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THE WALL STREET JOURNAL: India's Economic Path May Hinge on Oil Finds: “Mike Watts, Cairn's exploration director, says India contains good hydrocarbon deposits that have been "missed or written off by the majors." In 2002, Cairn bought out its then-partner in Mangala, Royal Dutch Shell Group, which wasn't interested in drilling more wells. A Shell spokesman declined to comment.” ( Posted 23 Dec 04


Recent Discoveries Raise

Hope Home Turf Will Prove

A Promising Supply Source




BAITU, India -- As India's energy needs grow in tandem with its rapidly expanding economy, several small discoveries offer hope that the gap between the country's thirst for oil and its ability to produce it can be narrowed -- in part -- by more finds beneath its home soil and seas.


Energy experts and international oil majors long have believed that India held little promise of substantial energy reserves. But smaller companies, and an Indian government now intent on finding supplies wherever possible, are beginning to think the country hasn't exhausted its exploration possibilities.


"The energy situation for India is quite grim," said Brahma Chellaney of the Center for Policy Research in New Delhi. "It is crucial for us to import more oil, or find it within our own borders."


The International Energy Agency in Paris forecasts oil demand in South Asia will grow by 3.3% a year between 2000 and 2030, the highest of any region in the world. The agency predicts India will depend on imports for 94% of its oil by 2030. That would put it in direct competition for imports with China, which the IEA expects to be importing 82% of its oil by then.



That is why India's long-term economic health may hinge not only on its gleaming high-technology hubs, but also on places like this sun-baked scattering of mud huts in the Rajasthan desert.


It is here that Cairn Energy PLC, an independent Scottish energy concern, has found oil -- including one of the world's 10-biggest strikes this year. India imports 70% of the crude oil it needs to power its booming economy, up from just 30% two decades ago, so Cairn's five discoveries in Rajasthan this year, and its more-aggressive exploration elsewhere in India, are welcome developments to New Delhi.


Cairn's biggest find, called Mangala, holds about one billion barrels of oil, according to an audit by DeGolyer & MacNaughton, an oil-reserves specialist in Dallas. As much as one-third of that could be recoverable when production starts in late 2007, a respectable recovery rate by industry standards. And even though drilling in an area close to the Mangala field has recently produced disappointing results, Cairn still believes that four subsequent discoveries in the same concession could lift the total amount of oil in its Rajasthan fields to two billion barrels.


That is small by international standards, but big for India. Saudi Arabia, the world's biggest oil reservoir, has 259 billion barrels of proved reserves, according to the U.S. Department of Energy, compared with India's 5.4 billion barrels.


Mike Watts, Cairn's exploration director, says India contains good hydrocarbon deposits that have been "missed or written off by the majors." In 2002, Cairn bought out its then-partner in Mangala, Royal Dutch Shell Group, which wasn't interested in drilling more wells. A Shell spokesman declined to comment.


Some experts say India's geology of subterranean layers with plenty of fault lines formed when what is now India collided with continental Asia millions of years ago, should contain oil and gas. "These are lovely structures for finding hydrocarbons," says Mr. Watts.


"Cairn has broken the jinx that India contains no hydrocarbons," said V. Raguraman, a senior energy adviser at the Confederation of Indian Industry in New Delhi. "More than 80% of India's hydrocarbon sedimentary basin is still not explored -- that's a lot of room to operate."


It would take many more Mangalas to make a dent in India's dependence on foreign oil. And India has seen only two big oil finds -- including Mangala -- since its biggest-producing field, Bombay High, was discovered in 1974. But New Delhi is eager to make any cuts it can in the country's oil-import bill.


India's domestic oil output has started to plateau at about 33 million metric tons a year, compared with consumption of 108 million metric tons. In the year ended March 31, oil imports cost India $20.3 billion, up 15% from a year earlier; this year the oil bill is expected to reach $25 billion because of higher prices.


A rapid proliferation of cars and motorcycles purchased by India's growing middle class accounts for much of the increased consumption. "We expect the oil deficit to widen, and the rise of the middle class will be the driving factor," says Dagmar Graczyk, an officer at the IEA's South Asia desk.


Without more big oil finds at home or substantial moves to alternative energy sources, say industry experts, India will be at the mercy of oil shocks and be forced to spend increasingly large chunks of its national wealth to keep its economy running.


To improve the odds for sizable discoveries, New Delhi has allocated almost 100 blocks of territory to Indian and foreign drillers since the late 1990s under a new exploration-licensing policy.


The effort is beginning to pay off. In 2002, for example, Indian conglomerate Reliance Industries Ltd., in partnership with Canada's Niko Resources Ltd., discovered a deposit of 14 trillion cubic feet of gas off India's coast -- one of the biggest finds in the world that year.


That discovery and Cairn's subsequent successes prompted calls for more acreage to be opened up for exploration by nongovernment companies, which are considered to be more efficient explorers than India's state-owned utilities. Other smaller foreign oil companies exploring or producing in India include Premier Oil PLC, Tullow Oil PLC and Hardy Oil & Gas PLC.


New Delhi would like to lure more foreign bidders, who are seen as more aggressive and better equipped with the latest drilling technology, when it holds the next round of bidding for exploration blocks early next year. But Madhu Nainan, editor of Petrowatch, an online newsletter about the Indian energy sector, predicts that isn't likely since the quality of the blocks has declined since the first round of bidding in 1999. "The kinds of discoveries we see in India aren't really big," he says. "That's why smaller oil companies are interested in India."


R.K. Batra, a visiting fellow at the Energy and Resources Institute in New Delhi, believes foreign oil majors would take an interest in India only if they are allowed to set up integrated operations from exploration to marketing, as they do elsewhere in the world. "But they can't do that in India because we have excess refining capacity, and the marketing companies are very well entrenched," he says.


Others argue that regulatory barriers, not lack of oil, are deterring foreign companies. "We must be bolder in order to find more oil equity within India. We need an open-acreage policy," says the Confederation of Indian Industry's Mr. Raguraman, adding that open acreage would allow entire blocks to be opened up quickly, rather than in phases, and prevent India's state oil concerns from "cherry-picking" the best leases.


"Cairn has done good business," says Mr. Raguraman. "There have been big gas finds. People aren't seeing the whole picture, which is really quite positive."


Write to John Larkin at

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