The recent announcement that BP will pay a hefty sum of money to take a stake in Reliance’s gas operations is doing the rounds of the international energy circuit. Coming on the heels of its tie up with Rosneft in Russia, it is the second large investment that BP has made in exploration in less than a month, while at the same time divesting assets in western nations to help pay for the cost of the Gulf of Mexico oil disaster, that took place almost a year ago. While that event has largely disappeared from the headlines (replaced by fears of rising oil prices fuelled by the unrest in the middle East and North Africa), recent studies of the sea floor show a large amount of dead marine life, possibly suffocated by the heavy oil sinking from the surface. So while the fishermen and coastal communities are getting back to “normal”, the long term damage from the spill could be as yet unknown. Meanwhile, BP has started to question the amount of money set aside for compensation, claiming it to be “excessive”.
Reliance is clearly the winner here – while it already has a partnership with BP in one well in the K-G basin, the 30% share is clearly a statement of long term interest, that too from a dominant oil company, as opposed to small fry like Cairn Energy. So far, the oil majors have largely chosen to ignore exploration in India, in favour of more lucrative markets such as West Africa, Russia and recently Brazil. This was partly the result of low oil reserves, but also the general business climate and government policy towards significant foreign investment in such a sensitive area. Reliance’s K-G discovery changed that to some extent, increasing the country’s natural gas reserves significantly while, at the same time, demonstrating the potential for private players to stake a claim in exploration, which had typically been the domain of ONGC. In addition, its mammoth Jamnagar refinery, capable of gulping a world beating 1.2 million barrels a day (60 million tons/yr), has caused significant concern in the downstream sector, and might well lead to dozens of refineries being shuttered across Europe and North America in the coming decade.
The business community and markets have welcomed this tie-up – seeing the knowledge (and cash) infusion from BP as the catalyst that Reliance needs to realize the benefits of its discovery. A former chairman of ONGC has stated that the deal is “very positive for India”, given the amount of investment that the nation needs in oil and gas. Certainly, both Mr Ambani and BP’s Carl-Heinric Svanberg are optimistic in the reasons for entering into this agreement, and the shareholder benefits that would accrue. Mr Ambani has also gone one step further and tied this to India’s “energy security”, a buzzword which has become the energy industry’s equivalent of Kryptonite against environmentalists. Do you want to deny the benefits of energy to the millions who want a better quality of life, they ask - to which even the most hardened greenie would admit feeling pangs of guilt.
This is not BP’s first entry into India by any means – they are already well established in the consumer market, thanks to their purchase of Castrol over a decade ago, and their foray into solar energy (remember “beyond petroleum”?) with Tata is still around, although its impact seems to be confined to a few home use products and a couple of power plants of modest capacity. One would hope that BP might continue to drive alternate energy options for Indians, but the likelihood of that would have dropped a few notches with the Reliance deal.
The question that does not appear to be surfacing in this entire matter is – are we all prepared for the challenges that come with oil and gas exploration? While the drilling off Bombay High has been in place for several decades, the potential area off the east coast is several times larger and in significantly deeper water as well. And this is not just because BP is involved - no, the question should be asked out of a general concern for the environment, with the backdrop of the nation’s own experience with the worst industrial disaster of all time. And while a possible oil spill off our coast will not kill thousands of people like the MIC at Bhopal, no amount of prevention by Reliance or BP can guarantee that it will never happen. Because the reality is that, no matter how hard you try, the extraction of oil and gas inevitably carries with it collateral damage to the environment. For the most part, India has been oblivious to this, as it was not a large producer. The BP-Reliance deal, while beneficial to the country’s overall development, could also expose us to some ugly truths that we wish we had never known.
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