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Wednesday, 27 April 2016 00:00
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Not all CAG says right, but global tie-up can fix things

 

There can be little doubt Prime Minister Narendra Modi’s brag, when he was chief minister of Gujarat, about the 20 tcf of gas found by GSPC looks really hollow—not only did GSPC file a dramatically lower number of 2 tcf in its field development programme (FDP), even that looks like an overstatement—but there are valuable lessons to be learned and the situation can still be salvaged. While GSPC, and Modi, have been criticised for spending close to Rs 20,000 crore and not being able to commercially produce even a single unit of gas, oil/gas exploration is a tricky business. While there is lots of data on how the government-owned ONGC has fared poorly, keep in mind even Reliance Industries had to scale down its gas estimates from 10 tcf to around 2.5-3 though, compared to GSPC, this looks good. Also, while Cairn has struck gold in Rajasthan, this was once abandoned as unviable by Shell.

A lot of what CAG says on GSPC must be discounted—it blames GSPC for going ahead though the $5.7 per mmBtu needed for the project to be viable was higher than the government-approved $4.2. But many developers, including Reliance, have developed fields on the belief that the government will free up prices since, in any case, the production sharing contract (PSC) allows both marketing and pricing freedom. The CAG is on stronger grounds when it talks of some of the key contractors having very poor experience. The key CAG observation, though, is the one which talks of how the company has still not developed enough expertise and how it didn’t move fast enough in finding a strategic partner.

It is worth recalling ONGC’s failed attempts when Subir Raha used to head it in developing a strategic partnership with Norway’s StatOil first and Brazil’s Petrobras later for deep sea drilling in which it had no expertise. Both attempts were scuttled despite Raha’s best efforts—it is not clear if a small state-owned firm would have fared any better in a tie-up with a leading global player. Globally, however, as the Gulf of Mexico and Alaska show, top players like Exxon, BP and Shell collaborate in most big fields—closer home, RIL tied up with BP when it found it couldn’t work the KG Basin fields on its own. Since Modi’s reputation is on the line, perhaps he will bless such a tie-up—though the GSPC field is an exceptionally tough one, experts believe that if work is done well and all the gas extracted from the fields in the area, the expenditure may still pay off.

 

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