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Thursday, Mar 31, 2005

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India's energy quest in Latin America

By R. Viswanathan

Besides acquisition of oil and gas fields, India should consider buying crude oil from Latin America on a regular basis.

THE RECENT record increase in oil prices to over $56 a barrel and the prediction by some analysts that the high oil prices might come to stay have made it imperative for India to re-double its efforts for acquisition of oil fields around the world.

Venezuela's President, Hugo Chavez, during his visit to India in the first week of March offered oil fields to ONGC Videsh Ltd. (OVL) and also expressed interest in the long-term supply of oil to India's large and growing market. President Chavez's offer is part of his own strategic policy of diversification of markets for Venezuelan oil to reduce dependence on the United States market.

Venezuela is planning to increase its production to 4 million barrels a day from 3 million now and is looking for new customers for this extra production. It is the world's fifth largest oil exporter and has the largest reserves of oil (77 billion barrels) and gas (458 trillion cubic feet) in the western hemisphere.

Besides the regular oil, it has 230 billion barrels of reserves of extra heavy crude in the "Orinoco belt" from which it has started producing about 400,000 barrels of regular oil through new technology for upgradation. With this, the total oil reserves go up to 300 billion barrels and Venezuela becomes even more important in the global scenario.

The entry of OVL in the rich Venezuelan market is, therefore, an important breakthrough. This will also help India learn the technology for upgrading extra-heavy crude, which has been found by Oil India Ltd. in Rajasthan. Besides Venezuela, other countries in the region such as Mexico, Ecuador, Colombia, Argentina, Trinidad and Tobago, Cuba, and Suriname offer opportunities, in varying degrees, for acquisition of oil and gas assets by India.

Mexico, which had kept foreign companies out of its energy sector so far, is now opening up for foreign participation, particularly in deep-sea exploration and production. The Mexicans need foreign funds and technology to fill the gap in their own resources and capacity. The new reserves, yet to be explored offshore in the Gulf of Mexico, are said to be about 54 billion barrels. Ecuador's Energy Minister, during his visit to India in January 2005, invited Indian companies to enter his country's energy sector. The country has just opened an Embassy in New Delhi and its new Ambassador is a Petroleum Engineer, whose main brief is to build bilateral energy cooperation.

The new state energy company of Argentina, ENARSA, has formed partnerships with Petrobras (State oil company of Brazil) and PDVSA (Venezuelan State oil company) for exploration of about 50 blocks and will be open to Indian companies too. Trinidad and Tobago is expected to call for international bids this year for three 3 offshore and one on-shore oil and gas blocks. Apart from OVL, Reliance and GAIL are interested in exploring Latin America for oil and gas. The Indian companies could consider the option of tying up with Latin American and multinational companies in these ventures. Petrobras and PDVSA could be local partners in the region.

Besides acquisition of oil and gas fields, India should consider buying crude oil from Latin America on a regular basis. Reliance has been buying crude oil from Mexico, Venezuela, Ecuador and even Brazil in recent years. The high cost of freight and the difference in the quality of oil have to be tackled by the public sector oil companies in a creative way with a long-term perspective, as Reliance has done so successfully.

The Chinese are ahead of India in the energy game in Latin America. They have invested over a billion dollars in Venezuela. They operate two oil fields and have signed contracts to develop 15 marginal fields in Venezuela. They have a 30-year contract to jointly produce Orimulsion (a patented boiler fuel formed by the emulsification of the extra heavy crude) and take it to China.

They have got entry into oil exploration in Ecuador, Peru (production has already started), Cuba, Argentina, Bolivia (for gas) and Colombia. They have established a joint venture with Petrobras for projects, including refineries, pipelines and exploration. The Chinese entry in Latin America's energy sector is integrated with their overall plan for economic and commercial partnership in the long-term through investment, manufacturing, acquisition of mineral assets, purchase of commodities, exports, lines of credit and aid.

President Hu Jintao of China during his visit to Latin America in November 2004 announced plans to invest $100 billion in the next 10 years and triple the trade to $100 billion in the next three years.

Indian companies and the Government should target Latin America and move in decisively and quickly. They should take advantage of the change in the mindset of Latin American political and business leaders, who have started showing interest in, and admiration for, the new India, which is emerging as an economic and technology powerhouse.

(The author is head of the Latin America Division of the Ministry of External Affairs. Views expressed here are personal and do not represent those of the Government of India.)

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