Enhancing Energy Security for India


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India is the world’s 5th largest importer of oil in 2010, importing ~75% of its oil needs. At US$ 103/bbl, India’s oil import bill would increase by US$ 20 bn in 2012. For India to Secure Oil for Sustaining Growth the options are 1. Domestic Exploration Efforts need to be Stepped Up. 2. Overseas Oil Equity: Natural Hedge against Increasing Prices. 3. Demand Management required to reduce Oil Intensity.

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Enhancing Energy Security for India

  1. 1. Enhancing Energy Security for India g gy y November 2011
  2. 2. 2DisclaimerThese materials contain forward-looking statements regarding Cairn India, our corporate plans, future financialcondition, future results of operations, future business plans and strategies . All such forward -lookingstatements are based on our managements assumptions and beliefs in the light of information available tothem at this time. These forward-looking statements are, by their nature, subject to significant risks anduncertainties and actual results, performance and achievements may be materially different from thoseexpressed in such statements. Factors that may cause actual results, performance or achievements to differfrom expectations include, but are not limited to, regulatory changes, future levels of industry product supply,demand and pricing, weather and weather related impacts, wars and acts of terrorism, development and useof technology, acts of competitors and other changes to business conditions. Cairn India undertakes noobligation to revise any such forward-looking statements to reflect any changes in Cairn India’s expectationswith regard thereto or any change in circumstances or events after the date hereof.
  3. 3. 3India’s Dependence on Imports to meet Oil Demand to Grow Imports India world’s 5th largest importer of oil in 2010, importing ~75% of its oil needs Source: • Domestic Production - BP Statistics (actual), Infraline (forecast) • Projected demand @ 2.8%CAGR - EIA Annual Energy Outlook 2011 • OVL overseas equity oil production, forecast @ 2.8% CAGR
  4. 4. 4Increasing Impact on Economic Growth from Oil Import Bill Source: PPAC, Bloomberg, World Bank, FY12 GDP growth @7.5%  IEA forecasts average crude price of US$ 103/bbl from 2011-2015, compared to US$ 79/bbl over 2006-2010  At US$ 103/bbl, India’s oil import bill would increase by US$ 20 bn in 2012
  5. 5. 5Options for India to Secure Oil for Sustaining Growth 1. Domestic Exploration Efforts 2. Acquisition of Overseas Oil Equity 3. Demand Management
  6. 6. 6Domestic Exploration Efforts need to be Stepped Up  Only 22% of India’s sedimentary basin area is well explored  Nine NELP rounds held so far, with one large discovery  Intensity of exploration activities must increase  Capital and technology required – role of private sector will therefore be critical  Supportive policy and fiscal environment key to attracting investment
  7. 7. 7Cairn India Rajasthan – Enhancing India’s Energy Security Indian Crude Consumption: 2009-2010  Largest oil discovery in India since 1985 Imported 79%  First Oil in August 2009, now producing at Domestic 125,000 bopd 21%  Innovative technology applications  At current envisaged basin potential of 240,000 bopd, production from Rajasthan will: Other Domestic ~65%  Contribute ~35% of India’s domestic production Rajasthan 20% Rajasthan  Offset India’s crude oil import dependency by ~35% ~7% Imported & Domestic Quantity: MOPNG Data Future: Assuming Indian production remains at current levels of 2009-10.
  8. 8. 880% of Value accrues to the Government Value Split: RJ-ON-90/1 PSC Rajasthan In-place resource base of 4 bn bbls with additional risked exploration potential of 2.5 bn bbls ~ 80% of value – potentially US$ 100 bn Government – 80% (GoI, GoR, NOC) accrues to the Government Ravva Recoverable resources tripled, expect to Cairn – 20% achieve > 60% recovery >US$ 5 bn paid as profit petroleum to Government
  9. 9. 9Overseas Oil Equity: Natural Hedge against Increasing Prices Options Inorganic Growth Organic Growth (Discovered Resources) (Greenfield Exploration) Advantages: Advantages: - Quicker to Production - Finding costs lower - Low Risk - Competition is less intense Disadvantages: Disadvantages: - Costlier than organic growth - Longer lead time - Competition for assets is high - Higher Risk Potential for public and private sector companies to collaborate and share risks
  10. 10. 10Demand Management required to reduce Oil Intensity India’s crude oil intensity is high relative to Oil Intensity (Oil Consumption per unit of 2009 GDP) developed and emerging economies Policy efforts required to bring structural shift away from oil in key sectors – transport and industry Japan’s 2006 National Energy Strategy includes ambitious targets:  Reduction in ratio of oil to entire primary energy supply to <40% by 2030  Reducing oil dependence in transport sector to 80% by 2030 Improve coordination with other oil Source: Morgan Stanley consuming nations on use of Strategic Petroleum Reserves
  11. 11. 11Conclusions Where are we today? What do we need to do? Cost of oil will continue to rise  Policy interventions required India’s oil demand will continue to grow with  National Energy Policy required to set: its economy  Long term vision and short term goals  Roles and targets for Private and Public sector Gap between domestic production and demand expected to increase  Establish National Energy Council to:  Raise energy security on our national agenda To bridge the gap, we need to act now  Catalyze & coordinate Public/ Private initiatives Coordinated action between public and private sector key to meeting challenges