Hydrocarbon hunt: India’s oil and gas churn is high risk, high return

Global geopolitical trends and trade turmoil have turned the spotlight on measures to moderate the outflow of dollars through our single largest drain: oil and gas imports. We ship in close to nine-tenths of the crude barrels we need, even as local sales of petroleum products are growing at a 6-7% annual clip. Home output of crude, which has been unable to keep pace, must rise sharply if we are to move the needle on self-reliance.

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Several parts of the policy mission are already in play: gather more seismic data for explorers to pore over, all the better to help them assess their prospects of finding reserves, and expand the ambit of this hunt on the map. 

Petroleum minister Hardeep Singh Puri has stated that about three-quarters of today’s prospecting is being done in areas released over the last decade; and that the government’s plan “could triple domestic oil and gas output by 2032 and double national reserves." The mission’s enablers, fiscal and otherwise, are expected to help catalyse investments. 

However, the Centre’s optimism on this score needs to be tempered by this field’s reality: What is possible differs acutely from what’s probable. This is in the very nature of the hydrocarbon exploration business.

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Unlike reserve estimation for minerals like copper, coal or aluminium, estimates made for hydrocarbon reserves are largely hazy. This is especially so for deep-water efforts. Second, increased acreage need not translate to more discoveries. 

Recall that in the case of India’s largest on-land discovery, Rajasthan’s Barmer oil field, global major Shell was looking in its southern zones, which it abandoned after  striking quantities that were not commercially viable; but Cairn Energy, a Scottish startup, searched in its northern belt just 150km away and struck big. 

The haziness doesn’t end there. 

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Even after big investments are made to extract the stuff, production could trail expectations. In the 1990s, ONGC’s Neelam oil fields off the coast of Mumbai only managed to deliver a fifth of their estimates. 

In the early 2000s, two big discoveries in the Krishna-Godavari basin— Reliance’s D1-D3 fields and Gujarat State Petroleum Corp’s Deen Dayal Upadhyaya field—were billed as mega strikes worthy of global news attention. Both witnessed sharp downward revisions in estimates after infrastructure was set up to get the hydrocarbons out. 

Nature, no doubt, has a role to play in poor extraction, since reserves often exist under conditions of high temperature and pressure, the effects of which are hard to grasp before money is sunk to reach them. Advancements in geo-sciences and seismic studies should help improve our record. It is crucial that the country’s reservoir management is optimized on the basis of all the scientific data we can muster.

While making India’s investment environment more attractive to foreign explorers could help us find the hydrocarbons needed to make a difference, domestic explorers in both the private and public sectors would have to step up to the challenge. If that requires innovative forms of risk sharing, we could explore such ideas. Crude oil was just another commodity till recently. Now its origin has become a prickly issue in some of our foreign relations. That’s another nudge to look within.