Millennium Post

A Quest For Oil

The summit declaration made by Indian Prime Minister Narendra Modi and the The summit declaration made by Indian Prime Minister Narendra Modi and the Russian President Vladimir Putin on October 15 is taking concrete shape in the energy sector with every passing day and that is a strong indication of the India-Russia Energy bridge which both the leaders mentioned during the summit for bolstering energy security of India in the coming years. 

ONGC Videsh Ltd, the overseas arm of the ONGC, has just completed the acquisition of additional eleven percent equity stake in Russia’s Vankor oil fields taking its total stake to 26 per cent. The company signed a deal with the Rosneft Oil Company of Russia on October 28 for this latest acquisition at a cost of US$ 930 million.OVL which had previously bought 15 per cent stake in Vankor from Rosneft for US$1.288 billion, will get 7.3 million tonnes of oil equivalent from this total of 26 per cent stake. The Vankor oil fields are in East Siberia. 

The expansion of the OVL exploration activities in Russian oil fields began in 2001 with investments in Sakhakin I and the process has been intensified now with the public sector oil exploration company opting for more new areas for exploration as Russian Government and the state oil companies are seeking more investments from the Indian companies following sanctions from the western countries due to Ukraine crisis.

This suits India also as Russian fields offer huge opportunities for strengthening India’s energy security since India import nearly three-fourth of its requirements of oil and this level will go up in the coming years. Indian companies have not yet been able to explore enough new oil wells to produce for meeting the increasing demand. This requires that India should focus on new fields in foreign countries including Russia and shore up its oil supply from these oil assets abroad.

The Goa summit statement took note of this imperative for India and the joint statement mentioned that with the aim of further strengthening oil and gas cooperation, the Russian side expressed its interest in attracting Indian companies to participate in joint projects in the offshore Arctic fields of the Russian Federation. 

Already Indian scientists are active in data collection work in Arctic region and the Indian work has been highly appreciated by the UN. India can have the benefit of getting oil at cheaper costs if it collaborates with the Russian companies in the region for oil exploration and development.

Right now, there is an appeal from Russia to the United Nations Tribunal concerning border of its continental shelf in Arctic. Moscow sees its move as another example of using International Arbitrage in a territorial dispute and appealing to the International Convention on Maritime Law, unlike Washington which denies its ratification. The US is opposing the Russian plea on the border issue.

Since Arctic region is the vast resource base of hydrocarbons and President Putin in his joint statement has assured of joint projects with India in Arctic region, it will be in India’s interest to extend support to the Russian position on the border issue in Arctic which Moscow has vindicated through a lot of studies. 

Russia was the world’s largest producer of crude oil including lease condensate and the third largest producer of petroleum and other liquids, after Saudi Arabia and the United States in 2015.Russia was the second largest producer of dry natural gas in 2015, second to the United States producing 22.4 trillion cubic feet. Russia had 39 oil refineries with a total crude oil distillation capacity of 5.5 million barrels per day as of January 1, 2016.

Rosneft, the largest refinery operator, owns nine major refineries in Russia while Lukor is the second largest operator of refineries in Russia with four major refineries. Many of Russia’s refineries are older, simple refineries, with low-quality fuel accounting for a large share of their output.

A country report on Russia prepared by the US Energy Information Administration says that with Russia’s traditional oil producing regions in decline, East Siberian fields will be central to continued oil production expansion efforts. The region’s potential was increased with the inauguration of Eastern Siberia- Pacific Ocean (ESPO) pipeline in December 2009 which created an outlet for East Siberian oil. 

East Siberia has become the centre of production growth for Rosneft, the state oil giant. The start-up of the Vankor oil and natural oil and gas field in August 2009 has notably increased production in the region and has been a significant contributor to Russia’s increase in oil production since 2010.Vankor, located north of Arctic Circle in Russia’s Krasnoyarsk region, was the largest oil discovery in Russia in 25 years. There are a number of other fields in the region including Verkhnechonskoye oil and gas field. 

The process has started in full swing and India’s capability in oil exploration has been widely appreciated in Russia. This is the right time to expand at a breakneck speed to expand India’s oil assets in Russian Federation. Entering Arctic region as a collaborator will be a golden opportunity for India.

With global crude oil prices having dropped to under $50 barrel levels amid a supply glut, the Indian government has been giving attention to developing the country’s strategic petroleum reserves for enhanced energy security. 

Earlier this week, Petroleum Secretary K.D. Tripathi, along with senior officials of state-run Indian Strategic Petroleum Reserves Ltd (ISPRL) and Engineers India Ltd (EIL), visited the proposed petroleum storage site at Chandikhol in Odisha, a Petroleum Ministry statement here said.

“The underground storage facilities at Chandikhol will be created within the available government-owned land parcel, and would involve a significant development in the region with the greater objective of Odisha becoming the energy gateway of the Eastern and Northeastern region of India,” the statement said.

 “The estimated capital cost of the Chandikhol project is approximately Rs 5,000 crore,” it added.
The first phase of implementing India’s strategic oil reserves would be completed by end of this fiscal with over 5 million tonnes (MT) of crude reserves in place in three separate storage facilities. The facilities entail storage of crude oil in underground rock caverns.

“Under Phase I storage program, three facilities have been created at Vishakhapatnam, Mangalore and Padur, with a total storage capacity of 5.33 MT,” the ministry said. Petroleum Minister Dharmendra Pradhan had told reporters earlier this year that preparations had started for the second phase of construction where it is planned to build reserves of 12.5 MT, so that by the end of the second phase India has strategic reserves of around 17.8 MT.

“Government is considering the proposal for establishment of Phase II storage program for a total storage capacity of 10.0 MT, which includes 4.4 MT storage capacity at Chandikhol and 5.6 MT storage capacity at Bikaner (Rajasthan),” the ministry said in a statement on Saturday.The construction of the storage caverns is being managed by ISPRL, which is a special purpose vehicle created by the Oil Industry Development Board (OIDB). 
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