Washington, DC –
India’s petroleum and natural gas minster, Dharmendra Pradhan, recently announced that the ministry will hold a new auction for oil and gas exploration blocks in July.
This auction will be the first under a relatively new exploration and licensing policy passed in March 2016 known as the Hydrocarbon Exploration and Licensing Policy (HELP).
HELP unifies the authority to grant licenses for exploration and production (E&P) of conventional and unconventional oil and gas resources, including oil, gas, coal bed methane, shale gas/oil, tight gas, and gas hydrates.
HELP introduces an Open Acreage Licensing Policy (OALP) that will allow companies to approach the government at any time and seek permission to explore any block. It also gives companies access to the National Data Repository (NDR) maintained by the government, to consult these maps and data to help inform them about which areas to bid on. Previously, companies had to wait for formal bid rounds by the government, and E&P activity was restricted to only those blocks offered for bidding by the government.
The previous licensing policy, New Exploration Licensing Policy (NELP), was criticized for its narrow scope (it required companies to obtain a separate license if they discovered unconventional oil or gas that was not covered under the initial permit) and for the production sharing and marketing relationship with the government, which was seen as burdensome.
HELP changes India’s E&P policy in the following ways:
At its very core, HELP marks the biggest transition from an era of government control to government support for upstream E&P in India. OALP removes restrictions on exploration by giving companies both the data and the discretion to explore areas of their choice. India’s upstream oil and gas E&P policy has been subject to criticism, with protectionism and government red tape being blamed for lackluster development of oil and gas upstream. A policy that will encourage upstream investment and improve productivity could help incentivize more private and foreign entrants into the oil and gas sector.
Despite the positive moves to open up and liberalize exploration opportunities in India, it is likely that the new policy will have a small impact on India’s oil and gas supply and demand balance. India’s modest oil and gas production currently stand at 876, 000 barrels per day of oil and 1,030 billion cubic feet of natural gas. India is dependent on imports to meet its hydrocarbon needs, with around 80 percent of its crude oil needs and close to 40 percent of its gas needs met through imports. The existing oil fields have matured, and production at these fields has either plateaued or begun to decline. The Indian government’s aim is to reduce its import dependence by 10 percent. Domestic needs that can be met by any new production will only be a fraction of India’s consumption needs, as India’s resource base limits the potential for domestic production. Increasing domestic supply is but one part of a broader strategy to manage import dependence issues, which also includes the buildup of strategic petroleum reserves and investment in upstream assets overseas. The competition for capital in upstream oil and gas companies is fierce, with oil prices at lower levels and companies cutting back on spending. Whether the reforms combined with a recent and tenuous oil price recovery are enough to spur investments is yet to be determined.