ONGC Seeks Global Partners, Shell Finds Domestic Entry

ONGC has been proactively seeking partnerships with oil and gas majors. This strategy appears advantageous for both the company, which benefits from International Oil Companies (IOCs) expertise in specific areas, and India, which is securing more stable imports of energy as its state- owned companies diversify their productive assets globally. An e arly May s peculation of a potential global joint venture (JV) between ONGC and Shell in both downstream and upstream segments creates scope for large benefits on every side.

Earlier example s of such deals involved US-based IOC ConocoPhillips , and Japan's largest oil company Inpex . In 2012, ONGC and ConocoPhillips signed a memorandum of understanding in order to explore eastern India for shale and deepwater potential . The strategic partnership signed with Inpex target s oil and gas exploration in the K rishna-Godavari (KG) Basin. The proposed deal with Shell is , however , on a much broader scale.

Shell and ONGC had already signed a memorandum of understanding in 2006 aimed at cooperation both in 'India and other regions across the world'. The partnership was not fruitful though, as Shell faced many hurdles from local authorities in invest ing in some of ONCG 's Indian oil and gas fields. Shell 's interest in boosting the ease with which it can acquire Indian assets has brought both companies closer again , with talks about restarting cooperation in India late April.

Shell exited India in 2002 after selling a stake in the Barmer block in the Rajasthan field to Cairn India for just US$7.5mn . The latter has made about 26 discoveries in the block since then, the latest in April 2013. Shell's return to India will bring along three potential developments:

  • This creates scope for downstream expansion in India. The country is already a net exporter of refined products. Additional refining capacity could further improve India's trade balance. Alternatively, increased competition in refined fuel marketing could also incentivise consumption.

  • ONGC and Shell will likely cooperate on LNG projects. Shell is already involved in the Dahej import terminal and could bring expertise and credibility to a project jointly developed with the Indian state-owned company.

  • This could offer a foothold for Shell to explore shale potential in India. The company recently became the first IOC to obtain a production sharing agreement to tap China's shale gas , with an initial commitment for investment of US$1bn to develop the Fushun-Yongchuan block in the S ichuan basin . Shell has been keen to explore for unconventional gas in numerous places, such as Ukraine, and appears to have a particular interest in conducting such projects in Asia. The barely assessed and largely unexplored aspect of India's shale resources will most likely be of interest to Shell when it reaches a deal with ONGC , as it apparently has to fellow major ConocoPhillips.

This article is tagged to:
Sector: Oil & Gas
Geography: India

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