Prospects for Africa as India amplify investments in exploratory activities
Recent events in the oil sector in one of South Asia’s largest economies have serious implications for African energy policy in the long-term. Media reports are awash with significant development in new oil fields and efforts to drive critical investments in oil exploration in India.
Rigzone reports that in a bid to accelerate indigenous hydrocarbon resources production, India recently announced that it has introduced a new revenue sharing contract (RSC), starting with the exploitation of 67 small fields while resolving some 40 pending issues in the existing production sharing contract (PSC).
The small fields, according to the report was discovered by Oil and Natural Gas Corp. Ltd. (ONGC) and Oil India Ltd. (OIL), and are grouped into 46 clusters, allowing production through existing infrastructure and facilities within the vicinity with a more cost effective approach.
The fields are said to hold one trillion cubic feet of natural gas. The RSC will monetize these discoveries, some of which have been stranded for over five years as they were deemed non-commercial.
“A road show is planned for the ‘Discovered Small Fields Bid Round 2016’ in the second quarter of this year,” Rajeev Kumar Sinha, chief technical officer at India’s Directorate General of Hydrocarbons (DGH) headquarters in Noida has said.
The road shows, the first since the last new exploration licensing permit (NELP) offering in 2009, will be held in Mumbai, London, Houston, Singapore, Perth, Calgary and Dubai. DGH also plans to set up data centres at some of these petroleum prospecting hubs to make it easier for international bidders to study and understand the basins. All bids will be online.
These small onshore, offshore and deepwater discoveries are now commercially viable, given the competitive prices and costs of services for exploitation.
Contractors will now be allowed to continue exploration work while developing the small reserves in the assigned acreages.
The value of India’s imports from Africa grew dramatically from 2008 – 2013 by over 60 percent compared to the sharp decline in the value of imports from sub- Saharan Africa to the United States.
The decrease in US imports from Africa was likely caused by the development of American hydraulic technology which lessened US dependence on African oil and gas – its major import from the continent.
Brookings Institute reports that although India’s FDI has also increased with an 11 percent jump between 2010 and 2012, India’s investments are concentrated in just a few African countries such as Mauritius, Nigeria, South Africa, Morocco and Libya
Analysts believe this trend while positive in the short-term may have implications for the long-term. Dolapo Oni, Ecobank Head of Energy research said, “As you know exploration activities take time. While India currently produces less than 1 million barrels per day, it consumes about 4/5million bpd so it still needs to import crude oil.
More importantly, India has a refinery capacity of 5 million bpd and could add about 20 percent more by end of 2017. These refineries will require additional crude oil imports pending when its exploration efforts are actually converted into real discoveries and those discoveries become developments and actual oil is produced. Typically this can take anywhere between 3 to 10 years so this is not really going to impact Nigeria in the short to medium term.”
However, data suggests that this future may not be so far away. Nigeria’s over $13bn annual crude oil export to India may be under threat as the South Asian country plans to tap its $40 billion worth of oil and gas reserve by attracting $25 billion investments into the sector in a policy aimed at reducing dependence on imported energy.
India’s trade with Nigeria, largely in petroleum products has been decreasing in recent times. Figures from the High Commission of India show that the country’s imports from Nigeria decreased from $14.01 billion in 2013-14 to $13.68 billion in 2014-15.Out of total imports, India imported a total of $13.53 billion worth of crude and petroleum products in 2014-15 against $13.96 billion in 2013-14.
While these figures represent about 12 percent of India’s energy requirement, Narendra Modi, Prime Minister of India is instituting reforms that would reduce 10 percent of India’s imported oil by 2022.
Dharmendra Pradhan, India minister of state for petroleum and natural gas told Bloomberg that as part of the reform programme to tap $40 billion worth of proven reserves, India aims to attract $25bn of investment in natural gas and crude oil in the next few years, hence it has created a new hydrocarbon exploration and licensing policy (HELP) and liberalised her gas price regime to reduce their dependence on imported energy over the next 10-15 years.
The Indian government had previously said it expected to monetise unexploited gas reserves of around 6.75tn cubic feet, worth more than $28bn, from existing and future discoveries.
Speaking on the implications of these developments, Oni said, “It serves to remind us that eventually some of our buyers today will have self-sufficiency in crude or need lesser amounts from us and we’ll need to find new markets again; pretty much like what the US did to us starting 2010.
We need to plan ahead for these eventualities and diversify away from oil exports. We can increase value production by more domestic refining and petrochemicals extraction from crude. We can also develop ways to channel earnings from crude oil into other vital areas of the economy in a more direct way.”
The goal of these initiatives is to reduce dependence on foreign energy consumption. As heavy users of Africa’s energy begin to amplify investments towards achieving domestic energy security, African countries should see these as the biggest motivation towards diversifying their economies away from oil and achieve sustainable development.
ISAAC ANYAOGU