A Policy Framework for Oil and Gas Industry in India for 2030

1. Rising dependence on imported oil: A cause for concern
India’s energy demand is growing by about 7%. Based on growth rate, IEA estimates
India needs to invest $800 billion by 2030 for meeting its demand. What makes it
imperative is the fact that India’s annual production is 2.3% of world energy production
but India’s consumption is 3.3% of world’s energy supply(oil deficit). Renewables will
play a more important role, but traditional fossil fuels (coal, oil and gas) will still be the
most important energy sources. Coal, natural gas, biomass and uranium are responsible
for most nations’ electricity generation while petroleum and its products dominate the
transportation sector.
Rising energy needs have drawn attention to the importance of energy security. Energy
security means that a nation is able to meet its demand of energy requirements via its
own source or through other nations’ supply.It is ensured by guaranteeing three factors
– availability, accessibility and affordability of energy resources.
Energy self-sufficiency on the other hand means a nation is able to meet its energy
requirements through its own sources only i.e. not relying on other nations’ supply.
Hence, energy security is not synonymous to energy self-sufficiency with regard to
petroleum and natural gas but it can be achieved by being self sufficient.
But there are numerous hurdles in the path of becoming self sufficient in this sector:
 Declining production from mature wells and insufficient addition of new wells.
 Bureaucratic and political hurdles.
 Energy security vs national security.
 Fear of supply disruption.
 Non-remunerative taxation regime.
 New technology required for new source of energy-CBM, Shale Gas, Oil Sand, etc.
In order to overcome these hurdles, India has to take some crucial steps in the near
future. To achieve this goal, the government has also formed certain ministerial
committees like the Kelkar committee and the Parikh committee whose
recommendations are summarised in the following points along with some other
necessary reforms which we think are necessary to take:
 First of all India has to find new reserves because the existing ones won’t be
lasting for much time with the demand which is increasing with population. For
this purpose India needs to frame an appropriate policy for promoting the E&P
Sector.
 To encourage E&P activity in the interest of enhancing national energy security ,
contractual arrangements have to offer E&P investors the ability to deliver
higher than the hurdle rate to compensate for the inherent risks, and the right
risk reward balance to invest during exploration, development and production
phases to ensure optimal recovery.

2.  Reforms in tax policies and administration to ensure that Indian firms are
competitive with global counterparts
 Uniform pricing schemes in natural gas production
 Pricing mechanisms in the energy sector must ensure commercial viability and
send proper signals to the market.
 Standardize the clearance requirements as much as possible by creating a single
window clearance system for oil and gas projects.
 Encourage development of unconventional oil and gas resources(like shale gas).
 Reduce the under-recovery burden of upstream oil companies. In principle, the
companies should not be required to subsidize under recovery of downstream
companies. It can be done by phase out regulation of diesel and kerosene prices
in line with the recommendations of the Parikh committee, which could bring
down the overall subsidy burden, thereby reducing the under recovery of
upstream companies.
 If the government decides against deregulation, it should finance a higher
proportion of the subsidies from its own revenue receipts.
 Grant the E&P sector benefits similar to those granted to sectors that have been
conferred infrastructure status
.
 Invest heavily in technology development as this sector follows “winner takes it
all scheme”.
 Emphasize supply side solutions (‘Drill Baby Drill’).