While China has stepped up its global oil hunt, India is taking baby steps on the long road to oil security, with government and private companies making a beeline for oil blocks across the world. India has only a few oil producing blocks in its bag yet.

Take the case of ONGC [Get Quote] Videsh the government's flagship company for buying oil equity overseas  which owns stakes in the largest number of overseas blocks among Indian companies. Only eight of the 35 properties it has a stake in are producing oil and gas. This ratio is lesser in the case of Reliance Industries Ltd [Get Quote], the country's largest private company. RIL owns stakes in eight blocks but only one of these is a producing block.

Essar Oil [Get Quote] and Videocon Industries [Get Quote] are the other private companies that own oil blocks overseas. Among public sector companies, Oil India, Indian Oil [Get Quote], Bharat Petroleum and GAIL India [Get Quote] also own oil and gas assets overseas.

The immediate priority of these companies, which are stepping up the tempo, is not to acquire producing blocks but to lock in to blocks under exploration as these are available at cheaper prices.

"With crude oil selling in the $90-100 range, a huge gap has emerged between the demand of the buyer and the offer of the sellers. Under-exploration blocks are cheaper because the risks are higher," said an oil industry consultant.

OVL aims to own 20 million tonnes of overseas oil and oil-equivalent gas by 2020. It currently owns around 8 mt. "We are confident we will surpass the target," said a senior ONGC executive.

The China challenge

Indian companies are a part of the scramble for oil in Africa, Latin America and West Asia, though they are often edged out by China, which has emerged as the country most thirsty for oil.

"China is buying oil assets everywhere. It is being helped by government-to-government dialogue, which has resulted in Chinese companies dominating the oil sector in Africa and Latin America," said a private sector industry executive. Indian companies, in contrast, are left to fend for themselves.

Some Indian companies like Indian Oil Corporation and OVL have tried to partner with the Chinese companies but this route has largely not yielded any significant results.

"The Chinese companies offer expertise in infrastructure projects in return for oil blocks. During a trip to an African country a few months back, I was surprised to see the number of Chinese working there. They are very aggressive," said a senior executive with Indian Oil Corporation (IOC), the country's largest refiner.

India is now attempting to take a similar route. Petroleum Secretary MS Srinivasan recently said India would offer to invest in infrastructure in African countries in return for oil blocks. Such an offer has already been made to Nigeria, where India plans to invest around $6 billion in infrastructure.

Oil security: A distant dream

Oil experts argue that India is still a long way off from attaining oil security  defined as uninterrupted supply at competitive prices in times of strife.

The question is how much of this overseas oil will make it to Indian shores. "Almost nothing, as the companies have assets in far-flung countries and it is not economical to bring oil to India as transportation costs are huge," said a top executive of an oil company.

Additionally, the contracts the companies sign with the host countries force them to sell to the highest bidder. "In times of crisis, a country may not allow its oil to be taken out. India, for example, does not allow export of oil or gas from its domestic sources," said an industry expert.

The oil industry is of the view that what counts is how much oil you own and not how much you can bring to India. "We will anyway have to import. But oil being a precious commodity, the more blocks we control, the more power we have," said an executive with a private sector oil company.

Oil owned overseas can be swapped for oil which is closer so that transportation costs are minimised. Industry analysts, however, say Indian companies lack strong "swap arrangements" for crude oil. "If we don't have the swaps, we don't have the oil," said an industry executive.

KPMG Advisory Executive Director Arvind Mahajan agrees. "Indian companies will increasingly have to look at competent swap arrangements to mitigate the risks," he said, adding that as the momentum of overseas acquisitions picks up, these arrangements will become very important.

There is another question that oil security experts throw up: Can the overseas oil equity of private companies be counted in the overall oil security calculations? "For the private companies, it is purely business," says KPMG's Mahajan.