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ANALYSIS: India needs energy transformation

07.23.2012  |  HP News Services

Keywords: [India] [refining] [oil] [China] [M&A] [mergers] [acquisitions]


India's oil and gas companies need more energy. Since 2001, they've spent $16 billion on offshore oil producers and refiners, while their Chinese rivals have spent $97 billion over the same period.

Now, the Indian companies have no choice but to open their wallets.

Energy demand will grow 41% by 2017 if India achieves an ambitious government target for economic growth of 9% a year, national think tank Planning Commission says.

But existing domestic output is dropping as oil wells mature. Oil & Natural Gas Corp., or ONGC, which generates 65% of India's crude-oil production, says output at its local wells has fallen 8.6% in the last five years.

The government estimates that domestic production at India's largest private refiner, Reliance Industries, will halve by 2015.

So far, Indian companies have been mostly all talk on ramping up acquisitions abroad. Earlier this year, ONGC and its main domestic peer, GAIL (India) Ltd., said they were jointly bidding on Mozambique-focused Cove Energy.

Instead, Thailand's PTT Exploration & Production is set to buy Cove for about $1.9 billion after fighting off giant Royal Dutch Shell.

The Indian sluggishness is partly because government red tape and approvals hold up the acquisition process. Chinese firms by comparison enjoy much greater autonomy, says analyst Neil Beveridge at Bernstein Research.

Even when they're stirred into action, Indian companies don't have a good track record. Take ONGC's acquisition of Russia's Imperial Energy for $2.1 billion in early 2009. Production there has been dropping steadily from about 30,000 bpd in 2009 to just 15,500 by December 2011.

There should be funding available for some big purchases. ONGC says it will invest $8.8 billion in oil and gas assets globally over the next five years. Reliance has $13.8 billion in cash.

New Delhi, the major shareholder in GAIL and ONGC, has lately urged expansion too, and could provide valuable financial clout.

As yet, India's energy needs aren't at crisis levels. But PTT's likely acquisition of Cove shows other countries are emerging as active buyers.

That will surely push up the cost of good assets. Indian companies must step up now to avoid paying a lot more later.

Dow Jones Newswires

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sumit sinha

Who is responsible. Indian voters....who voted out NDA govt in 2004 despite performing much better than UPA govts. We are all paying the price of our mistakes...the solution is to end the Gnadhi dynasty rule and give another chance to NDA (I am for Narendra Modi)

Kumar G. Mulemane, Director Engineering and Business Development

Energy Needs are already at crisis level. Existing Indstries are not able to run, new investments which need uninterruped power are not viable, Agriculture, life line of Indian people, do not get power more than 5-6 hours a day, existing power plants not able to run at design capacities and also not able to meet their expenses due to unrealistic power prices, many operating companies are planning to become LNG traders through LNG Terminals which will make power cost price unviable and finally there will be no inclusive growth, no manufacturing competitiveness and Indian citizens have to live unbalanced living standards with associated social and political diseases. India shall built power plants based on indegenous fuel/coal and not based on expensive LNG, make power available competitively and reliably, build roads, rails, houses, educate people and build skills all over the country to match industry requirements and also build technology development capability to suit Indian consumption / markets. Will Indian people, politicians, admiistration, judiciay and professionals collectively, cooperatively, comiittedly contibute and enable other people to ccontribute to meet the above goals? Not in the present or next generation and only national catastrophy may motivate the people to work together honestly and competently.

P K Sekhri

Indian bureaucracy functioning style is duck, shrunk and the pass the buck. Under the circumstances, decisions are either delayed or not taken. Further the govt is weak, the collation partners are not supportive. All politicians are working towards winning elections by hook or crook and thus support the demands which are not nationalistic. There is confusion every where and as result projects are suffering, the nation is suffering and the poor man is suffering. There is no will power to surge ahead and the situation will continue till next general elections and Indian state of affairs will remain the same.

ashok gupta

Situation getting worse by the day for India to meet its spiralling demand for liquid fuels. Drastic action is requred to save it looming ctastrphe.

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