India's quest for Russian energy

Posted in India | 07-Nov-06 | Author: Siddharth Srivastava| Source: Asia Times

NEW DELHI - India's quest for energy resources has seen the country knocking on Russia's door to propose forming an exploration venture with the country's natural-gas behemoth Gazprom, as well as seeking a stake in the Sakhalin III oil-and-gas project.

In exchange, New Delhi has promised to buy 50 million tons of crude oil annually from Russia, offer incentives to Russian companies to build refineries in India, and support Moscow's bid to participate in the proposed US$7.4 billion Iran-Pakistan-India (IPI) gas pipeline.

India annually imports 110 million tons of crude, and that will have to rise to 200 million tons by 2015 if the country is to sustain 8-10% economic growth.

During his recent meeting in Moscow with Russian Industry and Energy Minister Viktor Khristenko, Indian Petroleum and Natural Gas Minister Murli Deora said New Delhi would like to set up a 49%-51% venture between state-run Oil and Natural Gas Corp (ONGC) and Gazprom, the world's largest natural-gas company. Deora was on a two-day visit to Russia to attend the Moscow Energy Dialogue during International Energy Week.

The ONGC-Gazprom venture would explore for oil and gas in India, Russia and other countries and look to bid for tenders held for exploration and production activities in Russia.

India is also looking to set up a project with the Russian gas giant to liquefy gas found in Russian offshore fields and ship it to India, Deora said.

In addition to offering to form a partnership, Deora said Russian firms have been invited to participate in India's downstream oil sector and could purchase a stake in Indian Oil Corp's proposed $4 billion Paradip refinery and petrochemical project in Orissa.

According to reports, the Russians have been invited to increase Indian Oil Corp's refining capacity from the current 52 million tons a year to more than 80 million tons. The process will include building a new refinery, which will produce 15 million tons annually. India will maintain the majority stake in the project.

Deora said that producers and consumers must forge enduring partnerships for mutual growth. He also dismissed oil scarcity as a myth.

"No shortage of oil has been experienced. However, policymakers will not lose sight of the fact that record energy prices are due to capacity constraints in production, refining and logistics. There is a need to recognize the structural shortcomings in the supply chain and address these aggressively,' Deora said.

He also said India plans to double its refining capacity from its current 2.7 million barrels per day over the next five to six years to cater to the gap between global demand and refining capacity.

Inviting Russian companies to invest in the refining sector in India, he pointed out that Indian refineries are producing high-quality, environmentally friendly fuels.

New Delhi is pushing for Indian participation in the Sakhalin III project. The structure of the Sakhalin I and II projects have already been decided and Russia is planning to invite bids for the Sakhalin III, IV, V and VI projects. "We would like a stake in Sakhalin III," Deora said.

India's only success in the Russian oil-production business was in the ExxonMobil-led Sakhalin I venture in June 1996, when ONGC picked up a 20% stake. ONGC will ship its first crude oil from Russia's Sakhalin I in the first week of December.

"Our entitlement from Sakhalin I is three parcels of 700,000 barrels each in October-December," a company official said. "The first cargo will be processed at ONGC's subsidiary Mangalore Refinery and Petrochemicals Ltd, while two others [will] be sold to ExxonMobil of the US."

Sakhalin I will reach the peak rate of 12 million tons per year once a new onshore crude processing unit is commissioned next month. Recently, ExxonMobil's Russian Sakhalin I project signed a preliminary agreement with CNPC on natural-gas supplies. Under the deal, Sakhalin I could sell up to 10 billion cubic meters of gas to China over 20 years.

Deora also supported Russia's pursuit of an equity stake in the proposed IPI gas-pipeline project, which is currently stalled over differences on key issues such as pricing and security. In early September, Iran gave India and Pakistan a two-month ultimatum to agree on the pricing of gas. No consensus has yet been arrived at.

Khristenko expressed his country's interest in the project during the meeting with Deora, who said that Russia could give the venture greater financial muscle. It remains to be seen whether Iran and Pakistan will welcome the Russian stake in the project, but Deora said he did not believe there would be any objections.

However, New Delhi and Moscow will have to act fast. According to reports, Royal Dutch Shell, Europe's biggest oil company, may pipe gas into the United Arab Emirates from Iran, as the US is putting pressure on countries to impose sanctions to check Tehran's nuclear program. Shell and RAK Petroleum are "looking at the whole supply dynamics of the UAE in the context of supply opportunities in Iran", Philip Turberville, chief executive officer of the UAE-based energy company, recently said.

Supplying Iranian gas to the UAE is an "option' being considered, said Jonathan Charles, a Shell spokesman in London.

The export output was originally planned for the IPI pipeline, which has remained in the planning stages for more than a decade.

In a move that will not please New Delhi, reports also say that China and Pakistan have agreed in principle to build a trans-Karakoram oil pipeline along the Karakoram Highway to connect the Middle East with northwestern China through Gwadar in Pakistan's Balochistan province.

According to reports, the pipeline could be an effective conduit for oil from landlocked Central Asia to the world market. On the pattern of the Trans-Alaska Pipeline, it would be possible to build an oil grid comprising Turkmenistan, Kazakhstan, Tajikistan, the Wakhan corridor, the Ashkoman Valley, Gilgit and Gwadar.

Matching China
Observers say that India is keen to match China's energy diplomacy with Moscow; China National Petroleum Corp (CNPC) and state-owned Russian company OAO Rosneft recently formed a joint venture, Vostok Energy, to carry out oil exploration in Russia.

The Chinese company was one of the three "strategic" subscribers to Rosneft's controversial initial public offering this year. On its part, India has been trying to join up with Rosneft in an oil-exploration project for more than two years.

"India's agitation is easy to understand. Chinese companies have recently created a venture with access to Russia's subsoil and got Udmurtneft," Alfa Bank analyst Konstantin Baturin said. "But China offered advantageous terms of cooperation to Russia. And the price paid for Udmurtneft was unthinkable."

Indian analysts have said that it was the creation of Vostok that prompted Deora to visit Moscow. India's efforts to obtain gas from Myanmar have also been stepped up.

India's proposal to Gazprom is very similar to the incorporation of Vostok Energy to explore and extract resources from Russia's subsoil. "We have proposed a joint venture with either Rosneft or Gazprom or both for exploration and production of oil and gas,' said R S Butola, managing director of the overseas arm of ONGC, ONGC Videsh (OVL).

As with the OAO Rosneft-CNPC venture, the Russian company would hold a 51% stake in the proposed venture, while ONGC would have the remaining 49%. While the Rosneft-CNPC venture was primarily focused on exploring for oil in Siberia, ONGC has proposed looking for oil in all of Russia and even other countries. Separately, OVL has proposed teaming up with Rosneft to bid for the giant Sakhalin III project, he said.

Siddharth Srivastava is a New Delhi-based journalist.