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rigs shortage: Global rigs shortage delays Indian oil and gas exploration projects

A global shortage of drilling rigs is delaying India’s oil and gas exploration projects at a time when the country’s dependence on oil imports has grown to 87% of its consumption, up 10 percentage points in a decade, increasing its vulnerability to the volatility in the international markets.

Indian explorers are finding it hard to source rigs, especially jack-up rigs, for their projects, as high oil prices have pushed up exploration activity globally, leaving more players fighting for fewer rigs, said government officials and industry executives.

Crude oil has traded above $70 for almost all of 2023.

Many exploration blocks auctioned in 2018 and 2019 in the first three rounds of the new Open Acreage Licensing Policy (OLAP) are getting affected by the rigs shortage. Vedanta had won 51 exploration blocks while Oil India and ONGC had won 21 and 10 blocks respectively in three rounds.

“As part of the exploration activity, hiring of high-performance drilling rigs and associated services are the most critical resources and thus is of paramount importance,” Oil India told ET in an email.

It cited cases of delays in its exploration blocks in the Northeast, KG Basin and Kerala Konkan Basin due to the unavailability of rigs.“A number of offshore blocks are further likely to come up in the near future in OALP IX and X bidding rounds, for which availability of rig is once again expected to play a critical role in achieving exploration success in the country,” Oil India said.ONGC said it hasn’t been able to attract enough rigs in its recent tenders. “The utilization of marketed rigs has increased from 66.1 % in 2018 to 92.7% in 2023, and the rig day rates have reached one of the highest levels in the last seven years,” ONGC said in an email to ET.

The market for rigs is only going to get tighter as producers in West Asia are expected to hire more than 40 rigs by June 2024, ONGC warned, citing data from market sources and the consultancy IHS. “This is expected to have a significant bearing on the availability of rigs for the ONGC tendering process both in terms of participation of rigs as well as prices offered,” it said.

Increasing demand for jack-up rigs from Indian explorers may create a regional market imbalance on top of global supply tightness, ONGC said.

IHS expects jack-up rigs in the Indian subcontinent to increase to 43 by the end of 2024 from 31 at present.

India has awarded more than 100 exploration blocks in the past five years in the hope that wider exploration efforts could lead to some major discoveries and higher output in the future. Terms under OALP were liberalised to attract more investments and quicker project completion but the outbreak of Covid-19 and now the shortage of rigs have undermined the country’s efforts.

Domestic oil production has been declining for years, increasing the country’s fast-growing economy’s dependence on imports. India imports half the natural gas it consumes. High and volatile global gas prices last year forced some of the domestic factories to cut production.

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