Indian Prime Minister Narendra Modi will fast for a day, on April 13.
Indian Prime Minister Narendra Modi will fast for a day, on April 13.

Indian consortium’s stake in Abu Dhabi’s Lower Zakum ticks boxes for both sides



Following a spate of recent agreements, only one of the four giant Asian energy consumers remained outside Abu Dhabi’s oil sector.

Now, the visit of prime minister Narendra Modi has brought the signature of a consortium of Indian oil companies for a stake in the offshore Lower Zakum oilfield. With China, Japan and South Korea already on board, the shape of the emirate’s future oil relations is almost complete.

The Indian group, ONGC Videsh, Bharat PetroResources and Indian Oil, all state-controlled, will pay $600 million for 10 per cent of the Lower Zakum field. The old Abu Dhabi Marine Areas concession, which expires in March, grouped Adnoc (60 per cent), BP (14.67 per cent), Total (13.33 per cent) and Inpex of Japan (12 per cent). Now it has been split into three parts: Lower Zakum, which produces 360,000 barrels per day and is set to increase to 450,000 bpd by 2025; Umm Shaif and Nasr; and Satah Al Razboot and Umm Al Lulu.

Adnoc will retain 60 per cent in each concession, meaning that 30 per cent of Lower Zakum, 20 per cent in the Satah Al Razboot-Umm Lulu unit and 40 per cent of Umm Shaif and Nasr fields, is still up for grabs.

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Total and Inpex are likely to receive an interest in some part, with BP’s future more doubtful, and China National Petroleum Corporation (CNPC) also interested. During 2012-15, new and renewed concessions onshore and offshore brought in Total, Inpex, BP, CNPC and other Chinese and Korean firms, alongside ExxonMobil’s renewal, while Shell departed. On Sunday, Spanish oil company CEPSA, wholly-owned by Mubadala Investment Company, was awarded 20 per cent of the Satah Al Razboot-Umm Lulu unit.

These deals have sealed the involvement of three of the major Asian oil consumers, helping to cement Abu Dhabi’s relationships with its customers. The role of western international oil companies has diminished, but they are still present, bringing their technological capabilities and worldwide operational expertise. But it has been essential for Adnoc and Abu Dhabi to have closer relations with India.

When Sheikh Shakhbut signed the original Adma concession agreement with a forerunner of BP in March 1953, the British Queen Elizabeth had not even been crowned. The new concession will run for 40 years, almost to the middle of this century. By then, India is expected to have overtaken the US as the world’s second-largest economy behind China, adjusted for purchasing power. A population of 1.3 billion will have grown to 1.7 billion, making it the world’s most populous country. This will be accompanied by important shifts in the balance of power in the circum-Indian Ocean region.

BP forecasts that India’s oil demand will rise from 4.1 million barrels per day today to 9.2 million bpd by 2035, more than the entire EU will consume. 8.3 million bpd of this will be imported, making the country the world’s biggest importer after China. Currently, India gets 8 per cent of its oil from the UAE, behind Iraq and Saudi Arabia. Narendra Taneja, energy adviser to Mr Modi, said in January that India would also seek to double the share of gas in its energy mix, and boost its imports of liquefied natural gas.

Conversely, US net imports are set to continue falling because of its shale production boom, and European and Japanese consumption will drop with improved energy efficiency, new non-oil technologies and ageing populations.

Uncertainty over the future role of the US, increasingly less reliant on Arabian Gulf oil and less inclined to shoulder what it perceives as overseas burdens, means the UAE has sought to diversify its relations. India has been attractive: it is western-friendly and so less worrying to the US than a sharp tilt towards Russia or China would be. Just a couple of days’ sail away, it is the Middle East’s natural market. Indo-Emirati historic, cultural and personal links are deeper and go back further than those with East Asia.

But so far, Indian state oil companies’ overseas expansion has been much less successful than their main Asian competitors’. Like the Chinese firms, they went out in the early 2000s seeking to “secure” India’s future energy needs by taking stakes in overseas oilfields, although this is unnecessary when oil is freely available in the world market.

ONGC has done relatively well in Sudan, but its 2008 acquisition of Imperial Energy, a company active in Russia, came at the peak of the market. Projected output of 35,000 barrels per day has in fact fallen to just 1,200 bpd. After long negotiations for gasfields in Iran, the consortium of ONGC, Indian Oil Corporation and Oil India seems to have reached an impasse. And, unlike the Chinese firms, the Indian state companies have not acquired any assets in Iraq, while ONGC lost control of its assets in Syria following the outbreak of the civil war.

To remedy this weakness, the Indian government has been trying to build up a national champion. ONGC is in the process of merging with its state-controlled compatriot Hindustan Petroleum. Indian Oil might combine with Oil India Limited and/or GAIL, the state gas distributor. Investors responded well to the news from Abu Dhabi, with ONGC’s shares rising 4 per cent.

The concession award to the ONGC-led consortium ticks some key boxes for both countries. With only a few more assets left to decide for decades-long periods, Abu Dhabi has to choose and balance carefully. And India needs to use this win to build a Middle East position commensurate with its energy weight.

Robin M Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis

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