The global financial crisis that began in 2008 and the recession caused due to this crisis have been dubbed as the worst since the Second World War. Because of this crisis, we have seen major upheavals in energy markets around the world. Needless to say, the global financial crisis has resulted in a dramatic impact on the outlook for energy markets, particularly for the coming few years.

There has been a quick response by various countries to the threat of economic meltdown in the form of monetary and fiscal stimulus In many cases, stimulus packages have included measures to promote clean energy with the aim of tackling an even bigger, threat – that of disastrous climate change.

Both supply and demand side investments are being affected. Energy companies are drilling fewer oil and gas wells and cutting back spending on refineries, pipelines and power stations. Many ongoing projects are being slowed and a number of planned projects have been postponed or cancelled – for lack of finance and/or because of downward revisions in expected profitability. Tighter credit and lower prices make investment in energy savings less attractive financially, while the economic crisis is encouraging end users to rein in spending across the board, as a defensive measure. Equipment manufacturers are expected to reduce investment in research, development and commercialization of more energy-efficient models, unless they are able to secure financial support from governments.

In the oil and gas sector, there has been a steady stream of announcements of cutbacks in capital spending and projects delays and cancellations, mainly as a result of lower prices and cash flows.

As far as the situation in India is concerned, I must say that we have been fortunate in the sense that the global economic crisis has not seriously affected our upstream oil and gas industry, thanks to the robust nature of our economic fundamentals. We have completed the process of evaluating the bids for the NELP-VIII blocks. Despite the global economic meltdown, the response has not been poor if we compare the NELP-VIII with similar bidding rounds in other countries. Further, an investment of USD 1.34 billion is envisaged in NELP-VIII as compared to USD 1.2 billion in the previous round.

Now, coming to the demand and supply position, the India Hydrocarbon Vision 2025 envisages a demand of about 391 MMSCMD of gas by the year 2025-25. The current production of natural gas in the country is about 88 MMSCMD and is expected to go up to about 192 MMSCMD by the year 2011-12. It is, therefore, envisaged that there would be a significant gap between demand and supply in the coming two decades.

We envisage increase in the oil production from the existing level of around 33 MMT per annum to 46 MMT by the year 2012-2013 from existing established reserves. Gas production is also expected to increase to around 70 BCM per annum by the year 2013-14 and 84 BCM by the year 2015-16 from existing level of 33 BCM per annum. These estimates are based on approved production profiles. However, many of the discoveries are currently under evaluation / appraisal.

Our efforts are also directed towards monetization of all the 114 discoveries by the year 2014-15. Considering the increased pace of exploration and current exploration success rate, we expect that there could be 190 discoveries by the year 2015-16.

Indigenous exploration is the key to bridging the demand supply gap. Out of the total prognosticated resources of 205 billion barrels of oil and oil equivalent of gas, only 68 million barrels have been established as in-place reserves. One of the main reasons for this is that our sedimentary basins are highly under explored. With the introduction of the New Exploration Licensing Policy (NELP), the GOI has taken a very important step in enhancing the pace and quality of indigenous exploration in our country. Today, the fiscal and contractual terms offered under the NELP are considered one of the most attractive in the world. And with the major discoveries of oil and gas in various sedimentary basins, the perception of E & P companies has changed regarding prospectivity of our sedimentary basins. Today, India is a favored destination for E & P investments. Another key factor that will determine the future course of E & P development is infrastructure development. There is an urgent need to augment our infrastructure to cater to the requirements of the E & P sector.

The GOI is also taking various measures to explore vigorously for unconventional sources of fossil fuels such as shale gas, gas hydrates and shale oil. We have also progressed significantly in terms of exploration and production of Coal Bed Methane.

These are undoubtedly difficult times for business, particularly in high-risk industries such as the upstream oil and gas industry. The World Energy Outlook 2009 has pointed out that global upstream oil and gas investment budgets for 2009 have been cut by 21% compared to 2008 which translates to a reduction of almost $100 billion.

World energy demand has already plunged with the economic crisis. How soon the industry will bounce back will depend largely on how quickly the global economy recovers. Fortunately, we are already witnessing the green shoots of an economic revival and an enhanced awareness and sensitivity to the link between global energy and global climate, both of which will play a large role in contributing to the economic growth.

(S.K.Srivastava)