Fueled by the need to work together
June 21, 2012

Putting aside diplomatic derivatives, at a time when both China and India are hounding the world for natural resources to fuel their economies, India and China’s largest oil companies Oil & Natural Gas Corporation of India and China National Petroleum Corporation have agreed to jointly explore for oil and natural gas world-wide.

While this won’t be the first time the oil companies will be partnering on international projects, the move has been augmented by diminishing funds and rising exploration and technology costs. According to an initial pact signed earlier this week, the companies will jointly explore assets in other countries, cementing existing partnerships in Myanmar, Syria and Sudan. ONGC said in a written statement that the companies also agreed to expand cooperation in refining and processing of crude oil and natural gas, marketing and distribution of petroleum products, and construction and operation of oil and gas pipelines, according to the Wall Street Journal.

Fueled by the need to resist out-bidding each other on international projects, most of which China has won, the two countries agreed to sign a memorandum of understanding in order to collaborate better. While OVL, the overseas arm of ONGC, and CNPC had earlier collaborated in Sudan and have worked together on projects in Syria and Myanmar, they have also recently clashed on the South China Sea when OVL together with the Vietnam government began explorations in what China terms her territory. Last month, India’s junior oil minister, R.P.N. Singh, said the company will return the block to Vietnam. Whether that decision figured in the agreement on a new pact is unclear.

“Securing energy supply continues to be a key strategic objective for China and India, both of whom continue to generate growth, and are concerned with the high energy prices,” said Gokul Chaudhri, a partner at audit and consulting firmBMR Advisors Pvt. Ltd. “This requires both nations to undertake geopolitical risks in frontier areas like Africa and Myanmar, with significant financial outlays. In the past also, the two countries have sought to collaborate rather than compete in view of their mutual need for overseas acreages and energy security.”

“This renewed effort, in the backdrop of improved economic ties, should yield long-term benefit to not just India and China, but also to the nations in which such joint energy projects are developed,” he added.

China and India will be the world’s largest and third largest economies and energy consumers by 2030, respectively, jointly accounting for about 35% of the global population, gross domestic product and energy demand, according to the BP Energy Outlook 2030.

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