Let ONGC chart its own course

A recent post on X by Awanish K Awasthi, Advisor to the Chief Minister of Uttar Pradesh, attracted attention. It read: “ONGC, recognised as India’s largest crude oil explorer, intends to construct a refinery and petrochemical complex in Prayagraj, Uttar Pradesh, with a significant financial commitment of ₹70,000 crore.”

The public sector oil giant’s intent to diversify is not new. Addressing shareholders at the 31st Annual General Meeting of the company on August 30, Arun Kumar Singh, Chairman and CEO of the company, said: “Petrochemicals demand in the country is expected to remain strong, and will continue to be a key driver of oil and gas demand in the future. The focus on petrochemicals is part of ONGC’s diversification strategy.”

“The company is planning to increase its presence in oil-to-chemicals that will convert crude oil directly into high value chemical products and adding value preposition in the changing energy landscape,” he went on to say.

The question is not ONGC’s intent to diversify into petrochemicals, but whether the country’s top most hydrocarbon explorer and producer should focus on downstream?

Whether the entities under ONGC Group which have expertise in downstream and petrochemicals should be the ones taking such an initiative?

Whether before making such announcements a proper due diligence should be done or not, after all ONGC is a listed entity.

A counter can be that recently Andhra Pradesh Chief Minister Chandrababu Naidu, following his meeting with Bharat Petroleum Corporation Ltd’s top management, had posted: “...We explored the establishment of an oil refinery and petrochemical complex in Andhra Pradesh with an investment of ₹60,000-70,000 crore. I have sought a detailed plan and feasibility report in 90 days. About 5,000 acres of land will be required for this project, which the government looks forward to facilitating in a hassle-free manner.”

Just as in the current situation where ONGC has not responded to the post, at that time BPCL also remained silent.

Also, whether a on-land project makes a viable preposition as it will also require creation of infrastructure to flow the feedstock — crude oil or natural gas, and if LNG is used, to create storage facility.

ONGC’s Energy Strategy 2040 talks about downstream petrochemicals too. It reads: “ONGC already has a significant presence in the market through OMPL, OPAL and HPCL’s petchem investments. There is a potential opportunity for ONGC to expand capacity and target a play in the C2 and C3 chains across bulk and intermediate products.”

“Considering the scale benefits in both capex and opex, ONGC should evaluate an at-scale play (around 1 MMTPA). Several players are evaluating green field/brownfield capacity addition in attractive segments of the value chain... If it is unable to move quickly to claim the space, ONGC should wait for competitive moves to play out in the near to medium term before reassessing the investment case,” the strategy statement said.

Those tracking ONGC point out, as a standalone entity, ONGC’s focus should be on domestic and international oil and gas exploration and production business opportunities as well as provide value linkages in other sectors of energy business.

Critics also question the location — Prayagraj. On the face of it, the decision looks more political than a proper business decision. Years back also an attempt was made to set up a refinery in and around Prayagran (erstwhile Allahabad), but after doing the feasibility study the project was left in the back-burner.

Normal transition

Whatever may be the case, petrochemicals are the normal transition for energy majors today. But there are also entities supposed to undertake these activities.

ONGC’s first diversification to downstream happened when it acquired stakes in MRPL, the second was acquiring HPCL. Today, all entities under ONGC Group umbrella have a predefined task. While MRPL and HPCL are into refining and retailing, OPAL is into petrochem business and OTPC is into power. Recently, ONGC Green came into existence.

Spelling out the future outlook at the AGM, the Chairman and CEO had said: “We continue with our stable capex programme with emphasis on focused exploration, rejuvenation of mature western offshore fields and faster monetisation of eastern offshore deep-water fields...”

The vision statement on downstream/midstream investments reads thus: “Globally, NOCs have invested in midstream and/or downstream opportunities internationally to gain or consolidate upstream access or as a part of larger value preposition for the country beyond oil and gas. For example, Chinese NOCs and government agencies in Africa have historically leveraged a comprehensive orchestrated value preposition (that extends beyond oil and gas into other areas) for priority upstream access.”

The pertinent point is that it states that “Investments to be driven by a strong business case: ONGC’s approach towards international downstream investments should be guided by a strong business case that targets.”

“Attractive returns in downstream/midstream target countries where there is capacity deficit (e.g. refining capacity deficit in some African markets) and in value-chain segments where ONGC’s ability to win is high (e.g. higher group capability in refining driven by domestic refining portfolio),” it said.

Clearly, if political interests are left aside, the PSU giant knows what it wants to do. As is the case with most public sector undertakings, decisions are taken depending on what political masters decide. The entities should be left alone to find their own course.