Hydrocarbon policy to boost investment

Hydrocarbon policy to boost investment

The  new Hydrocarbon Exploration Licensing Policy (HELP) approved by the Cabinet Committee on Economic Affairs will surely help revive sentiment for investment in exploration in deep water, ultra deep water and high pressure-high temperature areas as it allows market and differential price for selling of the natural gas within a cap. Simply put, the HELP would motivate explorers like ONGC and Reliance Industries to start investment in the difficult and expensive waters, hitherto found unattractive at the prevailing administered price of $3.8 per unit. The objective is to ramp up India’s hydrocarbon production since the country depends on imports to the extent of 80% of the requirements and going by the present state of the industry, this could even go up to 90% with the ambitions of higher economic growth. With 80% dependence on imports, no country in the world can feel it has sufficient energy, however much the strategic reserves are built and assets secured abroad. As a nation aspiring for the highest economic growth in the world, we need to explore and increase domestic production across different streams – crude, natural gas and shale.

There cannot be more opportune time than now to pursue such a path bringing in market-related reforms which will boost investment by the explorers. With subdued global prices, there is a quite a benign environment for fresh resources in the sector across the world. Things are not expected to change in the near future unless crude oil crosses $50 from the present level of about $40 after a smart rise in the past few weeks. But in India, the pricing freedom will help exploitation of 28 discoveries with 2.6 trillion cubic feet of hydrocarbon reserves located in deep water, ultra deep and high-pressure, high temperature areas with investment potential of Rs 1.80 lakh crore. The state-owned ONGC which had not shown much interest in the deep water exploration and was battling lower realisations from its output, can now go for investing in several discoveries in the KG Basin off the eastern coast.

The new policy that will cover all the fields where production was yet to begin as on January 1, 2016, has also made a crucial shift from the controversial production sharing contract with the private sector which was suspected to be ‘gold-plating’ the cost recovery. It will now be revenue-sharing arrangement with the concessionaires who would not be much bothered by micro-managing their business by the government. While the policy is focused on reviving investment, its implementation about three years down the road at the minimum would also have to pass the test of protecting the consumer interest. For the moment, it is a big leap for economic revival through leg-up in investment.

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