Policy
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Another Extension Of Deadline For BPCL Privatisation
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Petronet LNG’s Proposal To Invest In Tellurian LNG Project Revived
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Indo-US Strategic Energy Partnership Begins To Make Impact
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Demand Down After Spike In Covid, Refineries Reduce Throughput Again
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Regulation
Unbundling Of Gas Industry: Dithering, Resolve, Resistance
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GRM Of Indian Refineries Touched A New Low In FY 2019-20
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Tax On Petrol, Diesel In India Close To European Majors’
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Kochi LNG Terminal Capacity Utilization To Touch 40-45%
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Alternative Energy / Fuel
GAIL And CCSL Sign MoU For CBG Projects
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New Projects
IndianOil To Build $1.8bn Petrochemical Complex
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RPP Projects Wins Two Orders From HPCL
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Market Watch
Norms For Retailing Petrol And Diesel Clarified
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Companies
Agility Fuel Solutions
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HPCL Net Profit Up In June Q
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Cairn Oil Deploys Honeywell Forge Enterprise Software
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Press Release [FREE Access]
Petro Intelligence » ONGC Must Return To Its Roots, Sell HPCL And MRPL To IOC

By R. Sasankan

Koyali is a place close to Vadodara in the west Indian state of Gujarat. It is where the flagship refinery of Indian Oil Corporation (IOC), Gujarat Refinery, is located. With an annual capacity of 13.7 million tonnes, the refinery is all set to become IOC’s largest with a capacity of 18 million tonnes, overtaking the latest Paradip refinery in the state of Odisha.

But the refinery has a curious history – and the principles that underpin the story are as relevant today as they were in creating the guideposts for the terms of engagement in the petroleum industry. Very few people in the country know that the refinery was built by state-owned upstream company, Oil and Natural Gas Commission, as ONGC was called back in those days, and not by IOC.

The refinery, established with Soviet assistance, was commissioned in 1965 and had an initial annual capacity of 2 million tonnes. In 1966, the then petroleum minister, Keshav Dev Malviya, asked ONGC to hand over the refinery to the newly-created Indian Oil Corporation. ONGC set up the refinery to process the crude it was producing in Gujarat. Without a murmur of protest, ONGC obeyed Malviya’s decision.

Malviya had sound logic behind his decision. ONGC, he said, was created to hunt for oil and gas which the country needed and it ought not to get involved in activity that would divert its attention from that noble mission. Refining and marketing would be done by downstream companies led by IOC. This landmark decision reinforced the vision for which ONGC was created and guided it through the initial years, leading to a series of oil and gas discoveries. Back in those days, the oil sector was steeped in the purity of its purpose and not in perfidy and pelf. It had not become a milch cow of funds for politicians and its top executives were picked strictly on merit.

ONGC’s spate of discoveries came to an end by the early 1970s just when it started to slide into a slime of corruption. Still, it remained wedded to Malviya’s basic philosophy until around 2000. India’s oil industry was built on an integrated structure with ONGC and Oil India acting as Exploration and Production (E&P) companies, Gas Authority of India Ltd (GAIL) being the mid-stream player, and IOC, BPCL and HPCL playing the role of downstream refining and marketing entities.

The first deviation started with ONGC taking over MRPL, a joint venture between HPCL and the Aditya Birla group. Subir Raha, the then ONGC boss, jumped, at the idea as he could not make a mark in ONGC’s restrictive environment. Raha had always been known as a very competent executive in the downstream oil sector and had spent almost his entire professional life in IOC where his competence was acknowledged. But E&P was a totally new area for him. He had no demonstrable success to show and all that he really did was to emasculate the militant and powerful officers’ association which had incurred his wrath by issuing a press release alleging corruption involving the country’s top three bureaucrats including the then anti-corruption head. (The press release lasted only for three or four hours and no trace of it can be found in ONGC now).

The fairly long preamble to this column is really the provocation for this column. I feel that ONGC should be forced to concentrate exclusively on E&P again. The country cannot afford to waste the talent that exists in its workforce by straying into areas that are being managed efficiently by other state-owned players.

It is an acknowledged fact that the government prompted ONGC to acquire its stake in HPCL to resolve the fiscal deficit conundrum. The cash on its books could have been used to acquire oil and gas assets overseas instead of locking it up in HPCL. MRPL is run efficiently. So is the case with other refineries in the country. Why should the government burden ONGC with the task of refining crude imported from overseas? What is the great value addition that ONGC can achieve in this area?

On the exploration front, ONGC has failed to up with any new commercially viable discoveries over the past five decades. It has of course notched up a few discoveries of small and marginal fields but in terms of reserves they do not add up to much. Not for once am I suggesting this as the only course of action for ONGC to find resources. As one acknowledged energy expert has said, it is not difficult for ONGC to raise resources. What it does, however, lack is a clear vision and strategy.

This is where the political leadership should intervene as Malviya did 55 years ago.

Getting a good price for HPCL and MRPL will be a problem in the COVID-hit oil industry. But that is only to be expected. Let us not forget that the sale of BPCL has been stuck for some time.

But ONGC can grab the opportunity to acquire assets overseas as quite a few are now available at highly discounted prices. ONGC will definitely find it hard to get an overseas buyer for HPCL and MRPL in the immediate future. The first hurdle it needs to take is a policy decision at the company level. The way things work today, this will be hardest to do unless there is a nudge from the ministry of petroleum headed by Dharmendra Pradhan. The minister is regarded as a heavy weight within the political hierarchy and the Prime Minister is not likely to summarily reject any advice that he proffers.

The best option, therefore, is a petroleum ministry-mediated sale of these assets to IOC which is desperate to minimise domestic competition. IOC can offer a reasonably attractive price which ONGC can then use to acquire overseas assets.

The state-owned enterprise can then make an aggressive foray overseas in view of the limited hydrocarbon reserves in domestic sedimentary basins. ONGC cannot afford to keep drilling dry holes to meet annual targets or let its rigs gather rust. After all, it has one of the largest rig fleets held by any E&P company. It should look for prospective areas in geopolitically stable and secure places. It must focus on E&P alone, whether it is within the country or overseas. It must return to the original raison d’etre for its existence and completely abandon the space for refining and marketing of petroleum products.



To download the latest issue 'Volume 27 Issue 9 - August 10, 2020', click here
Petro Intelligence [FREE Access]
BPCL Privatisation Must Be Anchored To A Sectoral Strategy
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High Fuel Prices Can Implode A Faltering Economy
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LNG Stations: PLL’s Robust Initiative
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A Cry For Change Amid Historical Blunders
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Foreign Investment
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Total And IOC To Set Up JV For Bitumen Derivatives
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Overseas Investment
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Gas Scene
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Domestic Natural Gas Scene in June 2020
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Changing Fortunes of India’s LNG Regasification Terminals
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LNG Consumption By Power Sector Jumps, Power Consumption drops
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India’s Rising Gas Import Dependency
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Sector Wise Demand And Consumption Of Natural Gas
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Competiveness Of Pipelines vs LNG
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Transnational Pipelines - Operating or Under Construction
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Sector-Wise Consumption of Natural Gas In May 2020
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Natural Gas Price Trends: Global And Domestic
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Domestic Natural Gas Scene: May 2020
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Natural Gas Price Trends: Global & Domestic
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Natural Gas Price trends: Global & Domestic
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CGD Growth Over The Years
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India’s Increasing Gas Import Dependency
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Sector-wise Demand And Consumption of Natural Gas - An Update
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Surprising Fall In LPG Consumption In February 2020
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Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
Global Rig Count Falls In June 2020, US Worst Hit
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Indian Crude Basket prices in July 2020
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India’s Crude Oil Import Declines In June 2020, OPEC Share Shrinks
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Power supplied and deficit: Region-wise position for June 2020
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Negative Growth In Vehicle Sales Impact Consumption Of Petrol, Diesel
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Covid-19 Impact Minimum In Offshore Oil and Gas Investments
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Impressive Recovery In Petroleum Products Consumption In June 2020
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Covid -19 Impacts India’s Crude Oil Demand
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Crude Oil Import- Volume And Value
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Petroleum Sectors Contribution To Ex Chequer
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Declining Demand For PDS Kerosene
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Self-Sufficiency In Petroleum Products - An Update
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Capital Expenditure Of PSU Oil Companies - An Update
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India’s Drilling Activity Rebounds
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Indian Basket Crude Price in June 2020
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Global Rig Count Declines
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Like Crude, Import Of Petroleum Products Too Declined In May 2020
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Share Of Domestic Crude Up In Indian Refineries, Total Crude Processed Down In May 2020
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India’s Crude Oil Imports Decline In May 2020, OPEC Share Marginally Down
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Power supplied and deficit: Region-wise position for May 2020
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Tenders [FREE Access]
ONGC
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ONGC
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