#dnaEdit: Understanding the new oil and gas exploration policy

The new Hydrocarbon Exploration and Licensing Policy (HELP) seems to simplify and rationalise the finding of new oil and gas, and even non-conventional gas sources like tight gas, gas hydrates and shale gas through a single license. The second aspect is that of open acreage, where the company can choose its blocks in the area it has explored. The third part of the new policy is that of sharing revenues based on gross earnings instead of the earlier one of investment multiple, where the costs had to be deducted before revenue sharing is determined. There is also provision for decreasing rate of royalty in difficult areas of exploration. The government hopes to attract greater investment for exploration activities and for turning the oil and gas finds into commercially productive units. 

While conceding the fact that the new aspects make much sense, it is necessary to understand the implications as well. HELP intends to open up oil and gas exploration to private and global investors and players. The Oil and Natural Gas Corporation Limited (ONGC) which enjoyed a monopoly in the field of exploration will not retain its sovereign position. It can be argued, and with much justification as well, that the ONGC alone cannot manage the expanded task of finding fresh oil and gas sources, and there is need for the participation of private sector players, from India as well as from abroad. During the previous policy regime of New Exploration Licensing Policy (NELP) of 1997, though the ONGC had explored the oil and gas wells, the commercial exploitation of it was given away to private sector players, sometimes on a preferential basis. It was ostensibly based on open competitive bidding, and the ONGC and other national oil companies (NOCs) did not enjoy a privileged position. But it did not appear as transparent as it professed to be. HELP seems to make it a level-playing field, where exploration is open to private sector entities. Global players like British Petroleum and Cairns have already been participating in the Indian oil and gas sector along with Indian private sector players like Reliance Industries and Vedanta.

This would mean that the government will have to face up to the reality that oil exploration will not always follow national imperatives but that it will be dictated by global economic forces of demand and supply. The new policy may not necessarily imply that India’s dependence on oil imports will decrease because the expectation that oil and gas exploration in the country will intensify and that it will lead to increased production remains a hope and a hypothesis. It is not the case that this is an unrealistic expectation. But it is useful to keep in mind what it really means to untether the sector from any kind of state control. This need not be a matter of alarm if the government is committed to throwing open the oil and gas sector. The country can always ensure and safeguard its minimal energy needs through strategic reserves like the Americans do. 

The world is not yet an ideal free trade area. Apart from market fluctuations, political turbulence is also a factor in key oil-producing countries of West Asia. It might seem that the West as well as many countries would want to discover their own oil and gas resources. The political compulsion behind this thinking is specially understandable. But it may not prove to be sufficient. The American experiment with shale gas has proved to be short-sighted. In these circumstances, it may be necessary for the Indian State to remain a stakeholder in the crucial oil sector.