India's top oil and gas producer ONGC will not see natural gas contributing heavily to its profitability in the near term despite the company aiming to raise output over the next few years, Moody's Investors Service said Tuesday.
India's energy strategy, it said, aims to reduce its hydrocarbon imports by 10 per cent by 2020 through several measures -- increasing domestic production, adopting biofuels and renewables, improving energy efficiency norms, improving refinery processes and prompting crude demand substitution.
The country aims to have 175 GW of renewable energy capacity by 2022, reduce its energy-emissions intensity by 33-35 per cent by 2030, and raise the share of non-fossil fuels in its electricity mix to more than 40 per cent by 2030.
"Despite such efforts, fossil fuels will continue to occupy a significant share of India's energy demand for the foreseeable future," Moody's said.
As India's largest NOC, Oil and Natural Gas Corporation (ONGC) is aligned with the government's aim to reduce India's dependence on energy imports, which make up more than 80 per cent of its oil consumption and more than 40 per cent of its natural gas consumption today, it said.
The government has also pushed to reduce hydrocarbon consumption by offering incentives for the use of electric vehicles, and mandating minimum blending requirements of 20 per cent for biodiesel and 5 per cent for ethanol by 2030.
Moody's said although natural gas made up 44 per cent of ONGC's sales, it only accounted for about 17 per cent of total sales revenue.
"ONGC aims to increase natural gas production over the next few years as it develops its new discovery on the eastern coast of India. However, natural gas will not contribute heavily to ONGC's profitability for the near term," it said.
This may be because of the government fixing rates of natural gas it produces.
The government has mandated a maximum price of USD 3.69 per million British thermal unit for most of the gas that ONGC produces during April to September 2019 period. This rate is below the cost of production for most fields.
Moody's said the recent acquisition of a stake in Russia's Vankorneft fields increases ONGC's crude reserves in that country. Also, ONGC has acquired a majority stake in refining and marketing company Hindustan Petroleum (HPCL).
"Among other environmental efforts, ONGC has made forays into renewables, with 153 MW of installed wind energy capacity and 18 MW of solar energy, though such amounts are insignificant for a company of its size.
"ONGC also has 15 registered Clean Development Mechanism projects with the UN Framework Convention on Climate Change, yielding about 2.1 million in annual potential certified emissions reductions, or CERs," it said.
The company is also implementing paperless transactions across the organization -- a move that it says will save 100 million pages, or about 7,500 trees annually -- while steadily reducing gas flaring in its operations and cutting its use of plastics, particularly single-use plastics.
Moody's study of more than 20 NOCs from around the world explains how these companies are responding to climate-change initiatives, in particular, the Paris Agreement.
"Some companies are changing for business reasons and others as a de facto part of their sponsoring governments, while still others are as yet responding only minimally," said Steven Wood, a Moody's Managing Director.
In Asia, China's NOCs CNPC, Sinopec and CNOOC Group are all pursuing national emissions-reduction strategies mainly by ramping up natural gas production and transportation efforts, Wood says.
ONGC of India is also aiming to increase natural gas production, while Malaysia's PETRONAS, which has significant energy transition exposure, has begun to build its renewable energy business.
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