Samudra Manthan Scheme Marks High-Stakes Foray Into Untapped Offshore Reserves

It is against this backdrop of energy uncertainty that the Samudra Manthan scheme takes prominence: the Centre has approved the flagship ₹84,084-crore scheme to tap into India's offshore hydrocarbon reserves as part of a long-term strategy to sustain energy security. 

It's evidently a big gamble: it bets on the hydrocarbon potential of untapped offshore areas. 

Is the investment worth the risk? A similar debate surrounds the government's ethanol blending push.

Whether it is deep-sea oil and gas exploration or ethanol blending, India and the world would still require fossil fuels for many decades to come. The internal combustion engine may become outdated at some point in the future, but experts say that it will continue to be used in passenger vehicles for at least another two decades.

So, it is important to move towards renewables and electric vehicles, as China has done successfully. 

But it is equally important to reduce the cost of buying fossil fuels from abroad.  

Lessons From China

In evaluating the significance of the Samudra Manthan project, one must also consider the China factor. China is the world’s largest oil importer. By its aggressive drive towards electrification of mass public transport and personal passenger vehicles, it has managed to slow the growth of oil imports. These have now almost reached a plateau. Yet it continues to be the biggest global buyer of oil as its fuel requirements are still enormous.

This provides yet another lesson: initiatives such as Samudra Manthan are vital to ensure the country’s energy independence.

As for the project itself, what is interesting is the amount of resources that will be spent on seismic studies. As much as ₹28,534 crore has been allocated just to identify the precise areas where new hydrocarbon reserves could be located and ultimately brought to the surface. The advent of cutting-edge technology, including artificial intelligence (AI), is expected to make these seismic studies far more accurate than in the past. 

The scheme's success would ultimately be assessed by the global oil majors it attracts. The creation of more accurate seismic data is bound to prove an incentive for the latter's entry into the Indian subcontinent.

Volatility And The Case For Deep-Sea Exploration

Oil price would be another crucial factor. It's widely accepted that deep-sea exploration becomes viable when prices go up. In a risky business, returns have to be adequate for investors. The volatility in recent times makes a persuasive case for moving towards more exploration in deep-sea regions. Prices have oscillated from around US$100 per barrel and then dropped below US$70 during the West Asia conflict.

The volatility could end when peace descends in the region, but that looks a long way away. Even now, there is a perception that both sides are keen to end the hostilities, but there is a fresh development every day that delays peace talks. Even if prices drift downwards, deep-sea exploration is likely to remain viable, especially since West Asian producers are set to face continued upheavals in the coming days.

The terms and conditions of the scheme appear to be far more attractive than the New Exploration Licensing Programme (NELP) launched in 1997, or the Open Acreage Licensing Programme (OALP) started in 2017, as 50% of eligible drilling costs, or ₹675 crore, whichever is less, will now be provided by the government itself. Financing the venture, thus, becomes much less expensive. As much as ₹43,200 crore has been allocated for this purpose. 

Other contentious regulatory issues have also eased as both the production-sharing model and the subsequent revenue-sharing contract have now been replaced by modernised rules and regulations under a new amendment to the Oilfields Act.

Whether this is enough to reduce cumbersome red tape for investors will have to be seen as the scheme goes forward.

Additional Area For Exploration

Another improvement is the sharp reduction in the "no-go areas" of the country's exclusive economic zone. Earlier, large portions of the offshore zone had been kept as no-go areas due to various concerns, including defence and environmental issues. As much as one million square kilometres of additional area is now available for exploration purposes. 

The Samudra Manthan scheme seeks to ensure that India has a cushion of domestic oil resources in the coming decade, to reduce the high cost of imports. The success of the scheme will only be seen in the long run. In the short run, the global oil industry's response will test its potential.

(The writer is a senior journalist, columnist, and commentator on economic and business developments. Views expressed are personal.)