Editorial: Mumbai low

Nov 19 2013, 03:48 IST
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SummaryAt $66-77 a barrel, Mumbai Highs future is cloudy

India desperately needs more domestic oil and gas given how the import bill is already close to $100 billion during Apr-Oct but the irony is that, though global oil prices are currently less than $110 a barrel, it doesnt make sense for ONGC to go in for enhanced oil extraction in Mumbai High. The break-even price for enhanced oil recovery at Mumbai High North and Southboth will give approximately 20 million tonnes more of oilis $66 and $77 respectively. While this is lower than the global price, thanks to the huge share of petroleum subsidies that ONGC has to bear, it gets just $45-46 for each barrel of oil it produces. And since redevelopment costs keep rising, and the potential output fallswhile the first phase of the redevelopment yielded 57 million tonnes of oil, the second gave 36 millonthis pretty much means ONGCs ability to further exploit Mumbai High is over unless the government either reduces its subsidy burden or plans to help fund part of ONGCs costs directly.

At $12 per barrel versus a global $10-11, ONGCs operational costs of extracting oil are not significantly higher than the global averagethe royalty and the depreciation/depletion/amortisation (DDA) take ONGCs average to $40 or thereaboutsbut with the oil PSUs fresh discoveries in deep waters, the government needs to seriously take stock of how much more oil the PSU can deliver and at the rising costs of such production. ONGC needs to get partners with deepwater experience to get that oil but so far, its efforts have not yielded fruit, partly because international majors are not too keen on partnering a company that has all manner of operational constraints. While ONGC is now working to be able to develop the expertise on its own, the process is going to be slower without the requisite in-house expertise. In which case, thought has to be paid to how ONGC can be unshackled while still remaining essentially government-owned.

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