DEVELOPING MODEL AND METHODOLOGY FOR GLOBALIZATION STRATEGY FOR INDIAN CRUDE OIL SECURITY

Abstract

Crude oil continues to dominate as energy source and is envisaged to meet more than 80% of the projected increase in primary energy demand. India, an emerging economy is the world's fifthlargest energy consumer and a net oil-gas importer. The share of crude oil and natural gas in the primary commercial energy source of the country has been increasing over the years. It is projected that India's consumption of crude oil and natural gas will rise sharply over the next few years. India has insufficient established oil and gas reserves. There has been meager domestic crude oil reserve addition in the past and declining production from existing oil fields. The domestic production and consumption pattern of crude oil and natural gas suggests widening gap. The convergence of factors like widening demand-supply and meager domestic reserve accretion and will lead to increased import dependency over the years. It poses a serious threat to sustenance of Indian economy. For an import dependent country like India, the issue of crude oil security would depend significantly on the supply of crude oil on a stable and reliable basis from domestic and overseas. The strategies adopted by nations for crude oil security include intensive exploration of domestic exploration activities by national players, import of crude oil, attract foreign investments for exploration activities, and secure equity oil from overseas. India resorted to restructuring of the petroleum sector. It deregulated upstream and downstream petroleum activities, created favorable environment for foreign and private investments, and removed monopoly. Several Mi policy decisions have been implemented by the Government of India during the last decades for extensive exploration of Indian province. India resorted to allowing hundred percent Foreign Direct Investment (FDI) with attractive fiscal provisions to attract foreign companies to invest in upstream (i.e. exploration and production) and downstream (i.e. refining and petrochemical) to supplement the efforts made by Indian companies. These were aimed to create a level playing field for both domestic and global players to participate in petroleum business. Acquisition of overseas acreage for equity oil has been another strategy. Indian petroleum sector has taken globalization initiatives by way ofinvestments in overseas equity and there has been phenomenal increment in overseas oil-gas equity. The study reveals that the various drivers have fostered multiplication in overseas activities by companies to carry out petroleum exploration and exploitation business to secure overseas oilgas equity. India witnessed the emergence of facilitating drivers by virtue of liberalization initiatives allowing increasing participation of India in the global economy, decline in role of governments by denationalization ofmany industries, increased privatization in previously statedominated E&P business, and shift to open market economies from closed systems. Added to these has been the competitive environment leading to continuing increase in level of world trade, several countries becoming key competitors for oil-gas exploration and production acreages, growth of global networks making countries interdependent in petroleum exploration and exploitation, and rise of new competitors intent upon becoming global competitors. These factors have led Indian government owned enterprises as well as private players to secure oil-gas opportunities overseas. iv Several countries resort to secure supply from overseas by acquiring equity crude oil. Globally firms resort to strategic and tactical investment decisions in overseas Exploration and Production (E&P) opportunities of crude oil involving significant capital diversification investment. Selection of overseas investment opportunities are critical for a firm because of uncertainty in identifying and quantifying the attendant risk- geological, commercial, social and political as well as return on investment. There is a growing concern to screen and rank overseas investment opportunities. Profitability, risk and growth guide overseas investment decisions. The resolution to opt for overseas E&P investment opportunity depend on the technical prospectivity, the ease of doing business in that country, fiscal system, as well as country risk. We describe such decision for resolving overseas venture by a numerical rank called Globalization Index as a function of these factors. We have applied nonparametric approach to obtain Globalization Index. Some methodology and model is desirable for the scouting, scanning and screening of country (ies) for entering in to global business for crude oil. This resarch is an attempt to conceptualize and develop a model encompassing the parameters whichhas bearing of the global business pertaining to upstream crude oil. The thesis has brought forward methodology and model for globalization strategy which an enterprise will find useful for scouting, scanning and screening of global opportnities in upstream petroleum business for crude oil security for India. The model leads to a mathematical construct which is able to provide a ranking of countries (response) in terms of the employed variables (predictors). The ranks are reasonable as well as acceptable when examined in terms of the impacting factors normally expected to affect the upstream petroleum business. The thesis has suggested the strategy to be adopted by India to achieve crude oil security by entering into overseas upstream business.