ANALYSIS: India needs energy transformation


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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