India's ONGC eyes new investments in diversification push, boost petrochemicals footprint

The Indian government has approved a proposal by state-run Oil and Natural Gas Corp. for additional investments in order to boost its stake in ONGC Petro-additions Limited (OPaL), a move that will help the state-run upstream producer to have a bigger footprint in the petrochemicals segment.

The decision comes at a time when state-run oil companies are looking to expand their petrochemicals footprint in the hope that business models remain profitable in the future even if energy transition and the growth of electric vehicles take a toll on consumption of transport fuels, such as gasoline and diesel.

ONGC will invest an additional Rupee 183.65 billion ($2.2 billion) resulting in an increase in ONGC's stake in OPaL from 49.36% to 95.69%, ONGC said in a recent statement.

"This significant move paves the way for capital restructuring leading to the operational and financial sustainability of OPaL. The decision aligns with ONGC's strategic vision to become an integrated global energy major by increasing its presence across the downstream and petrochemical value chain as well," it added.

OPaL, situated at Dahej in the western state of Gujarat, is a petrochemical complex having the largest standalone dual feed cracker in Southeast Asia. Commissioned in 2017, OPaL has a capacity to produce 1.5 million mt/year of polymers and 500,000 mt/year of chemicals. It has a 12% market share in India's polymer segment.

"The said government approval also assures a sustained supply of gaseous feed to OPaL by ONGC from its new gas from nomination fields at a premium of up to 20% over administered price mechanism," ONGC added.

ONGC has been looking at petrochemical projects as part of its long-term growth strategy. ONGC chairman and CEO Arun Kumar Singh told S&P Global Commodity Insights earlier that the state-run firm was looking to set up two crude-to-chemicals projects in the country -- one in the northern region and another in the south.

New projects

ONGC contributes around 74% of India's crude oil and around 63% of its natural gas production. The company is deepening its technical and operational expertise in deepwater E&P and is increasingly assessing the prospect of high pressure-high temperature and ultra-deepwater plays in India.

In the April-June quarter or Q1, ONGC posted a 1.4% year-on-year fall in crude production to 5.2 million mt, the company said in a statement. It's natural gas output fell 4.1% on the year to 5 Bcm in Q1.

Analysts attributed the decline in the output mainly to falling production from old and maturing fields and to non-realization of production ramp up targets at the KG basin.

According to the company officials, ONGC hopes to witness growth in its overall oil and gas output in the financial year 2024-25 (April-March) on the back on incremental production from new projects in the subsequent quarters, which would reverse the trend seen in previous quarters. It would continue with its strategy to advance new well drilling activities to raise overall production for the year.

"The commencement of production from new projects, particularly from KG 98/2 development in Krishna Godavari basin, will help the NOC to boost near-term production volumes," according to Commodity Insights.

"Sanctioned projects such as North Karanpura, and Daman Upside Development Project and unsanctioned projects such as GS-29 & DWN-F1, Cluster I and R-Series & Ratna Revival, will be key contributors to production volumes. However, any delays in bringing these projects onstream will accelerate the decline in ONGC's domestic production," it added.

Assuming the economy grows annually at a rate of 6%-7% in the coming years, ONGC expects annual primary energy growth to be about 4%-5%, while new energy would take the remaining 1%-2% share.

Overseas ambitions

The company's wholly-owned subsidiary and overseas arm, ONGC Videsh Ltd, owns participating interests in 32 oil and gas assets across 15 countries. Combined output from its overseas assets is currently around 10.5 million mt of oil equivalent.

ONGC Videsh has also agreed to buy small additional stakes in Azerbaijan's ACG crude complex and BTC pipeline from Equinor for up to $60 million as the Norwegian national company plans to exit the Caspian country.

It has recently signed an agreement with Equinor to buy an additional 0.615% stake in the Azeri Chirag Deepwater Gunashli oil complex in the Caspian Sea, as well as an additional 0.737% stake in the Baku-Tbilisi-Ceyhan pipeline, the country's main artery for crude exports to Turkey's Mediterranean coast. The purchases add to an existing ONGC 2.31% stake in ACG and a 2.36% stake in BTC.

"This acquisition is consistent with its strategic objective of energy security of the nation by adding high-quality international assets with equity oil to its existing portfolio," ONGC said."

Russia accounts for 60% of total international production and is OVL's largest international holding, comprising 18 onshore blocks. OVL has two major assets in the country -- a 20% stake in the Sakhalin LLC-operated Sakhalin I, and a 26% stake in the PJSC Rosneft Oil Co.-led consortium, developing the Vankor group of fields, according to Commodity Insights.