Lenders may soon be reluctant to fund oil and gas projects as it is considered a ‘sin industry’ and ONGC will have to generate enough cash internally to fund its businesses, its chairman Arun Singh has said.
The rising concern about climate change has prompted some capital providers in the developed world, including banks as well as debt and equity funds, to avoid funding projects with high emissions. In India, fossil fuel projects or oil companies haven’t yet faced much funding constraints, but the fear has been growing. “You should be mindful that now if you don’t generate your own money, there is no bank money available to you after three years. Your industry is a sin industry,” Singh is learnt to have warned ONGC employees in a town hall last week. “You have to generate enough money from the existing business to fund your own business. You don’t have a choice to get outside funds.”
ONGC Videsh, the state-run explorer’s overseas arm that has 32 projects in 15 countries, is already facing increased green scrutiny. ONGC didn’t respond to ET’s request for comment.
To generate surplus cash that can be used to fund its business, ONGC will need to contain costs, especially those that stick around very long since the oil business doesn’t have that long a horizon, Singh is learnt to have said. “The future of the conventional area is not looking great. You cannot afford to expand in this space much. You have to grow, you have to generate enough profit, enough production to migrate into some other world,” he is understood to have said.
Globally, oil companies have been under tremendous pressure from climate activists, governments and financiers to reduce their emissions. This means a shrinking window of time for oil companies to monetise their resources.
“Probably you have to extract subsurface resources faster than ever,” Singh told employees.
Singh has the tough task of increasing the company’s oil and gas output quickly while ensuring that investments are not stranded when the demand shifts away from fossil fuel in future.
