexico, Brazil, Colombia and Ecuador.

Oil imports

India imports almost 200 million tonnes of oil annually. Our refineries produced almost 200 mt and exported 61 mt of petroleum products in 2011-12. Given excess refining capacity, petroleum products constitute an important element of our export basket to Latin America.

The energy complementarity has been evident since the beginning of this century. Reliance Industries Ltd executed a swap agreement — crude oil from Brazil in exchange for refined diesel — in the 1990s.

Reliance has since ramped up its import of crude oil and currently imports 3,50,000 barrels per day (bpd) from Venezuela. It expects to import 4,00,000 bpd in the near future. Total crude import from Venezuela in 2012-13 amounted to 22 mt — by Reliance and Essar Oil Ltd. Mexico accounted for almost 4 mt, Brazil for 3.8 mt, Colombia for 2.8 mt, Ecuador for 1.3 mt.

From April to August 2013, India’s imports from Venezuela crossed $6 billion, against a little over $4 billion in 2012.

Crude oil accounts for over 95 per cent of Venezuela’s export to India. Essar Oil Ltd imports 40 per cent of its crude oil for its Dahej Refinery from Latin America. Clearly India’s reliance on Latin American hydrocarbons is on an upward graph.

Production ventures

That is not the whole story. Indian enterprises, spearheaded by ONGC-Videsh Ltd (OVL), signed up a series of production sharing ventures with varying levels of participating interest (PI), in Venezuela, Brazil and Colombia.

Since 2006, OVL has been present in Cuba, though prospects in the deep offshore of that Caribbean country do not appear bright for the present. OVL has already invested over $3 billion in the region and is poised for more.

OVL’s 40 per cent PI in the San Cristobal oilfield, along with Venezuela’s state giant PDVSA, was sealed in 2008. This was overshadowed by the second joint venture in Venezuela, in which OVL, Oil India Ltd and Indian Oil Corporation took a combined stake of 18 per cent.

Along with PDVSA and Spain’s Repsol, they will exploit the Carabobo-1 oilfield with estimated reserves of 27 billion barrels of oil. Indian investment in Carabobo is envisaged at over $2 billion, with peak production in 2016 estimated at 4,00,000 bpd. At a round-table meeting in Caracas last month, in which several Indian oil companies participated, even Reliance expressed interest in Venezuelan oilfields.

In Brazil, OVL has varying PI in four offshore blocs, in consortium with Brazil’s Petrobras and other companies. In August 2013, OVL exercised its pre-emption right to purchase another 12 per cent in one of the blocs, raising its PI from 15 per cent to 27 per cent at a cost of over $500 million.

Videocon Industries Ltd teamed up with public sector Bharat Petroleum Corporation Ltd (BPCL) to form IBV Brasil, which holds stakes in 10 deep-water exploration blocks. IBV has already invested over $1 billion. Total investment in these fields is estimated at $20 billion by 2018. The first oil was discovered in 2012 and another find announced earlier this month. Production is expected by 2017-18.

Colombia, which has less proven reserves, is nevertheless an important investment destination, given its investor-friendly attitude. OVL teamed up with China’s Sinopec in 2006 to purchase producing fields for an investment of approximately $1 billion.

The fields are understood to be producing around 32,000 bpd, transported through a 189-km pipeline owned by the joint venture Mansarovar Energy Colombia Ltd. (MECL). OVL also acquired stakes in four offshore gas fields, as well as 50 per cent and 100 per cent PI in two onshore blocs in eastern Colombia.

Intent on secure but profitable investments, OVL has not yet entered Ecuador, whose government offered a block recently but insists on service contracts with foreign firms.

These yield a fee per barrel as against a share of the production, or a concession which permits the producer to lift the oil on payment of taxes and royalties.

Apart from the massive crude oil reservoirs, there are also considerable deposits of natural gas, coal and even uranium, which have still to be commercially exploited in the region.

Natural gas has been imported in small quantities from Trinidad and Tobago and Peru recently, although it is nowhere near the comparable figure for crude oil. Prospects for coal import would need to be studied in the light of high freight cost when compared with Indonesia or even Australia.

Beyond the horizon is the prospect of a Mexican decision to permit foreign investment in its currently nationalised oil industry. For now, Mexico continues to be an important supplier of crude.

Argentina’s extensive shale deposits are another attraction. The US’ Energy Information Administration has ranked Argentina fourth behind Russia, the US and China in the world, with technically recoverable shale oil reserves of 27 billion barrels. It ranks after China in potentially recoverable shale gas reserves of 802 trillion cubic ft. India’s ventures into these two countries, as into gas-rich Peru and Bolivia, will require political will and backing.

Renewable energy

One form of renewable energy that holds promise is biofuel , specifically ethanol and to a lesser extent, bio-diesel. Both depend on agricultural products for their raw material, and require sophisticated industrial extractive processes.

The obvious advantages are possibilities for replenishment of the raw material, and the ecological spinoffs.

India’s plans for blending ethanol with petrol early in this century, through the National Biofuels Mission in 2003, elaborated in the National Biofuels Policy of 2009, have been plagued by lack of assured and viable domestic production.

There have been some imports of ethanol from Brazil, but transport costs for this price-sensitive fuel, the difficulty of concluding term contracts, on account of production constraints (Brazil’s sugar crop in 2011 was far below expectations), have reduced reliance on this source.

Indian companies such as Praj Industries Ltd have therefore ventured to master biofuel manufacturing technologies, with impressive results. They have set up plants in Brazil, Colombia and El Salvador, using very effective hybrid technologies.

Latin America is squarely on India’s energy map. The Indian establishment needs to take a more integrated and comprehensive view of the presence and requirements of our energy industry in that region. Financial backing for Indian state-owned companies is crucial.

There have been some problems in the host countries, especially bureaucratic and regulatory delays, tardy clearances, and lack of counterpart financing.

However, most of the Latin American regimes are relatively stable, compared with Nigeria, Sudan, Syria, for example.

The presence of Indian investment and India’s prospects as a market have laid the foundation for a durable partnership.

(The author was India’s ambassador in seven Latin American countries.)

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