INDIA: GOVERNMENT POLICY AND PETROLEUM SUPPLY PROBLEMS

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600040036-8
• Release Decision: RIFPUB
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• Document Page Count: 28
• Document Creation Date: December 12, 2016
• Document Release Date: March 7, 2002
• Sequence Number: 36
• Publication Date: March 1, 1971
• Content Type: IM

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DIRECTORATE OF
INTELLIGENCE
Confidential
Intelligence Memorandum
India: Government Policy And Petroleum Supply Problems
~'tlLi
oUi-i
DO NOT DESTROY
Confidential
ER IM 71-35
March 1971
12
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D
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WARNING
'T'his document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP 1
Excludnd Z. automolit
do.ng,oding and
d,dmif cotton
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
March 1971
India: Government Polic
And Petroleum Supply Pro ems
Introduction
Since independence in 1947, New Delhi has
sought to broaden the government's control over
all sectors of the modern economy. For the petro-
leum industry this has meant total public owner-
ship of all phases of the search for crude oil
and an insistence that the government achieve the
dominant role in refining as soon as possible.
India has also followed a general policy of import
substitution. There are basic conflicts among
these policy goals, and the successful implementa-
tion of one has often meant the failure of another.
This memorandum examines the impact of these
policies on trends in crude oil production and
refining and on the oil trade and assesses the
outlook for India's petroleum balance for the
next few years. The principal problems of India's
petroleum industry are treated in some detail in
the Appendix.
The Nature of the Petroleum Industry
1. In India, as in most developing countries,
the demand for petroleum has increased rapidly --
an average of 10% annually for the past two decades.
The demand for fuel by industry and transportation
and for kerosine by an expanding population has
Note: Thes memorandum was prepared by the Office
of Economic Research and coordinated within the
Directorate of InteZZigence.
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caused consumption to increase from about 60,000
barrels per day (b/d) in 1950 to nearly 350,000
b/d in 1969 (see Table 1). Even so, Indian
petroleum consumption per capita still remains
among the world's lowest. In part this reflects
the government's policy of favoring coal over
oil as an energy source. Demand has been re-
stricted by New Delhi's maintenance of high re-
tail prices for petroleum products.
Year
1950
1955
1960
1965
1966
1967
1968
1969
India: Petroleum
Products -- Consumption,
Production, and Trade
Thousand Barrels per Day
Domestic
Consumption 1
Domestic
Production
Imports
Exports
58.8
4.2
59.6
N.A.
96.4
60.8
41.4
N.A.
155.5
114.9
60.6
4.5
245.6
182.3
57.4
6.8
259.4
225.7
44.0
14.5
281.3
269.0
19.0
21.1
316.6
298.5
18.7
11.2
347.2
322.8
23.1
17.5
a.
including refinery fuels and bunkers.
2. From a mere 4,000 b/d in 1950, India's
refinery output increased rapidly to more than
320,000 b/d in 1969. While production nearly met
local needs, the pattern of refinery output was
not wholly satisfactory. Thus about 5% of pro-
duction was exported and about an equal volume
imported. Imports worth $55 million in 1969 came
mostly from Communist countries and consisted
mainly of kerosine, furnace oil, and lubricants,
while exports were mostly naphtha and gasoline
(see Appendix Table A-1).
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CONFIDENTIAL
3. In 1950, India had only one small refinery.
It now has eight modern installations in addition
to the original small British-owned refinery in
Assam. Three private foreign-owned refineries
(ESSO, Burmah Shell, and Caltex) with a present
capacity of about 200,000 b/d were built during
the 1950s (see Table 2). These were sited in
major ports and operated with imported crude (see
the map, Figure 1). During the first half of the
1960s, three Indian government-owned refineries,
two built near the oil-producing areas in eastern
and western India and the other near the Ganges.
River in densely populated Bihar State, increased
the country's refining capacity by 70%. And in
the last half of the 1960s, two joint public-
private refineries were added in port cities of
southern India, bringing refinery capacity to
today's 450,000 b/d.
4. After stagnating for years at less than
10,000 b/d, India's crude oil production began to
increase sharply in 1962 and reached 135,000 b/d
in 1969 (see Table 3). Crude oil is now produced
about equally in Assam and Gujarat, the only pro-
ducing states (see Table 4). The rise in output
during the 1960s resulted from opening new fields
in Assam, where oil had been produced for more
than 80 years, and the discovery of oil in the
Cambay basin in Gujarat State during the late
1950s. Domestic crude oil production is still
far below national requirements, however, and im-
ports have increased in volume since 1950, although
they have declined as a share of total supply from
about 90% in 1955-60 to about 60% in 1969.
5. Production of crude oil from existing
fields is beginning to decline, however, and new
fields are not being found. Proved reserves, now
less than 1 billion barrels, are decreasing despite
stepped-up exploration efforts. Proved reserves
are equivalent to only 3 or 4 years of India's
expected oil consumption.
The Role of Government
6. Indian government policy favors the public
ownership and development of all phases of the
fuel and power industries. This policy, first
stated in the 1948 Industrial Policy Resolution,
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 India: Present Oil Refinery Capacity
and Throughput and Planned Capacity in 1973
Year
Present Throughput
Capacity
Throughput
in 1969
Planned Capacity
by 1973
Name or Location
Operation
Began
(Thousand Barrels
per Day)
(Thousand Barrels
per Day)
(Thousand Barrels
per Day)
Private
Assam Oil Company at Digboi
1900
10.4
10.7
10
ESSO at Bombay
1954
70.0
49.2
70
Burmah Shell at Bombay
1955
96.0
-7.2
96
Caltex at Visakhapatnam
1957
30.0
26.3
30
Total private
206.4
161.4
206
Gauhati (or Nanmati) in Assam
(built with Romanian help)
1962
15.0
16.0
15
Barauni in Bihar
(built with Soviet help)
1964
60.0
42.2
60
Koyali in Gujarat
(built with Soviet help)
1965
66.0
72.7
90
Haldia (under construction
with French and Romanian hel
Possibly by
p) 1973
--
50
Total public
141.0
130.9
215
Public-Private
Cochin in Kerala al 1966
53.5
50.0
70
Madras / 1969
50.0
17.5
50
Total public-private
103.5
67.5
120
Total all India
450.9
359.8
541
a. ownership: government of India, 52.4%; Phillips Petroleum Co., 26.4%; Duncan Brothers & Co., Ltd.,
2%; other Indian, 19.2%.
b. Ownership: government of India, 74%; American International Oil Company, 13%; and National Iranian
Oil Company, 13%.
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U.S.S.R. U. S. S. R.
AFGHANISTAN!
LACCADIVE
ISLANDS
(India.'
NE DELHI
5~2
CAMBAY
BASIN
MALDIVES
INDIA
Petroleum Industry
f'L Refinery
9 011field
0 Drilling site
Refined products pipeline
Crude oil pipeline
Sedimentary basin
o Inc) 200 300 Md.,
0 100 200 300 Kilomrlcl.
.S Celcutl
q7o
iidla
WES
BENGAL
BASIN'
INS
/.ryishekhapatnam
NAMES AND BOUNDARY RErnEsf NTATION
ARE NOT NECESSARILY AUTHORITATIVE
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CONFIDENT
India: Production and Imports
of Crude oil
Thousand Barrels per Da
Year
Total
Supply_
Production
Imports
1950
5.2
5.2
0
1955
67.4
6.9
60.5
1960
123.6
9.1
114.5
1965
196.5
60.3
136.2
1966
242.5
92.9
149.6
1967
291.9
113.3
178.6
1968
332.6
119.1
213.5
1969
350.8
135.0
215.8
Table 4
India:
Production of Crude Oil, by Area
Thousand Barrels per Day
Year
Assam
Gujarat
Total
1950
5.2
0
5.2
1955
6.9
0
6.9
1960
9.1
0
9.1
1965
37.0
23.3
60.3
1969
65.7
69.3
135.0
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allows exceptions when, in the national interest,
the state finds it necessary to obtain the coopera-
tion of private enterprise. This policy, influ-
enced in varying degrees by forces of nationalism,
socialism, and economic self-interest, has not
been constant nor always consistent.
7. From 1948 to 1955, New Delhi encouraged
foreign private investment in the industry. This
policy reflected an urgent need for industrial
fuels, the lack of domestic capital and technical
ability to build refineries or search for oil, and
the desire to establish what was considered a
strategic industry. The government temporarily
abandoned its demand for public ownership and con-
trol and persuaded Stanvac (now ESSO), Burmah Shell,
and Caltex, which then were only distributing oil
in the country, to build local refineries. The com-
panies invested about $95 million and signed long-
term agreements giving them the right to import
;rude oil of their own choice, providing full
or:anership and control, and guaranteeing against
nationalization for 25 years. Only a limited
amount of preferred stock had to be offered to
Indian nationals.
The Change in 1956
8. In 1956, policy again shifted and the gov-
ernment took steps to expand the public sector.
Prompted by the success of the First Five-Year
Plan, which improved the country's foreign exchange
position, and by a public outcry against the for-
eign private refinery agreements and high retail
petroleum prices, New Delhi turned increasingly to
the Communist countries for financial and technical
assistance. The USSR and Romania responded with
$55 million and $10 million, respectively, for re-
finery construction alone. New Delhi sharply in-
creased its own investment to build Communist-
aided public sector refineries and to explore for
oil. The government also took complete responsi-
bility for exploring and producing oil and natural
gas; insisted on participating with the British-
owned Burmah Oil Company in a joint venture called
Oil India, Ltd., to explore for and produce oil in
Assam; and established a marketing company which
eventually began managing the public sector re-
fineries, pipelines, and distribution system.
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The 1960s -- The Refining Sector
9. By 1960, severe foreign exchange shortages
had developed -- during the 1950s reserves fell
some $1.3 billion to $670 million. This plus the
fact that the Communist-assisted refineries lagged
far behind construction schedules caused the gov-
ernment to allow foreign private refineries to ex-
pand capacity by nearly 50%. The demand for crude
oil imports had also increased rapidly, and in
1960 the USSR offered India large quantities of
low-priced crude oil on a barter basis and refined
products at prices substantially below the private
refinery prices (for details, see the Appendix,
Part V. The private companies refused either to
process Soviet crude oil or to distribute Soviet
products. The government, however, did arrang.i
to import and distribute some Soviet kerosine and
diesel fuel on its own.
10. The government's share of refinery capacity
expanded rapidly as the public refineries came into
production. The first three such refineries, built
with Soviet and Romanian help, took about twice as
long to complete as similar plants built by Western
firms. The first was completed in 1962, the second
in 1964, and the third in 1965. Once completed and
once initial operational problems were overcome,
however, they sharply increased the country's re-
finery output (see Table A-2). These public re-
fineries, managed by the Indian Oil Corporation
(IOC), now account for more than one-half of all
products refined in India. The IOC also distributes
the public refinery output as well as imported petro-
leum products. The IOC is considered the most effi-
ciently run and profitable public corporation in
India.
11. Since 1964 the government has restricted
private refinery operations while continuing to
expand the public sector. New Delhi became in-
creasingly dissatisfied ever the high prices the
private companies paid for imported crude oil and
their reluctance to sell equity stock to Indians.
As a result, the government has limited private
refinery expansion, cut the crude oil supply in
1969 to about 160,000 b/d (about 45,000 less than
the capacity of the private refineries), prohibited
new private distribution outlets that would compete
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with public outlets, increased taxes, and largely
stopped private companies from importing products.
12. The government's current petroleum policy,
however, implies reduced reliance on Soviet assist-
ance.* New Delhi contracted for two joint public-
private refineries each with a capacity of 50,000
b/d to be built and managed by Western oil com-
panies. As the majority stock holder the govern-
ment considers these refineries part of the public
sector and to be consistent with its basic oil
policies. New Delhi also tried to get a similar
arrangement for building the Haldia refinery, but
finally accepted a $10 million Romanian and a $20
million French government loan and technical help.
The Search for Oil
13. New Delhi's policy line with respect to
petroleum exploration has been somewhat more con-
stant than that for the refinery sector and consists
basically of joint operations and "go-it-alone"
with foreign aid and technical help. It was to
further this policy that the government formed
Oil India, Ltd. and entered into a 50-50 partner-
ship in 1959 with the British-owned Burmah Oil
Company, which operated in Assam long before In-
dependence. The only other joint project was a
75-25 cost-sharing deal with Stanvac in the 1950s.
The joint company's effort to find oil in West
Bengal failed, however. Otherwise, the government
has explored and developed oil resources on its
own with Soviet -- and some Romanian -- guidance
and aid. The USSR provided a total of $205 mil-
lion and Romania $1 million in credits beginning
in 1956 for equipment and technical assistance.
* India awed away from almost exclusive re-
liance on Soviet technical help for both petro-
leum refining and exploration. Soviet oil re-
fining is technologically backward in terms of
the quality of individual products, product mix,
depth of refining and complexity of refining
processes. Likewise in exploration Soviet tech-
nology is outdated and equipment unsuited for use
in India's geological structures (see the Appendix,
Part II).
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India is currently drawing on the second $100 mil-
lion of this credit.
14. India has failed to produce enough domestic
crude oil to meet the country's needs. Refined
domestic crude oil accounts for only about 35% of
all petroleum products consumed in India. The re-
maining requirements are met from imported crude
oil and products. Moreover, the situation has
been deteriorating since 1967, with total petro-
leum consumption growing faster than domestic
crude oil production (see Figure 2).
15. Both the search for oil and the developing
of newly discovered fields have been poorly handled.
Extensive surveys conducted during 1947-53 by the
Geological Survey of India revealed possible oil-
bearing structures in 25% of the country. But by
1969, detailed mapping had been completed for less
than 5% of this area. After more'than 20 years,
India still has little knowledge of its possible
petroleum resources. In the only new field dis-
covered, Ankleshwar in Gujarat, production has
lagged far behind expectations. Insufficient
funds, poor equipment, and lack of adequate tech-
nical guidance and knowhow have been major problems.
16. India's dependence on Soviet equipment and
technical aid has slowed exploration and drilling.
Soviet exploration techniques are at least ten
years behind those of the West, and Soviet drilling
equipment is poorly suited to Indian geological
conditions. Drilling has been slow and subject to
frequent breakdowns. The Soviets do not have the
technology for deep off-shore drilling, and even
for shallow off-shore drilling their technology is
backward as indicated below (for details, see the
Appendix, Part III).
Balance-of-Payments Effects
17. Even though India still imports large
quantities of crude oil, the government has been
successful in reducing the unit cost of this oil.
A comparison with Japan, a country which has had
notable success.in bargaining for a much larger
volume of imports than India, indicates that by
1969 India's percentage reduction in cost was
equal to that of Japan (see Figure 3). While part
of the decrease achieved by both countries was due
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INDIA
Products Derived From Domestic Crude Oil
As Share of Total Products Consumed
Thousand
Barrels Per Day
Percent
-,100
TOTAL PRODUCTS CONSUMED
I I
PERCENT OF TOTAL
0 0
1950 1955 1960 61 62 63 64 65 66 67 68 69
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CONFII)ENTIAL
INDIA and JAPAN
Comparative Index of Cost Per Barrel
of Crude Oil Imports
601 1 1 1 1 1 1 1 1 1
1955 1960 61 62 63 64 65 66 67 68 69
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to a general world price decline, Indian pressure
on the international companies in the 1960s helped
bring about further reductions. For example,
without the 10% decline in prices of imported
crude oil between 1968 and 1969, India would have
paid about $12 million, or an average of 15 cents
per barrel, more than it did.
18. While the government's import substitution
policy has been successful for refined products,
the total value of petroleum imports has increased
during the past five years. The problem is that
while product imports have declined, crude oil im-
ports have increased sharply since 1965, The value
of petroleum imports reached $185 million in fiscal
year 1969-70, with crude oil accounting for about
75% of the total. While increasing petroleum im-
ports have added substantially to the country's
chronic trade deficits, the situation could have
been much worse. If the 1965 volume of refined
oil imports had continued, the total petroleum im-
port bill in 1969 would have been nearly 50%
higher. The domestic refineries now meet more
than 90% of domestic demand compared with about
75% in 1960. The major share of the improvement
has been made since 1965 (see Table 1). Moreover,
tight government controls over the private refin-
eries have also sharply reduced repatriation of
private refinery profits. ESSO, for example, re-
ports that net returns on investment declined
from 11.6% in 1955 to 3.6% in 1969. From the
standpoint of balance of payments, reduced profit
repatriation has been a benefit but at the same
time new private petroleum companies have been
discouraged from entering the country and badly
needed private foreign investment inflows have
probably declined.
Prospects
19. Without some bending of the official petro-
leum policy and considerable acceleration in crude
oil production and refinery expansion, India's
petroleum imports will increase sharply during
the next five years (see Figure 4). We estimate
that petroleum consumption will increase an average
of 10.5% annually, with as much as 65% of the
demand being supplied by imported crude oil and
possibly another 20% imported as products with a
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INDIA
Petroleum Requirements in 1975 Compared With
Present Prospects for Meeting the Requirements
In Thousand Barrels Per Day
Refinery capacity required
to meet domestic needs ----10
/ Possible
/ 1975 gap
in capacity
rapacity in 1975
s currently planned.
in 1975
--(575,000 bpd)
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much higher unit price. At current prices this
volume of imports would raise India's petroleum
import bill to at least $400 million in 1975, com-
pared with $185 million in fiscal year 1969-70.
20. With present plans and policies, India's
refinery capacity will fall about 135,000 b/d
short of domestic requirements in 1975. India
will need to expand capacity about 50% -- to some
675,000 b/d -- in order to reach self-sufficiency.
But only an increase of some 90,000 b/d by 1975
is planned for the public refineries, including
the Haldia refinery now under construction. Two
other refineries are in the talking stage -- one
for the New Delhi area and one in Assam. Unless
new reserves are found in these areas, both would
require long pipelines to supply crude oil. And
judging from past rates of refinery and pipeline
construction, India will not likely have these
in operation by 1975.
21. This refinery shortfall could be overcome
to a considerable extent were existing private
refineries allowed to expand (as they have re-
quested to do many times), but present policy
restricting refinery expansion to the public sector
would have to be changed. On the other hand, the
private companies have initiated discussions to
sell the government majority ownership in the re-
fineries, as they see no future for them in India
under the present arrangements. If this comes
about, these refineries could be expanded without
a policy change -- that is, they would then be
considered in the public sector.
22. The gap between domestic crude oil produc-
tion and requirements is also growing. We esti-
mate crude oil imports will reach 575,000 b/d in
1975 -- over two and one-half times the 1969
level -- unless new domestic fields are found and
brought into production. We doubt that the re-
cently discovered and still unproven fields in
Gujarat will improve prospects much. Substantial
new finds, possibly in the shallow offshore area
in the Gulf of Cambay now being explored, would
contribute measurably to increased production by
1975. Hopes also are very high that, in the longer
run, deep-water offshore drilling in the Bombay
High will reveal substantial reserves. But drilling
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has already been delayed five years since the area
was first revealed by a joint Indian-Soviet off-
shore survey. Even if the drilling confirms new
reserves, production is unlikely before 1975.
These long delays appear to have moved New Delhi
away from almost exclusive reliance on the USSR
to more efficient Western help. India is currently
negotiating for Japanese equipment and US expertise
for deep-water drilling.
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APPENDIX
Special Problem Areas
I. Petroleum Pricing Problems
During the late 1950s, India became increas-
ingly dissatisfied with both the high prices pri-
vate refiners paid for crude oil from their over-
seas affiliates and the prices they charged for
imported products. Moscow's offer of cheap crude
oil and products brought this dispute to a head
in 1960, when the government appointed the Damle
Committee to look into oil pricing. The Committee
considered crude oil supplies for the Indian re-
fineries, product prices, and allowable expenses
for marketing and distributing products in India.
The Committee found that prices and expenses were
higher than justified in view of the decline in
world crude oil prices following the Suez Canal
reopening in 1957. It recommended that Indian
refiners buy from the lowest price supplier --
that is, the USSR -- or force their own suppliers
to cut prices accordingly.
The private refiners refused to accept Soviet
crude oil or to handle Soviet products on the
grounds that the Soviet oil was "politically moti-
vated" and constituted an "unreliable" supply.
Although cries for nationalization of the private
companies were strong, the government did not force
the companies to comply. Very soon thereafter,
however, the private companies volunteered to
discount prices to meet the delivered prices
offered by the Soviets. As world prices, and
Soviet prices, continued to fall in the early
1960s without further significant reductions by
the private refiners, a second Committee was ap-
pointed in 1964. Almost immediately the companies
cut prices, implying they were designed to deflect
pressures to handle Soviet oil. The second commit-
tee report belatedly recommended that the govern-
ment obtain further price reductions by reducing
the foreign exchange allowed for crude oil imports.
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New Delhi has continued to pressure the com-
panies to reduce prices by withholding foreign
exchange. During the first half of 1969, the
private companies were importing Iranian and Saudi
Arabian crude oil at $1.38 per barrel, f.o.b. oil
ports. India, arguing that $1.38 was actually
10 cents above the existing world market price,
cut foreign exchange allocations for crude oil
imports 7.5% effective 1 June 1969. The companies,
initially not willing to reduce prices, were
forced to reduce their crude oil runs. By year's
end, however, Burmah Shell had agreed to $1.28,
and early in 1970 ESSO and Caltex also agreed.
The decline in private refinery throughput during
1969, as indicated in Appendix Table A-2, was the
direct result of this dispute.
As of December 1970, however, as a result of
price increases for crude oil in the Middle East,
the companies requested permission to increase
the price they could pay for crude oil imports.
When the Indian government did not respond, the
refineries cut back their crude oil runs to the
volume they could buy with the foreign exchange
available. With the public refineries already
running at maximum capacity, either more products
will have to be imported or consumption will have
to be reduced.
II. Problems of Exploration and Production
Despite an accelerated program in recent years
by the Oil and Natural Gas Commission (ONGC),
which is responsible for India's crude oil produc-
tion, very few oil wells nave been drilled and
crude oil production has lagged. At the end of
1969, India had only about 1,000 operating oil
wells, 83 gas wells, and 80 wells under test. In
total, only some 2,000 wells have been drilled in
India since the beginning of oil exploration (see
Table A-3). Thus India's petroleum potential is
relatively unexplored and a far greater number of
wells will have to be drilled before any definitive
assessment can be made. Moreover, most wells have
been drilled to explore and develop currently
producing fields; 720 wells have been drilled in
Gujarat and Assam and only 31 in other states.
After the Ankleshwar field in Gujarat was dis-
covered, New Delhi estimated that total crude oil
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production would reach 320,000 b/d by 1966. Pro-
duction had not reached even half this level by
1969. Production in Gujarat has been only about
equal to Assam's (see Table 4).
Insufficient funds, poor equipment, and lack
of technical knowledge have been major problems.
During the Second Five-Year Plan (1956-60) the
government spent about Rs 260 million ($55 million)
on exploration, and during the Third Plan (1961-65)
about Rs 1,150 million ($242 million) were allo-
cated for exploration and production, but expen-
ditures most likely did not reach this leve). as
there was a shortfall in the overall plan.
Actually Soviet and Romanian assistance accounted
for a substantial share of public expenditures
during both plans. The USSR provided an estimated
$205 million and Romania $1 million in credits
beginning in 1956 for equipment and technical
assistance. India is currently drawing on the
second $100 million of this credit. During the
Fourth Five-Year Plan (1969-73) New Delhi plans
larger rupee expenditures (Rs 1,810 million)
than during the Third Plan, but, because of infla-
tion, expenditures will be less in real terms.*
Indian dependence on Soviet equipment and
technical aid has slowed exploration and drilling.
Soviet exploration techniques are at least ten
years behind those of the West, especially for
seismic surveys. Also, Soviet turbo-drilling
equipment generally is not suited to the soft
rock and considerable depths that are typical of
India's sedimentary basins. The Indians complain
that Soviet equipment is old and prone to break-
down. With its 53 drilling rigs in 1969, the ONGC
averaged a mere 34 feet per drill per day, about
one-tenth of US experience under similar condi-
tions. Because of Soviet equipment limitations,
most Indian wells are drilled to only about 5,000
feet. The ONGC has several Western rigs for
drilling deeper wells, but these also are obsolete
and lack spare parts. To help train Indian tech-
nicians and improve research, India received a
grant of about $1 million from the United Nations
Development Program in the early 1960s as well as
* India's-currency devaluation in 1966 also in-
creased the cost of imported equipment.
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other assistance from France and Italy, but ex-
perienced personnel are still in short supply.
These problems could have been mitigated by
private foreign investment in Indian-exploration
efforts, but foreign partners have been discour-
aged. The terms demanded by India would be stiff
even in a really promising place such as the
Persian Gulf: the government insists that a
foreign company bear all risks and advance all
expenditures; in case of commercial discovery the
government will reimburse 51% of outlay and acquire
a majority interest. The tax take is 80% (versus
55% in the Persian Gulf states and many other
nations) and the partner gets only his share of
the profits, with no entitlement to oil unless
to supply a local refinery, and even that is
subject to negotiation. No new companies have
consented to come in on this basis.
The long-established Burmah Oil Company has
operated successfully with the government as
equal partner in Oil India Limited since 1959.
In its three Assam fields the company has drilled
about 285 wells, of which 216 are oil producers
and 12 gas producers, and production has increased
from 1,500 b/d in 1955 to 61,000 b/d in 1969,
nearly half of India's total crude oil output.
The company expects to expand output in its
present fields. The company has also completed
13 exploratory wells in another leased area in
Upper Assam. One well, Kusijan No. 2 at Dum Duma,
was field tested in 1969 and is reported to be
capable of producing 440 b/d, but tests were con-
tinuing. The company also is drilling about 14
developmental wells in the old Assam Oil Company
concession, which it manages, and is hoping to
arrest that company's long-run decline in output.*
Tie onler private company that has searched
for oil in India was Standard-Vacuum Oil Co. in the
late 1950s. The project was initiated in 1953 to
explore about 10,000 square miles in West Bengal.
The government spent $3.5 million on the project,
contributing 25% of the cost while Stanvac pro-.
vided 75%. Results of the exploration were
disappointing and the project was abandoned in
1960.
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III. Current Activity Onshore and Offshore
The ONGC has been drilling recently in a num-
ber of widely separated onshore areas (see the
map, Figure 1). Prospects of significant commer-
cial production in any of them are undetermined
but probably dim. In the Gujarat basin, tests
are under way in four small fields near the
present producing area, in three new locations
in the Kutch region, and drilling has just begun
at Wataman, 40 miles north of Ahmadabad. All the
new Gujarat fields are small, but more should be
found. In the far north, India's deepest well
was begun in March 1970 at Suruin, 25. miles south-
east of Jammu in the state of Jammu and Kashmir.
However, in Sep-ember 1970 drilling ceased at
2,400 feet because of loss of equipment in the
hole. This area is reported to have good possi-
bilities for oil and gas occurrences at about
20,000 feet. ONGC is also drilling in the Madras
and Godavari basins in South India. In Assam (in-
cluding the Northeast Frontier Area), ONGC is
drilling on two fields near Oil India's producing
fields; these two have been producing on a test
basis for some time, but the potential for sus-
tained production is not clear. Also in the north-
east, ONGC has a discovery at Galeki and has begun
drilling in the Garo Hills district of Meghalaya
State. The intention is to drill soon in Tripura,
but if oil is found in this remote area of Assam
behind East Pakistan, its transportation to markets
would be a major problem. In general, exploration
in Assam is very expensive owing to its remoteness,
the hilly jungle terrain, and the depth of the
wells.
ONGC drilling on its first offshore well in
shallow water finally got under way in 1970 but
ran into difficulty. With Soviet assistance, a
fixed platform* was assembled about 6 miles west
of Aliabet Island in the Gulf of Cambay off the
Gujarat coast. The platform is about 108 feet
high, more than sufficient to cope with the area's
normal 32-foot tide and a maximum water depth at
high tide of 85 feet. Because of technical
Fixed p atforms for drilling are much Zees
efficient than floating platforms.
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difficulties, drilling reached only about 450 feet
before it was suspended for the monsoon season in
June. Drilling resumed in December 1970, and the
ONGC is optimistically hoping to drill to 6,000
feet by March 1971,*
Government policy on foreign participation in
offshore oil exploration has contributed to sig-
nificant delays in drilling in a very promising
deep-water area known as the Bombay High in the
Gulf of Cambay. Located about 45 miles northwest
of Bombay, the Bombay High was one of several
areas revealed by Indo-Soviet offshore seismo-
graphic teams in a 1965-66 survey, and showed ex-
cellent promise of becoming a major offshore oil
discovery by world standards. The structure com-
pares in size to the largest of the proved Persian
Gulf offshore areas and is at least 20 times the
size of India's proved Ankleshwar field in Gujarat.
However, the water depth exceeds the capability
of present Soviet and Indian equipment, and the
government has jeen reluctant to allow other for-
eign participation.
New Delhi insists that offshore exploration
will be conducted on an "owner-assisted basis
only" (for example, a drilling platform owned and
operated by ONGC with foreign financial and tech-
nical assistance when required). Soviet special-
ists declined India's 1967 request for assistance
in deep-water drilling, admitting to a lack of
know-how. Subsequently, seven Western companies
have bid for participation, but India has delayed
in responding while considering policy implica-
tions of each offer. In December 1970, India
announced it had accepted an offer from the
Japanese Mitsubishi Co. (which teamed up with the
According to a report received in March 1971,
drilling was terminated at about 4,900 feet in
February, when the sands showed traces of gas and
oil but the structure proved to be too thin for
consideration as a possible producing field. ONGC
geologists claimed that oil-bearing structures
probably exist at this site below 15,000 feet but
Soviet driZZs being used are incapable of exploring
to this depth. The equipment at the AZiabet site
is to be dismantled and moved to other driZZing
sites in the GuZf of Cambay.
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Offshore Company of the United States) for a
drilling platform and technical help costing $14.5
million. The Japanese government will give a yen
credit of $10 million for the project. Prospects
for drilling in the Bombay High are still indef-
inite, however, as India reportedly hopes to get
Mitsubishi to reduce its price by as much as 30%
to 40%, and Mitsubishi, in any event, will r=quire
two years to build the platform if a contract is
negotiated.
The ONGC has one-sixth interest in an Indo-
Iranian-Italian-American concession in the Persian
Gulf, which began producing in September 1969.
India has had some difficulty in disposing of its
share of production because it is low-quality oil
and is not suited to the present Indian refineries.
During 1970, however, New Delhi cincluded an agree-
ment with the French government-owned Compagnie
Francaise des Petroles to take 1 million tons
annually (price unspecified), and other sales are
under discussion, India also is considering
modifying an existing refinery or constructing a
new one in Goa to process this crude oil.
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India: Consumption, Imports, and Exports
of Selected Petroleum Products
1969
Thousand Barrels
Product
Consumption
Imports
Exports
Aviation gasoline
560
359
--
Kerosine
2 4, 520
4,658
--
Jet fuel
5,075
Diesel
--
511
61,830
Furnace and fuel oils
816
54
Lubricating oils and
greases
3,965
2,590
--
Motor gasoline
21,940
--
5,691
Naphtha
6,255
India: Refinery Throughput
by Private and Public Sector
Thousand Barrels per Day
Year
Private
Public
Total
1963
154.7
9.3
164.0
1964
161.3
17.4
178.7
1965
168.6
29.7
198.2
1966
177.9
69.3
247.2
1967
163.0
134.3
297.3
1968
169.2
160.5
329.7
1969
161.4
198.4
359.8
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Status of Wells Drilled in India
as of 31 December 1969
Location
Oil
Gas
Dry
Under
Test
Injection
Temporarily
Abandoned
Total
Assam Oil Company
373
8
263 a/
--
8
335
987
Oil India, Ltd.
(50% Burmah Oil)
216
12
28
22
7
--
285
Oil and Natural Gas
Commission
80
3
38
19
--
--
140
Total
669
23
329
41
15
335
1,412
Gujarat
Oil and Natural Gas
Commission
350
56
117
39
18
--
580
Others
Oil and Natural Gas
Commission
--
4
27
Total
1,019
83
473
80
33
335
2,023
a. Abandoned.
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