Oil & Gas: A discouraging history

Source: The post is based on an article “Oil & Gas: A discouraging history” published in Business Standard on 13^th October 2022.

Syllabus: GS 3 – Industrial Policies

Relevance: problems with exploration of oil and gases in India

News: The government is set to put the exploration licences for 42 hydrocarbon blocks for auction in the next round of its licensing process.

The government hopes that there will be reasonable private sector participation in this auction.

However, the target of exploration of 1 million square kilometres seems difficult to be met.

What are the problems associated with the exploration of hydrocarbon blocks?

The new Hydrocarbon Exploration and Licensing Policy (HELP) was announced to provide a licensing mechanism and pricing formulae. The first round of 55 blocks was auctioned in January 2018.

The government announced that companies could select blocks of their choice and they have freedom over marketing and pricing. However, this liberalization process did not attract foreign Oil Companies and among the Indian private sector Vedanta was only interested.

This shows that implementation of the HELP system was not successful as it was an attempt to attract global investment into the sector.

Further, the HELP system has not performed up to the expectations as there were only 26-billion-dollar oil and gas deals between 2011 and 2021.

Why private sectors are not interested in exploration of hydrocarbons in India?

The past disagreements on tax demands on Cairn, the dispute over KG-D6 production have raised concerns over private participation from foreign countries.

The private sector’s lack of interest in the downstream sector also shows that they have a lack of trust of making enough profits in India.

Therefore, there is a need for the government to come up with laws and policies that attract foreign investment in this sector.