Moily's prophesy on oil sufficiency: A mirage or a misguided hope?

Soon after Veerappa Moily took over the reins of petroleum ministry he faced two urgent problems. One was how to deal with Mukesh Ambani’s KG basin Production Sharing Agreement (PSA). Because of the dramatic drop in gas production the PSA has come under greater scrutiny from the eagle eyes of the CAG.

It has remained on the national agenda because of the greater credibility of CAG in recent years. The other was the newly announced UPA’s policy of restricting subsidised LPG cylinders to six per family per year to reduce the burden of petro product subsidy.

It is more than a month since Moily became the petroleum minister and there are no positive signs yet to show that he has been able to defuse either of the two urgent problems. On the other hand he has apparently added to the energy security problem by his astonishing and unexpected prophesy concerning India’s oil production.  

First, in Mangalore on November 11, Moily announced that his ministry is planning to reduce oil imports from the current level of 80 per cent by 30 to 40 per cent within the next five years in a phased manner. Having made a very optimistic prediction on India’s future oil production in Mangalore, he went one step ahead and announced on November 25 in Mysore that India will achieve oil sufficiency by 2020.

After these eye-popping, headline-grabbing announcements, Moily was more circumspect when he said, ‘Oil ministry is working on a road map for self sufficiency.’ Even this was audacious in its implications.

Since India is the fourth largest energy consuming country in the world, India reducing its oil dependence should have caught the attention of the world. But it did not create even a ripple in the international media. Why?

India is currently consuming about 162 million tons of oil per year. Its annual oil production is about 40 million tons and its oil imports are about 122 million tons. There are no new discoveries in India waiting to be developed to reduce oil imports by half in the next 5 years.

Usually it takes ten years or more to explore new oil wells. After discovering it will take four to eight years to develop the reserves. From all accounts, no new geologic formations with huge potential has yet been awarded in India in recent years. Or is it possible that petroleum ministry has been secretly carrying out exploration on a large scale and ready to surprise the world with announcement of new discoveries?  Such a possibility is highly unlikely.

Rosy prophecy

While making the rosy prophesy, Moily made a passing reference to the potential shale reserves of India and also to the coal reserves which can be tapped to produce oil using coal liquefaction technology developed by Indian researchers.  However, in the case of India neither of them is promising.

India’s coal reserves are neither abundant as believed for many years (our coal import dependence is increasing every year) nor is our technology to liquefy coal has been perfected as in the case of many developed countries. Even for those developed countries economics of liquefaction technologies are not attractive. The other possibility of shale gas and oil reserves is not anywhere close to meet the energy needs of India.

Moily was appreciative of how the US may achieve energy independence within 10 to 15 years. But will the oil ministry under Moily be able to create favourable factors that have led to the shale revolution in the US? India has yet to implement a realistic shale gas exploration policy besides developing a gas pricing policy which will attract the needed investment. Unlike the US, India has no expertise in shale technology, nor easy access to capital.  

On November 12, the International Energy Association in its flagship report, “World Energy Report 2012” has predicted that because of shale revolution, the US production will exceed that of Saudi Arabia and will be the largest oil producer in the world by 2020.

The US which presently imports 20 per cent of its energy needs will be all but self sufficient in energy imports. But the same report is not all that optimistic about India’s prospects. IEA report forecasts a decline in India’s oil production from the current level of 45 million tons per year to 35 million tons by 2020 when its oil demand is predicted to be around 215 million tons.

It is surprising that no reporter questioned the petroleum minister on how India could pull out such a miracle in such a short time. Even more surprising is the fact that the national media has not been critical of a senior minister in charge of petroleum ministry of the fourth largest energy making such optimistic prediction about the potential of India achieving oil sufficiency in mere eight years! We need to hold our ministers accountable when they make predictions on topics of strategic importance.

Unfortunately such unrealistic predictions will send out wrong signals. If one believes in such a rosy forecast then we need not worry about the current energy crisis, no need to take tough decisions to streamline pricing decisions to reduce petro product subsidies, no urgency to promote renewables, no need to improve energy efficiency etc. The petroleum minister owes an explanation to the nation on the basis of his prediction; if not, give a clarification at the earliest on what he actually he was trying to communicate.