‘Oil major’ could be a game changer

Energy analysts foresee a greater relevance of having energy majors.

The government’s idea to carve out bigger oil major(s) out of the 13 government-owned oil and gas enterprises is essentially aimed at boosting the international competitiveness of Indian hydrocarbon companies. The move could be a game changer for India’s oil and gas sector. “To provide more bargaining power in international negotiations for acquiring upstream (exploration) contracts, the proposed consolidation is a pragmatic step,” says Anish De, a senior oil expert at KPMG India.

Within the domestic sphere, the operating cost of the proposed (two or three) bigger entities could be reduced by the harmonisation of logistics and supply chains. Oil and gas PSUs currently have an oligopolistic control in the domestic oil marketing space (down- stream) which also means that there is a recognisable level of inefficiencies in their functioning that the proposed structure would also address. By creating a bigger public sector entity, the government is also “preparing to take on stronger competition from private players,” feels De. There is an increased possibility of stronger private sector participation, especially after de-regulation of petroleum products. The consolidated entity(ies) would create better synergies between the functioning of 13 oil and gas PSUs and would also eliminate inter-companies competition “resulting in an upfront cost savings of 10-15%”, says R.S. Sharma, head of FICCI Hydrocarbon Committee. Market volatility could be better addressed by a bigger entity. India has 18% of the world’s population, but its known hydrocarbon reserves are only 0.5%. “And since our energy needs are growing, acquiring overseas energy assets has become a necessity,” adds Sharma.

Although the form of the proposed consolidation is yet to be known, the government claims to have finalised the structure of the new oil company and is expected to announce it soon. Energy analysts foresee a greater relevance of having energy majors, especially in the fast changing nature of the energy market.