You are here
Home > Archive > The slippery story of crude

The slippery story of crude

The early 1970s witnessed the first major attempts at exploring crude oil production in India. Look at the distance covered since: from a level of production of little over 6.8 million tonnes in 1971 to around 33 million tonnes now. The price of crude shot up in this period from a little over $ 1.20 per barrel (7 barrels for a tonne) to the present price of around $ 100 plus per barrel!

In tandem with the price of crude, rose the cost of a vast range of products based on petroleum like fertilizers, petrochemicals, electricity…as also the cost of transportation, which triggered increase in the price of all goods and services.     

The steep rise helped re-double efforts on the part of the Oil and Natural Gas Commission (ONGC). Crude production was modest at around 6.8 million tonnes in 1971. Technology for exploration of offshore reserves developed and the higher price of crude made offshore exploration viable. An energetic team under the lead of N B Prasad and P Venugopal re-doubled efforts to produce crude from the western off-shore fields which turned out to be one of the best finds at that time. With remarkable speed, production commenced at the Bombay High some 100 km off the western coastline. In quick time production increased to over 10.8 million tonnes. Along with this boom grew the technique for developing a vast range of services. A number of companies acquired and developed expertise to service this massive boom.

    Essar was the most prominent of such companies. Till then doing odd civil construction jobs in Chennai, Essar moved to Mumbai to supply victuals to those working in the mid-sea oil platforms. It grasped opportunities and expanded rapidly to emerge a leading shipping, construction, engineering, oil, power and steel company in quick time.

 

Massive corridors mid-sea

The Minister of Petroleum and ONGC publicised the sophisticated work done at Bombay High. Dozens of media persons from Delhi(where else?) were taken to Bombay High to see firsthand, the challenging tasks of exploring and producing oil and effectively transferring these through submarine pipelines to the shore. Distant countrymen far removed from Delhi did not get such an opportunity. I requested for this to Venugopal at the Economic Editors Conference. He advised my getting in touch with him when I visited Mumbai. I did this promptly a few months later. Through PIB, Mumbai he reached me. I was to report at the Juhu helipad the next morning. A Canadian company was operating the helicopter service on contract from Juhu to the different platforms and the ships berthed near these. I was dropped at one of the platforms over the next hour or so and the helicopter flew away to its next stop. But soon I found that that was not the platform I was programmed to visit! The officials contacted the helicopter which returned, picked me and dropped at the right spot.

    It was an amazing sight to see mammoth platforms erected to establish deep sea drilling and produce oil 24x7 and 365 days a year. Young engineers and other employees were well-provided with accommodation and food facilities to stay in a ship. These employees worked for 15 days at a stretch and returned to the shore with a break for 15 days. I remember a number of engineers from distant Chennai, Hyderabad… returning to their homes from Mumbai every fortnight!

In a day long agenda, I hopped from platform to ship, from ship to platform and gained some insights into the remarkable work done by ONGC.

ONGC caught up rapidly with technology development in close collaboration with international experts. Submarine pipelines were laid to landfall points and production showed progressive increase and crossed 10 million tonnes in quick time. Dedicated technocrats like Prasad, Venugopal, Col S P Wahi, kindled hope on much larger output from Indian offshore and on-shore belts in the west and northern parts of India.

 

Natural gas that was flared…

For a few years natural gas associated with oil production was flared. By the late 1980s, the value of such gas was realised and steps were taken to lay pipelines to transfer the gas to the shore at Hazira in Gujarat and Thal in Maharashtra. In the initial years, the two states made great use of the oil and gas produced. A sizeable portion of prosperity and development of these two states post-1970s was based on this bonanza.

Since gas availability was sumptuous and with the lead provided by politicians from UP like N D Tiwari and Brahm Dutt, the Rajiv Gandhi government decided to lay the Hazira-Bijaipur-Jagdishpur(HBJ) gas pipeline to transfer gas to produce fertilizers, power and LPG in the states of Gujarat, Rajasthan, Madhya Pradesh and UP. The 1900 km pipeline was constructed at a cost of around Rs 1900 crore in quick time, aided by brilliant bureaucrats like G V Ramakrishna. Of course, there was severe competition for winning the contract by Italian

giant Snam Progetti and Spie Capag of France in setting up six large capacity (2500 TPD) urea plants.

 

South missed the chance

Disappointingly, political leaders from the south failed to understand and appreciate the elegance and economy of natural gas and did not lay claim for a share of this huge production. The consequence was the shifting of the production facility for fertilizers to western and northern India. Likewise, large production of gas based power and LPG was also concentrated in these regions.

Col Wahi spearheaded the expansion of exploration activities in other parts. Wahi, ably assisted by his lieutinent, Reena Ramachandran, took great interest in disseminating information. With the progressive increase in the price of crude, deep-sea drilling became more viable. The experiments in southern off shore spread over three decades did not yield much results. The thousands of crores of rupees spent on exploration activities off the Tamil Nadu coast yielded little by way of crude or gas. But, luckily the results were highly encouraging off the Andhra coast in the Krishna-Godavari Basin. Though the initial efforts encountered a lot of difficulty in coping with much deeper levels, over the last decade Reliance did strike success through sustained efforts. At the Economic Editors’ Conference 2009, then PNG Minister Murli Deora expressed hope on production crossing 80 million cubic metres a day by March 2010. With other oil companies – ONGC, Cairn, GSPC and Andhra Pradesh Gas Corporation – also intensifying their efforts, there was even the promise of production touching 200 msmcmd!

 

KG Basin conundrum...

The Ambanis had grand plans to use gas, all on their own, to set up large capacity fertilizer, petrochemical and power plants. In anticipation, Reliance Industries constructed a 1400 km gas pipeline connecting Kakinada with Baruch in Gujarat. Disappointingly, the Dravidian parties did not still understand the value of natural gas and just did not bother to stake a claim for a share of gas from the KG Basin!

The failure of the Union government to fix a market-related price for gas proved to be a colossal blunder. The price of $ 4.20 for 1000 BTU frozen till March 2014 even when imported gas prices were more than four times, led to a waning of interest in getting the best out of KG Basin. From the level of over 60 msmcmd, production by Reliance dropped to around 25 msmcmd, starving large capacities based on gas, created for power and fertilizer production. When the UPA II government announced increase in price to $8 per 1000 BTU from 01 April 2014 on the basis of the expert committee under the chairmanship of Dr C Rangarajan, the Election Commission made its own contribution to defer this till the election results are announced. These are further pushed to June to be decided by the new government.

There is no dearth of opposition to such vital economic issues. Arvind Kejriwal stepped up his anti-Ambani tirade forgetting that the government and other oil producers like ONGC and GSPC will also be the beneficiaries of this rational pricing. Remember, striking oil or gas is extremely risky, capital-intensive and unpredictable. Over 50 years, India had just one large strike of oil at Bombay High and the production has been stagnant and seems poised for a decline. The KG Basin gas strike came three decades later. Lack of strong policy is contributing to a neglect of this precious opportunity. Large production from KG Basin can help Andhra Pradesh and Tamil Nadu in particular (if the Dravidian parties bother to understand the value of gas) to set up large capacity fertilizer, petrochemical and power plants apart from switching to CNG for transportation. All the while thousands of crores are spent on imports of oil and gas benefitting foreign oil barons.

Even when the Centre has moved to set up a national gas grid and some facilities for importing LNG/LPG at the few major ports, states like Tamil Nadu had not been cooperating in this effort. Among its priorities, the new government would do well to work on a national policy for oil and natural gas.   -SV

Reported On :
Listed Under :
Shoulder :
Skip to toolbar Log Out
Your Feedback Please