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  5. 5. ACKNOWLEDGEMENT As we know that for reward efforts is necessary and for efforts motivation is necessary same is with the success of this project .It would not have been possible without to motivation and proper guidance .So I take the opportunity to thanks all those who have motivated me and guided me through the entire project I extend nay heartily thanks to my college Padmashree DR.D.Y Patil University Department of Business Management for providing me opportunity to understand and explore the subject . For providing with an opportunity to understand and explore the subject of our own interest . I take the opportunity to thank people who have help me in my project my project guide Mr Patwardhan, Senior Engineer (Production) - Marketing. __________________ Manisha.j.goraksha 5
  6. 6. Declaration I hereby declare that the report titled “ Indian gas market- opportunities and challenges” is a record of an independent work carried out by me as part of the summer internship, at the Corporate Marketing Group of ONGC, during the period 11st May, 2009 to 8th July, 2009, under the supervision and guidance of Mr Mr Patwardhan, Senior Engineer (Production) - Marketing.. . The information contained herein is true and original, to the best of my knowledge. Manisha.j.goraksha Management Trainee - ONGC MBA- II [Marketing] 6
  7. 7. CERTIFICATION I _______________________ hereby certify that MISS manisha.j.goraksha of Padmashree DR.D.Y Patil University Department of Business Management of MBA in International Business Second year has completed her summer project “ INDIAN GAS MARKET- OPPORTUNITIES AND CHALLENGES” in the Academic years2008-2010 under my guidance The information submitted above is true and orginal to the best of my knowledge ___________________________ Mr. Patwardhan, Senior Engineer (Production) - Marketing. ( Project Guide) Dated : ________________ 7
  8. 8. EXECUTIVE SUMMERY This profile is the essential source for top-level energy industry data and information. The report provides an overview of each of the key sub-segments of the energy industry in India. It details the market structure, regulatory environment, infrastructure and provides historical and forecasted statistics relating to the supply/demand balance for each of the key sub-segments. It also provides information relating to the oil and gas assets (oil and gas fields, exploration blocks, refineries, pipelines, LNG terminals and storage terminals) in India. The report also analyses the fiscal regime relevant to the oil and gas assets in India and compares the investment environment in India with other countries in the region. The profiles of the major companies operating in the oil and gas sector in India together with the latest news and deals are also included in the report. 8
  9. 9. OBJECTIVE • Ensuring adequat availability of natural gas for consumers; • Encouraging new delivery methods like LNG and transnational pipelines; • Attracting substantial private investment in the natural gas sector; • Introducing the latest technological standards in different elements of the natural gas chain; • Ensuring sustainable development of the country’s hydrocarbon reserves; and • Encouraging competitive terms for supplies to downstream users. _ Consumption growth (1978-2007): 12% p.a. _ Production growth (1978-2007 9
  10. 10. RESEARCH METHODOLOGY Survey done by preparing the questionnaire for consumer to know there response PRIMARY DATA A set of 10 questions were prepared and distributed among 30 consumers.(sample size-30) SECONDARY DATA - Internet site such as  www.mouthshut.com,  Pngrb.com  ,www.ibef.com  ,bing.com,  google.com.  newspapers 10
  11. 11. 1. Which is the gas mostly used by the people ? 0% 23% Petroleum Lpg Naptha 77% Bio-diseal Interpretation- After doing survey I found that 23% of petroleum was used mostly used gas by the consumer was LPG that was about 77%. 11
  12. 12. 2. Are there adequate supply of gas to meet the future supply needs ? YES 50% 50% NO Interpretation-50% of consumer agreed that there is adequate supply of gas to meet the future needs and exactly other 50% disagree with the same statement. 12
  13. 13. 3.Do you see the consumption pattern for the gas changing rapidly ? 17% YES NO 83% Interpretation-I found that 83% consumer agreed with the fact that consumption pattern of the gas is changing rapidly and 17% were found to be disagree with the statement asked 13
  14. 14. 4.Does increase in gas supply and market force gives rise to new usage ? 7% YES NO 93% Interpretation- I found that 93% consumer replied that increase in gas supply and market force gives rise to new usage and only 7% disagreed. 14
  15. 15. 5.How much do you expect the supply of gas to increase in India in next 2-3 years ? 0% 130 mmscmd 180 mmscmd 200 mmscmd 100% Interpretation- About 100% of consumer replied that the supply of gas should be 200mmscmd . 15
  16. 16. 6 . Because of the rise in gas prices have you cut back on driving ? 23% YES NO 77% Interpretation-About 23% of the consumer replied that due to rise in gas prices they have cut down on driving and about 77% of people said that they didn’t cut down on driving even after rise in price. 16
  17. 17. 7. How much amount do you spend on gas consumption in the month ? 0% 40% 250 RS 311 RS 60% 350 RS Interpretation-About 60% of consumers replied that they spend about 311 RS on gas consumption in a month. And 40% replied that they spend 350RS on gas consumption. 17
  18. 18. 8. As there is shortage in gas what will be your next alternative ? 30% 33% Petroleum Lpg 0% Naptha Bio-diseal 37% Interpretation-About 33% of the consumer replied that there next alternative would be petroleum,37% replied LPG and 30% replied bio-diseal. 18
  19. 19. 9.Are you satisfied with the gas safety measures provided to you ? 33% YES NO 67% Interpretation-About 67% of consumer are satisfied with the gas safety measures provided to tham and 33% consumer replied that they are not so satisfied. 19
  20. 20. 10. Are you satisfied with transportation services given by agency ? YES 50% 50% NO Interpretation-50% of the consumer are satisfied with the transportation services given by agency and exactly50% are not so satisfied with the transportation services.. 20
  21. 21. INTRODUCTION TO THE TOPIC Evolution of oil and gas in india At Independence, India's domestic oil production was just 250,000 tones per annum. The entire production was from one state-Assam. Most foreign experts had written off India as far as discovery of new petroleum reserves was concerned. The Government announced, under Industrial Policy Resolution, 1954, that petroleum would be the core sector industry.Sustained high prices for fuel and energy have allowed companies in the oil and gas production sector achieve significant profits over the last year. In 2003, the average price of crude oil was $31 per barrel. The average price has exceeded $60 per barrel for much of 2005. While prices will likely remain high in 2006, it is less certain they will remain at such drastically elevated levels over the longer term. If ongoing high fuel prices strain the global economy, demand for fuel can be expected to drop, and fuel prices will probably decline in response India is the sixth largest consumer of oil. There is a huge demand-supply gap in oil and gas in India. The country imports more than 70% of its crude oil requirement. In 2005, oil and gas accounted for 38% of primary energy consumption in India, followed by coal at 55%. Oil and gas industry is broadly classified into Upstream and Downstream segments and comprises 18 refineries, with total refining capacity of 132.47mmtpa as of April 1, 2006.Consumption of crude oil was estimated at 130.11mmt, whereas consumption for natural gas was estimated to be 31.02bcm in the same year. The production and consumption of petroleum products was estimated at 119.75mmtpa and 111.92mmt respectively. Recently, India has emerged as net exporter of petroleum products. 21
  22. 22. Scope • Historic and forecast data relating to production, consumption, imports, exports and reserves are provided for each industry sub-segment for the period 1995-2020. • Historical and forecast data and information for all the major exploration blocks, oil and gas fields, refineries, pipelines, LNG terminals and storage terminals in India for the period 1995-2020. • Operator and equity details for major oil and gas assets in India • Key information relating to market regulations, key energy assets and the key companies operating in the India's energy industry. • Detailed information on key fiscal terms (such as rents, bonuses, royalty, cost recovery, profit oil, petroleum and corporate taxes) pertaining the geography is also provided. A sample calculation detailing how fiscal terms apply to a typical asset in the regime is included. • Information on the top companies in the India including business description, strategic analysis, and financial information. The report – “Indian Oil & Gas Industry: An Industry Analysis” provides an objective analysis on the Oil & Gas sector in India along with detailed information on the exploration, production and other processes. Annual consumption figures and future growth projections are also included in this report. It gives a detailed overview of the opportunities, challenges and critical success factors for the growth of the industry. 22
  23. 23. key findings- India, in 2004-2005, met 75 %of its crude oil demand through imports. The domestic production of crude oil has been in the range of 30-34 Million Metric Tons from 2001-2005. About 60 % of its crude import is from Middle East. -The consumption of natural gas grew at a CAGR of 2.7 % in the period 1999-2005, supported by rise in availability through domestic and imported sources of gas. -Oil comprises 36 % of India’s primary energy consumption in 2005, and is expected to grow both in absolute and percentage terms driven by overall economic growth. Growth in demand is expected to catapult the overall demand to 196 Million Metric Tons in 2011-2012 and 250 Million Metric Tons in 2024-25. - Demand for oil is expected to grow from 119 Million Tons Oil Equivalent (MTOE), from 2004, to 250 MTOE, during 2025, at an annual growth of 3.6%. During the same period domestic production from existing developed reserves is expected to grow at approximately 2.5 %. -Natural gas comprises 9 % of India’s primary energy consumption at present and it will be 14% of energy mix by 2010. Demand for natural gas is also likely to increase at an annual growth rate of 7.3%. 23
  24. 24. INTRODUCTION TO THE COMPANY Oil and Natural Gas Corporation Ltd. (ONGC) has been playing an important role to meet the energy requirements of the country to meet the rapidly.growing demand for petroleum products in the country. To meet growing energy requirements a New Exploration Licensing Policy (NELP) has been formulated by the Government of India. The Government of India gives emphasis for the exploration activity. At present, India's demand for petroleum products is growing at a rapid rate and it would reach a level of more than 200 MMT by 2008. Oil and Natural Gas Corporation Ltd. is engaged in exploration and production activities. Based on the result of seismic survey, ONGC has proposed to drill initially one exploratory well covering an area of 210 sq. km and based on the results of drilling one more well may be taken up for drilling for appraisal in the CY-ONN-2002/2 block in the eastern part of Ariyalur Pondicherry sub-basin of Cauvery Basin. The activity is to test the occurrence of hydrocarbon within the identified block. ONGC (Oil and Natural Gas Corporation Limited) is India's leading oil & gas exploration company. ONGC has produced more than 600 million metric tonnes of crude oil and supplied more than 200 billion cubic metres of gas since its inception. Today, ONGC is India's highest profit making corporate. It has a share of 77 percent in India's crude oil production and 81 per cent in India's natural gas production Major Achievements of ONGC • Judged as Asia's best Oil & Gas company, as per a recent survey conducted by US- based magazine 'Global Finance' • Ranked as the 2nd biggest E&P company (and 1st in terms of profits), as per the Platts Energy Business Technology (EBT) Survey 2004. • Leads the list of Indian companies listed in Forbes 400 Global Corporates and Financial Times Global 500 by Market Capitalization. • Only fully-integrated petroleum company in India, operating along the entire hydrocarbon value chain. Holds largest share of hydrocarbon acreages in India. Strategic Vision 2001- 2020 : 24
  25. 25. To focus on core business of E&P, ONGC has set strategic objectives of: • Doubling reserves • Improving average recovery from 28 per cent to 40 per cent. • Tie-up 20 MMTPA of equity Hydrocarbon from abroad. The focus of management will be to monetise the assets as well as to assetise the money. Mission : • ONGC is the world leader in management of energy source, exploration of energy sources, diversification of energy sources, technology in underground Coal Gasification and above all finding new ways of tapping energy where ever it is, to meet the ever growing demand of the country • SWOT ANYLISIS Oil & Natural Gas Corporation Limited - SWOT Analysis Company Profile is the essential source for top-level company data and information. The report examines the company’s key business structure and operations, history and products, and provides summary analysis of its key revenue lines and strategy. Oil and Natural Gas Corporation (ONGC) is engaged in the exploration, production, refining, transporting and marketing of crude oil, natural gas, liquefied petroleum gas, natural gas liquid, ethane, propane and other products. The company primarily operates in India and has a presence in 14 foreign countries through its overseas arm, ONGC Videsh (OVL). It is headquartered in Dehradun, India and employs about 34,722 people. The company recorded revenues of INR862.7 billion (approximately $19.9 billion) during the fiscal year ended March 2007, an increase of 16.3% over 2006. The operating profit of the company was INR277.7 billion (approximately $6.4 billion) during fiscal year 2007, an increase of 15.7% over 2006. The net profit was INR177.7 billion (approximately $4.1 billion) in fiscal year 2007, an increase of 15.4% over 2006.The company has not published it annual report for 2006-07 during the the publication of the profile. Scope 25
  26. 26. - Provides all the crucial company information required for business and competitor intelligence needs - Contains a study of the major internal and external factors affecting the company in the form of a SWOT analysis as well as a breakdown and examination of leading product revenue streams - Data is supplemented with details on the company’s history, key executives, business description, locations and subsidiaries as well as a list of products and services and the latest available company statement Reasons to Purchase - Support sales activities by understanding your customers’ businesses better -Qualify prospective partners and suppliers - Keep fully up to date on your competitors’ business structure, strategy and prospects - Obtain the most up to date company information available 26
  27. 27. HISTORY ONGC - Oil and Natural Gas Corp Ltd, leading National Oil GAS exploration Company of India Oil and Natural Gas Corporation, ONGC, was set up in 1956 with significant contribution in industrial and economic growth of the country, ONGC is a leading National Oil Company of India engaged mainly in exploration, development and production of crude oil, natural gas and some value added products. ONGC was subsequnely converted into a public limited company in Jun.'93 following new liberalized economic policy adopted by the Government of India in July, 1991 sought to deregulate and delicense the core sector (including petroleum sector) with partial disinvestment of Govt. Equity in Public Sector Undertakings and other measures. ONGC is India's largest producers of Crude Oil, Natural Gas and LPG. ONGC India also produce other value added petroleum products such as NGL, C2- C3, Aromatic Rich Naptha and Kerosene. Internationally, its wholly owned subsidiary ONGC Videsh Limited has a number of existing and upcoming interests in selected oil patches ONGC including development of a large gas field discovered by it in Vietnam offshore. During March, 1999, ONGC, Indian Oil Corporation (IOC) a downstream giant and Gas Authority of India Limited (GAIL) the only gas marketing company, agreed to have cross holding in each other's stock to pave the way for long-term strategic alliance amongst themselves, both for the domestic and overseas business opportunities, in the energy value chain. After independence, the national Government realized the importance of oil and gas for rapid industrial development and its strategic role in defense. Consequently, while framing the Industrial Policy Statement of 1948, the development of petroleum industry in the country was considered to be of utmost necessity 27
  28. 28. ONGC – Evolution 1955 - Oil and Gas Directorate, Govt Of Well entrenched MNCs India 1956 - Oil and Natural Gas Commission 1959 - Autonomous statutory Body 1993 - Public Lim ited Company 1997 - A Navratana PSU 2000 - A “Flagship” Oil PSU Until 1955, private oil companies mainly carried out exploration of hydrocarbon resources of India. In Assam, the Assam Oil Company was producing oil at Digboi (discovered in 1889) and the Oil India Ltd. (a 50% joint venture between Government of India and Burmah Oil Company) was engaged in developing the two newly discovered large fields of Naharkatiya and Moran in Assam. In West Bengal, the Indo- Stanvac Petroleum project (a joint venture between Government of India and Standard Vacuum Oil Company of USA) was engaged in exploration work. The vast sedimentary tract in other parts of India and adjoining offshore remained largely unexplored. Industrial Policy Resolution, 1956 In April 1956, the Government of India adopted the Industrial Policy Resolution, which placed mineral oil industry among the schedule 'A' industries the future development of which was to be the sole and exclusive responsibility of the state. 28
  29. 29. Phenomenal Growth (1961 – 1990) Since its inception, ONGC has been instrumental in transforming the ONGC: Vital Statistics country's limited upstream sector into a large viable playing field with its activities ONSHORE Production Installations spread throughout India and significantly in 225 overseas territories. In the inland areas, Pipelines (KM) 7900 ONGC not only found new resources in Engineering Workshops 2 Assam but also established new oil province Drilling Rigs 75 Workover Rigs 72 in Cambay basin (Gujarat), while adding new petroliferous areas in the Assam-Arakan OFFSHORE Well / Process Platforms Fold Belt and East coast basins (both inland 164 and offshore). OSVs 59 MSV 3 Pipelines (KM) ONGC went offshore in early 70's and 3300 Shallow Water Rigs 24 discovered a giant oil field in the form of Deepwater Rigs 1* Bombay High, now known as Mumbai High. *2 DW Charter Rigs being deployed This discovery, along with subsequent discoveries of huge oil and gas fields in PLANTS 3 Western offshore, changed the oil scenario of the country. Subsequently, over 5 billion tonnes of hydrocarbons, which were present in the country, were discovered. The most important contribution of ONGC, however, is its self- reliance and development of core competence in E&P activities at a globally competitive level. ONGC post liberalization (1990 till date) 29
  30. 30. The liberalized economic policy, adopted by the Government of India in July 1991, sought to deregulate and de-license the core sectors (including petroleum sector) with partial disinvestments of government equity in Public Sector Undertakings and other measures. As a consequence thereof, ONGC was re-organized as a limited company under the Company's Act, 1956 in February 1994. Shareholding pattern of ONGC as in Nov' 2006 (%). PSUs, 10.47 FIIs, 9.47 Indian FIs, 2.73 Govt., 74.14 Mutual Funds, 1.11 Public, 1.68 Others, 0.42 30
  31. 31. 31
  32. 32. 32
  33. 33. After the transfer of business of the erstwhile Oil & Natural Gas Commission to that of Oil and Natural Gas Corporation Limited in 1993, the Government disinvested 2 per cent of its shares through competitive bidding. Subsequently, ONGC expanded its equity by another 2 per cent by offering shares to its employees. During March 1999, ONGC, Indian Oil Corporation (IOC) - a downstream giant - and Gas Authority of India Limited (GAIL) - the only gas marketing company - agreed to have cross holdings in each other's stock. This paved the way for long-term strategic alliances both for the domestic and overseas business opportunities in the energy value chain amongst themselves. Consequent to this, the Government sold off 10 per cent of its share holding in ONGC to IOC and 2.5 per cent to GAIL. With this, the Government holding in ONGC came down to 84.11 per cent. In the year 2002-03, after taking over MRPL from the A V Birla Group, ONGC diversified into the downstream sector. ONGC has also forayed into retailing business, though in a limited manner. ONGC has also entered the global field through its subsidiary, ONGC Videsh Ltd. (OVL) and has presence in 15 countries. ONGC, today, is committed to secure energy independence for the Nation. Peformance Highlights (2005-06) Hydrocarbon Finds 10 Crude Oil 24.404 MMt Gas Production 22.574 BCM Gas Sale 18.226 BCM VAPs 3.425 MMt Drilling 270 wells Operating Revenue Rs 50556 Cr Net Profit Rs 14431 Cr Net Worth Rs 53593 Cr Manpower 34722 Technical 23878 Non-Technical 10844 33
  34. 34. MARKETING IN ONGC • Historically ONGC has had a limited role in marketing its liquid products. The marketing of crude oil since the early ‘70s was under total control of the Government and ONGC had little leeway since the price, mode and consumers were all pre-determined by the Government. The pricing of crude oil and liquid products was administered by the Government as per the Administered Pricing Mechanism (APM). • 1997-2002 Phased decontrol of petroleum sector and dismantling of Administered Pricing Mechanism. Petroleum business in India has become competitive. More and more oil marketing companies have realized the importance of market shares and the need to protect their customer base. Companies becoming aggressive and improving effectiveness of their marketing departments but they are also attempting to improve market share by addressing consumer needs. • Mid 80s Marketing department was headed by GM (Mktg.) based at Delhi with marketing officers stationed in all regions, mainly looking after marketing of gas. • 1992 Transfer of gas marketing functions to GAIL, and there being no perceptible role in marketing, either liquid or gaseous products of ONGC, the existing marketing organization was dismantled. • Presently ED-Chief, Marketing is presently heading the marketing group, under the overall in-charge of Director (Offshore)-I/c Marketing. • Early ‘80s ONGC started producing other value added liquid products like LPG and NGL, SKO, HSD etc. However, these products also formed part of product profile of the refineries and again ONGC had virtually no role to play since marketing of these products was also dealt in a manner similar to that of crude oil. • 1990s ONGC commissioned its first Ethane-Propane Recovery Unit (EPRU) at Uran and commenced C2-C3 supplies to IPCL, Nagothane. Initially priced on the basis of the recommendations made by the Bureau of Industrial Costs and Prices (BICP). Later on the price of this product was mutually decided. • 60s to mid 80s ONGC, however, played a pioneering role from the ‘60s in the marketing of gas involving activities such as identifying consumers, determining gas prices, entering into contracts, their administration, effecting supplies, etc., 34
  35. 35. without any intervention by the Government till the mid ‘80s and was able to convert gas business to a large extent, initially from BUYER'S market to SELLER'S market. The ‘80s also witnessed an accelerated development of offshore fields including Bassein and Bombay High and setting up of gas processing complexes at Uran and Hazira, which considerably increased the volumes of gas sales by ONGC. The Great Separation - Gas Authority of India Ltd. (GAIL) was created in 1984 to construct and operate the Hazira – Vijaipur - Jagdishpur (HBJ) pipeline and distribute gas along the pipeline route. However, with strategic focus, GAIL could convince the Government to intervene in the gas industry and subsequently succeeded in becoming the nodal agency for transportation and marketing of gas throughout India. During the late ‘80s, ONGC attempted to resist moves by Government / GAIL to hand over the marketing functions to GAIL. Ultimately, ONGC had to give in when a government order, issued during mid 1992, transferred the gas marketing functions and related assets of ONGC, built over nearly three decades by the sweat of ONGCians, to GAIL. GAlL has since benefited to a large extent from its monopoly position in the gas market, at ONGC's expense ONGC’S SHARE IN DOMESTIC OIL & GAS PRODUCT LINE PRODUCTION (2005-06) CRUDE OIL: 81.5% NATURAL GAS: 79.2% 35
  36. 36. ONGC DEALING WITH SOME ESSENTIAL PRODUCTS Current Product line Till July 1981, ONGC’s activities were focused on E& P business. The first Gas-based LPG recovery plant at Uran was commissioned on 31st July 1981. With this, ONGC entered into business of LPG, NGL/Naphtha. Thereafter, a number of similar plants were commissioned at Hazira, Uran, Ankleshwar & Gandhar. Currently, besides crude oil & gas, ONGC produces LPG, Naphtha/NGL, LAN/ARN, C2-C3, SKO, HSD, LSHS, etc. ATF production at Hazira has commenced from 11.03.2007. SR NO PRODUCTS 1 CRUDE OIL 2 NATURAL GAS 3 LPG 4 ETHANE-PROPANE (C2-C3) 5 AROMATIC RICH NAPTHA (NGL) 6 KEROSENE (SKO) 7 HIGH SPEED DIESEL(HSD) 8 LAN/ARN 9 LOW SULPHUR HEAVY STOCK(LSHS)/FURNANCE OIL 10 MOTOR GASOLINE 11 AVIATION TURBINE FUEL(ATF) 12 HC THE INDIAN MARKET 36
  37. 37. The concept of natural gas (NG) as an automotive fuel dates back to the 1930s. In Australia it was considered as an automotive fuel in 1937 and France used it during the World War 1. Canada and New Zealand started their conversion programme in the early 1970s and some Asian and South American countries in the 1980s. Besides using NG to power vehicles, it has been tried out for electricity and for heating homes and commercial buildings. NG in India is being consumed mainly by the fertilizer and power industry since 1984. In 1992, the Gas Authority of India Limited introduced a CNG network in India, but it failed to take-off due to limited number of private vehicles switching over. CNG has been an option as an automotive fuel since 1994 under the Central Motor Vehicle Act. Major bulk of vehicles running on CNG is found in Mumbai and Delhi, as well as a few cities in Gujarat like Vadodara, Surat and Ankleshwar. NG is a fossil fuel more evenly distributed worldwide than crude oil. It is found in reservoirs 3000 to 15,000 feet below the surface of the earth, with reserves in about 90 countries around the world. World-proved reserves of NG at the end of 1999 were about 5172 trillion cubic feet (TCuF). While two-thirds of crude oil reserves are concentrated in the Middle East, only one third of NG reserves is found there (Table 2). India has more gas reserves than oil reserves. According to the Ministry of Petroleum and Natural Gas, in 1999 India had 660.32 million tonnes (MT, 1 t = 1000 kg) of crude oil reserves, while NG reserves were 647.96 billion cubic metres (BCuM, 1 cubic m = 1000 l). NG can thus reduce the dependence on oil, stretching its availability and thereby cutting the import bills. In India, it is obtained from Bombay High and is also available in other areas like Krishna Godavari basin, Assam and Tripura in the northeast, the Cauvery basin, etc. Unlike oil, natural gas is not required to be imported by India. The gross production was 28,446 million cubic meters (mcm) in 1999–2000, while utilization was 26,885 mcm. Mission of gas industry 37
  38. 38.  With the promise of KG basin gas just a few months away, the country seems to be at the threshold of a revolution that might transform the energy sector. The country's gas supply is expected to double in thecoming years and the industry is agog with expectation of it bringing in an era of clean energy.  The favourable climate for gas has been further enhanced by a steep rise in international oil prices with expectations of it continuing to remain high. This has woken up policy makers to the potential for gas as a substitute for transportation and domestic fuel, which currently form a significant part of the oil marketing companies' under recoveries  The Indian natural gas industry is continuing its rapid pace of reforms with the conclusion of the most successful international bidding under the seventh round of the New Exploration Licensing Policy and the notification of city gas distribution (CGD) regulations earlier this year. Vision for gas industry  Timely development of upstream fields  Energizing India’s growth by connecting demand and supply centers through a pan- India gas infrastructure.  Enhancing the reach of natural gas to the burner tip through city gas distribution networks.  Ensuring a competitive environment by providing for multiple operator play through open access and interconnectivity. 38
  39. 39. OVER VIEW OF OIL AND GAS SECTOR • Largest contributor to the national exchequer in 2004-05 with taxes amounting to US$ 27 billion. • Oil & Gas constituted 40 per cent of primary energy source in 2004. • India is sixth largest crude oil consumer in the world with consumption at 119.3 MMT in 2004. • Petroleum, Oil Lubricants (PoL) imports is 28 per cent of the total imports of India and PoL exports is 8 per cent of total exports for 2004-05. • All five Indian companies appearing on the Fortune 500 list operate in the Oil & Gas sector. • India is Ninth largest crude oil importer in the world. • India ranks sixth in refining capacity in the world with capacity at 2.5 million barrels of oil per day in 2004 which is 3 per cent of the world’s refining capacity. • Reliance Industries Ltd (RIL) in India is the third largest refinery in the world with a capacity of 33 MMTPA. Indigenous resources and availability 39
  40. 40. Almost 70 per cent of India’s natural gas reserves are found in the Bombay High basin and in Gujarat. Offshore gas reserves are also located in Andhra Pradesh coast (Krishna Godavari Basin) and Tamil Nadu coast (Cauvery Basin). Onshore reserves are located in Gujarat and the North Eastern states (Assam and Tripura). Small amounts of reserves have also been found in Rajasthan. Although the state owned enterprises increased the reserve base significantly over the period 1975- 90, the gap between domestic production and demand widened significantly in the 90s. As a result, initiatives were taken to encourage private sector investment in the E&P sector, with exploration acreage offered to private companies under production sharing arrangements with the Indian government. Accordingly, in June 1994 the government awarded the first Joint Venture (JV) fields to be operated by joint ventures of state enterprises with private companies. Until April 1998, E&P activities in the country were steered mainly by the PSUs – ONGC and OIL. However, with less than 25 per cent of the country’s sedimentary areas covered under exploratory surveys, along with the stagnating domestic hydrocarbon production and declining reserve replacement ratios, the Government of India felt the urgency to harness its potentially substantial hydrocarbon reserves. Therefore in 1999, the Government of India introduced the New Exploration Licensing Policy (NELP) to provide attractive incentives and level playing field to new entrants, including foreign companies in the E&P sector. After the opening up of the E&P sector apart from ONGC and OIL, many players including big domestic and international companies entered the arena. Bidding results in all the four rounds of NELP so far show that while ONGC is set to dominate, Reliance is emerging as an important player. 40
  41. 41. Improving Domestic Market ONGC is planning to put up a LNG receiving terminal at its Mangalore complex. The government may sell Dabhol LNG terminal to Reliance and GSPC. Reason being that the LNG terminal can be operated profitably by an organization which has both low cost gas as well as a new LNG import contract so that the two can be blended. In the long term, gas from Krishna-Godavari basin of Reliance and GSPC will cost $4.40 per mbtu which is the same as Petronet LNG’s imports. Petronet LNG is expanding the plant capacity at Dahej from 5.1 mmtpa to 10 mmtpa and also setting up a new terminal at Kochi. Dahej terminal supplies 20 mmscmd of R-LNG to Gujarat, Madhya Pradesh, Rajasthan, UP, Haryana and Delhi. While Dabhol will be operational by 2007 and Kochi terminal by 2008 or early 2009, the Ennore and Mangalore terminals are at initial stages. Demand for natural gas is expected to grow three fold over the next few years. By 2011, the demand for gas is expected to grow from the current 119 mmscmd to 325 mmscmd. This includes both LNG and CNG. Presently, gas contributes only 9 per cent of the Indian energy basket (global average 23 per cent) but is expected to increase to 20 per cent by 2025 41
  42. 42. Gas Transmission and Distribution In view of the need to create gas sector infrastructure for sustained development of gas markets across the country, Gas Authority of India (GAIL), now known as GAIL (India) Limited, was set up by Government of India on August 16, 1984 with the responsibility to develop pipelines and to process, market and plan the optimum utilization of natural gas, thereby enabling OIL and ONGC to concentrate on the exploration and production of hydrocarbons in India. Prior to the formation of GAIL, approximately 725 km of local regional pipelines were constructed and operated by ONGC, apart from around 320 km of pipeline laid by various customers. In 1986, work began on the Hazira-Bijaipur- Jagdishpur (HBJ) gas transmission line linking the gas sourced from Bassein fields landing at Hazira in Gujarat with fertilizer, power and industrial consumers in Gujarat, Rajasthan, Madhya Pradesh and Uttar Pradesh. In 1987-88, the country’s first crosscountry, 1700 km long, 18.2 MMSCMD capacity HBJ pipeline system was successfully commissioned by GAIL in 22 months,14 months ahead of schedule. Today, GAIL is the national gas company in India with a ready-built infrastructure for transmission and marketing of natural gas over long distances in the country. GAIL owns and operates around 4,500 km of pipeline which currently transports over 22 BCM of natural gas every year. The most prominent pipeline of GAIL is the 2,700 km HBJ pipeline which has a capacity to handle 33.4 MMSCMD of natural gas. The gas market evolving in the country as supply is likely to go up sharply & distribution infrastructure falls in place 42
  43. 43. Commencement of gas production from the KG D6 field is a major milestone in India's energy landscape. As gas production from KG D6 reaches 80 million metric standard cubic metres per day (mmscmd), it would nearly double the availability of gas in India, and also eliminate the entire shortfall in gas supplies being faced today by the existing plants in major parts of the country which will be connected to the KG D6 through pipelines. It has several positives for the country, but firstly it proves that the government New Exploration Licensing Policy (NELP) is a step in the right direction. It would be a quantum leap in India's quest for energy security, it would substantially reduce wealth transfer from India to other nations due to energy imports and supply of gas to the core sectors would also bring down subsidy and costs in the fertiliser, power and transportation sectors. The gas market in India is at an inflection point. The increase in gas supplies due to production from KG D6, as well as the expected production from other discoveries of ONGC, GSPC etc, would not only meet the existing demand, but also promote setting up of brown field and green field projects. The customers in Gujarat and along the HVJ (Hazira- Vijaipur-Jagdishpur gas pipeline) already receive gas from several sources: APM gas (price fixed by the government for gas from old fields/pre-NELP blocks), gas from Panna-Mukta- Tapti fields, Liquiefied Natural Gas (LNG) on term contracts, LNG on spot basis, and they would also have the choice of receiving gas from KG D6. Gas infrastructure is being developed rapidly. The East West Pipeline would take the KG D6 gas to almost all the major demand centres in India, as it would connect to the existing trunk pipelines as well as regional networks of GAIL and GSPL (Gujarat State Petronet Ltd, which has laid the pipelines in Gujarat). LNG, which so far was being supplied in Gujarat, along the HVJ, and to the Uran region in Maharashtra recently, would also reach Andhra Pradesh soon, thanks to the EWPL. The city gas sector in India is witnessing lot of interest, primarily on account of the expected increase in gas availability. With increase in gas supplies and development of pipeline infrastructure, the gas markets would develop further, thereby benefiting the customers and the country Gas pricing 43
  44. 44. Pricing Mechanism (APM), for petroleum products. This system is based on the retention price concept under which the oil refineries, oil marketing companies and the pipelines are compensated for operating costs and are assured are turn of 12 per cent post-tax on the net worth. Under this concept, a fixed level of profitability for the oil companies is ensured, subject to their achieving their specified capacity utilisation. The administered pricing policy of petroleum products ensures that products used by the vulnerable sections of the society, like kerosene, or products used as feedstock for production of fertiliser, like naphtha, may be sold at subsidised prices. The APM was dismantled in April 2002.Gradually, the Government of India has moved to market-determined, tariff-based pricing. Free imports are permitted for almost all petroleum products, like kerosene, LPG and lubricants, except petrol and diesel. It is contemplated that, all administered price products will be taken out of the administered pricing regime in a phased manner and the system will be replaced by a progressive tariff regime. On the pricing front, the government-appointed committee on pricing and taxation of petroleum products, has recommended that the oil companies should shift from an ‘import parity based pricing’ to a ‘trade based pricing’. It has also suggested, the reduction in custom duties on petrol and diesel from 10 per cent to 7.5 per cent and the shifting of excise duty from an ad-valorem levy, to a specific levy. 1. Prior to 1987, gas prices were fixed by ONGC/OIL. The price is being fixed by Government w.e.f. 30.1.1987. The price of APM gas of ONGC and OIL was last revised effective 1.7.2005. 44
  45. 45. The salient features of the revised pricing order effective 1.7.2005 are as follows:- i. ONGC and OIL produced about 55 MMSClMD APM gas from nominated fields. The determination of producer price for this gas will be referred to the Tariff Commission. Till the Commission submits its recommendation and a decision is taken thereon, the consumer price of APM gas will be increased from Rs.2850/MCM to a fixed price of Rs. 3200/MCM on adhoc basis. ii. It has been decided that all available APM gas would be supplied to only the power and fertilizer sector consumers against their existing allocations along with the specific end users committed under Court orders/small scale consumers having allocations upto 0.05 MMSCMD at the revised price of Rs. 3200/MCM. This price is linked to a calorific value of 10,000 K.cal/cubic metre. However, the gas price for transport sector (CNG), Agra- Ferozabad small industries and other small scale consumers having allocations upto 0.05 MMSCMD would be progressively increased over the next 3 to 5 years to reflect the market price. iii. The gas supplies through GAIL network to non-APM consumers will be at the price at which GAIL buys from JV producers at landfall point, subject to a ceiling of ex-Dahej RLNG price of US$3.86/MMBTU for the current year i.e. 2005-06. For the North-East region, Rs.3200/MCM will be considered as the market price during 2005-06. iv. The price of gas for the North-Eastern region will be pegged at 60% of the revised price for general consumers. Thus, the consumer price for the North- East region will increase from the existing price of Rs.1700 to Rs.1920/MCM. v. Subject to the determination of producer price, based on the recommendations of the Tariff Commission, any additional gas as well as future production of gas from new fields to be developed in future by 45
  46. 46. ONGC/OIL will be sold at market-related price in the context of NELP provisions. Factors influencing natural gas price in India Power sector, major growth in demand for gas in India will continue to come from the power sector. The share of the power sector in the total gas consumption is expected to grow from the current level of 40 per cent to a level of 45 per cent by 2005-06. The share of fertiliser sector in gas consumption is expected to go down to a level of 30 per cent by the year by 2005-06 but it will continue to be an important sector of consumption. The sponge iron sector is really coming in a major way – it is estimated that by 2012 the sector will have a share of 54%, up from about 33% now. The transport sector is another important sector, as use of CNG is expected to grow many folds. Bright future for natural gas in India 46
  47. 47. Natural Gas 47
  48. 48. Natural gas is a highly flammable hydrocarbon gas consisting chiefly of methane (CH4). Although methane is always the chief component, it may also include other gases such as oxygen, hydrogen, nitrogen, ethane, ethylene, propane, and even some helium. The gas is found entrapped in the earth's crust at varying depths beneath impervious strata, such as limestone, and may or may not be in association with oil. If oil is present it is called wet gas, else dry gas. Natural gas is a colorless, odorless fuel that burns cleaner than many other traditional fossil fuels. Natural gas is used for heating, cooling and production of electricity besides for various other industrial purposes. The principal constituents of natural gas are Methane and Ethane, but most gases contain varying amounts of heavier hydrocarbons that may be removed by processing. In India, the C3 and C4 fractions of natural gas are usually recovered in a Liquefied Petroleum Gas (LPG) fractionator plant for making LPG. Typically, a 1:1 Propane-Butane mix on mass basis is used for making LPG in India. After the recovery of the Propane and Butane fractions from the ‘rich gas’ stream, the stream of gas downstream of LPG recovery Plant (known as lean gas) is returned to the pipeline system. While all fractions of the rich gas can be as such used by fertilizer and power plants as feedstock or fuel respectively, the value added to the C2, C3, C4, C5 and heavier fractions is greater when they are used for the production of LPG or when C2 and C3 is used for the production of petrochemicals. The removal and separation of individual l hydrocarbons by processing is possible because of the differences in their physical properties. As each component has a distinctive weight, boiling point, vapor and physical characteristics, its separation from other components is a relatively simple physical operation. Natural gas may also contain moisture, Hydrogen Sulfide, Carbon Dioxide, Nitrogen, Helium, or other components that may be diluents and/or contaminants. Natural gas is processed to remove unwanted water vapor, solids and/or other contaminants that would interfere with pipeline transportation or marketing of the gas. Liquefied Natural Gas – LNG is nothing but natural gas reduced to a liquid State by cooling it to -161°C. Once liquefied, the natural gas is more compact occupying 1/600th of its gaseous volume. Natural gas is liquefied because in gaseous form it is extremely voluminous and cannot be transported to long distances as gas fields are far-off from the user market. Liquefied 48
  49. 49. form eliminates the need for more room for gas transportation. LNG is transported in special tankers and brought to the receiving regasification terminal in another location. It is regasified at the terminal itself and transported through a pipeline. Natural Gas meets many of the requirements for fuel in a modern day industrial society. It is efficient, clean burning fuel, eco friendly and has flexibility of control. The key uses are: Electricity generation by utilities : Fuel for base load power plants and for use in combined cycle/co-generation power plants. Public and commercial : LNG is clean fuel for use as is piped Gas in household. Economically cheaper as compared to LPG. In fact most of the Western Countries use piped gas in houses. The household use of piped gas is expected to increase in future. Industrial : As an under boiler fuel for steam raising and heating applications. Alternative Motor fuel to diesel: With only one carbon and four hydrogen atoms per molecule, natural gas is the cleanest burning fossil fuel. Moreover, it has 30 to 40 % higher fuel efficiency for running motor vehicles. Due to environmental considerations, the use of natural gas in Automotive Sector is bound to increase considerably on account of higher efficiency and being a cleaner fuel. Benefits of natural gas The relative merit of natural gas to alternate hydrocarbon fuels is driving the demand for gas. Gas is a clean fuel offering higher thermal efficiencies (in power generation) and 49
  50. 50. higher yields (in the manufacture of fertilizers). Gas turbines have lower capital costs, shorter gestation period and can supply peaking power. Further, it contains no Sulphur making it ideal fuel for transportation purposes. Lower CO2/ CO emission implies environmental friendliness of the fuel. In addition to its environment friendliness, natural gas has other advantages. It is lighter than air and, therefore, safer (in case of any leakage, being lighter than air, it does not tend to accumulate and settle down). It is extremely convenient to use, since customers just have to switch it on like electricity. There is no storage needed at the users’ end which means that they can productively use the space and not worry about running out of stored fuel. Moreover, consumers do not have to take the trouble of handling the fuel as in the case of coal. Then, consumers are billed for the fuel that actually enters their premises, unlike in all other fuels where they are billed for the quantity that has gone out of the supplier premises. Natural gas production Unlike in the case of crude oil production in India, the production of natural gas is showing an upward trend although at a nominal production growth rate of 3.6% per annum (during FY1998-2002). In fact, natural gas production in India has been increasing continuously. 50
  51. 51. The production of natural gas was about 8 b cm in 1985-86, 26.4 bcm in 1997-98, 27.4 bcm in 1998-99, 28.4 bcm in 1999-00, 29.4 bcm in 2000-01 and 30.4 bcm in 2001-02. The production of natural gas by private players from the discovered fields has increased over the last five years. This has been on account of additional development in the fields awarded to these players in the initial rounds of development in the early 1990s. Among the States, Gujarat accounts for the major share of onshore natural gas production (33%) followed by Assam/Nagaland (27%). The following Table presents the State-wise natural gas production figures for the last few years. India’s natural gas production reached a level of 31.4 BCM in 2002-03, of which, 82.78 per cent was from the National Oil Companies (ONGC and OIL) and the remaining 17.22 per cent from private players, including joint ventures. Today, India accounts for about 0.5 per cent of the world’s total natural gas reserves. The recent discovery of major gas deposit in Krishna-Godavari (KG) by Reliance and further positive indications from other licensees drilling in KG and other basins could change these figures. The discovery stands as the biggest gas find in India in three decades and was among the world’s largest gas discoveries in 2002. This is also the first ever discovery by an Indian private sector company. Reliance hopes to have the field in production by 2006-07, with daily production of up to 40 MMSCMD. Apart from Reliance discovery, there are other gas finds by ONGC, Cairn Energy, Niko Resources, GSPL-GAIL in the recent time. The new discoveries will definitely ensure more energy security for India, as the country will become self-sufficient in resources. This, in turn, will help the development of other sectors (power, fertilizer, cement, steel, etc.), which are currently deprived of gas use because of non-availability. Apart from the potential in conventional gas reserves, CBM and Gas Hydrates are expected to be an additional source of supply in the long term. CBM blocks nominated by DGH are estimated to contain 18 trillion cubic feet (TCF) of gas in place and are estimated to support a gas production rate of 20-40 MMSCMD. Commercial production in India is expected to commence by 2006-07. PIPED NATURAL GAS 51
  52. 52. Natural gas is piped through an online-supply system from the gas fields to the consumers through a network of pipes. For instance, the Hazira-Bijaipur-Jagdishpur (HBJ) pipeline of Gas Authority of India Ltd supplies gas to New Delhi. The backbone of the Piped Natural Gas (PNG) in New Delhi is the main feeder pipeline that forms a loop around the city. The pressure of the gas in this pipeline is at 19 bar. From the feeder pipeline is drawn main steel pipeline and the pressure in this pipelines is reduced to 4 bar through direct regulator stations (DRS). The last mile distribution up to the customer’s premises is done through medium density polyethylene (MDPE) network, which is laid at a depth of 1 meter and consists of pipeline with sizes ranging from 180 mm to 20 mm. From the MDPE pipeline is tapped the service pipeline through a fitting known as the polyethylene (PE) to galvanized iron (GI) adaptor. The galvanized iron pipeline is connected through contraptions such as pressure regulator, isolation valve, and a meter to the application device. The pressure regulator helps maintain the pressure in the pipeline at the point of application - reduces the pressure from 4 bar to 21 mbar for domestic purpose and upto 300 mbar or 2 bar for commercial purpose. City Gas Distribution Project is basically divided into two parts : 52
  53. 53. PNG : Directly supplying gas through pipeline to consumers such as domestic, commercial and industrial units : CNG To compress the gas to 250 bar and to fill in the CNG cylinders installed in the vehicles through CNG dispensers. A) Pipeline Natural Gas PNG is Safe & Clean • Being a gaseous fuel, very clean compared to any other fuel with more than 94%. • Combustible particles. • Burns with a flame always hence, no blackening of vessels. • Sulphur content less than 10 PPM. • Most preferred fuel in vehicles in Mumbai today. • Contribution for a cleaner society. PNG is versatile • Apart from cooking, other appliances like geyser, air conditioner, vehicles etc. can be used on Natural Gas. However, please do not attempt to alter/modify the existing installation yourself or through any unauthorized person. Please call 1917 for assistance. • PNG is the fuel of choice around the world. Compressed Natural Gas • Clean fuel • Very low levels of pollution • Cheap fuel • Far more economical than use of petrol Drivers of CNG 53
  54. 54. Economics: On an energy-equivalent basis, natural gas costs considerably lower than the LPG, Gasoline and Diesel. Natural gas is a clean-burning fuel that reduces vehicle maintenance. An added advantage is that unlike liquid fuels, gas can not be adulterated or siphoned-off from a vehicle which is a major concern area with Petrol an and Diesel. However, certain fiscal support or incentives may be required for inducing switchovers and conversions. Emissions: Exhaust emissions from CNG vehicles are much lower than those from petrol or diesel powered vehicles. For instance, CNG emissions of carbon monoxide are approximately 70% lower, non-methane organic gas emissions are 89% lower, and oxides of nitrogen emissions are 87% lower. In addition, CNG also emits significantly lower amounts of greenhouse gases and toxins than do petrol vehicles. Safety: Vehicles that run on clean burning natural gas are as safe as vehicles operating on traditional fuels such as petrol and diesel. Being lighter than air, CNG, unlike gasoline, dissipates into the atmosphere in the event of an accident. CNG fuel systems are “sealed,” which prevents any spills or evaporative losses. Also, natural gas is not toxic or corrosive and will not contaminate ground water Liquified Natural Gas (LNG) 54
  55. 55. Given the shortages in domestic gas and uncertainties related to international pipelines, LNG is expected to get a boost. However, the lack of a cross-country gas pipeline to enable transmission, the emphasis on coal as the preferred fuel for Ultra Mega Power Plants and the gradual emergence of CBM make it difficult for LNG to compete at present. However, in the long-term, with demand soaring even higher, LNG is likely to be one of the most significant areas of investment in the NG sector. The most attractive areas for investment will be those, where pipeline gas is not expected in the near future. 1. LPG MARKETING BY PUBLIC SECTOR OIL MARKETING COMPANIES (OMCs) Four Public Sector Oil Marketing Companies (OMCs) viz., Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, Hindustan Petroleum Corporation Limited and IBP Co. Limited are engaged in marketing of LPG in the country. With increased availability of LPG, the number of LPG customers enrolled by them has also been increasing. The number of LPG customers served by them, as on 1.4.2005, was about 845 lakh through their network of 9,001 LPG distributors. Consequent upon liquidation of LPG waiting list in urban areas and availability of new LPG connections across the counter, in existing markets throughout the country, OMCs had set the target for release of about 63 lakh new LPG connections during financial year 2004-05 with a thrust on smaller towns/rural areas which were hitherto virgin markets. OMCs have already commissioned 535 distributorships. During the year 2004-05, OMCs had released about 73 lakh new LPG connections and commissioned 675 LPG distributorships. 2. PARALLEL MARKETING OF LPG. 55
  56. 56. In order to increase the availability of LPG and to foster competition, the private sector was allowed to participate in the scheme of parallel marketing of LPG in April 1993- by decanalising imports of LPG. Under the scheme, a private party can undertake import of LPG after obtaining a rating certificate from one of the approved rating agencies given in the LPG (Regulation of Supply and Distribution) Order, 2000. Under PMS LPG is to be sold at market-determined prices by the private parties. LPG imports during 2004-05 have been about 265.3 TMT against about 216.3 TMT during the last year. Recently Government have authorized ONGC, GAIL & RIL to market their seasonally surplus LPG through parallel marketing system or directly. Likewise, Government have authorised RIL and MRPL to sell SKO directly at market price, after meeting PDS requirement projected by OMCs 56
  57. 57. Policy initiatives in oil and gas sector  In E&P, Indian oil and NG fields have been opened up to the private sector as well as to the foreign participation under production sharing contracts.  The refining sector has been opened to the joint sector (public–private partnerships as well as to the private sector for new refineries.  Foreign investment is to be permitted up to 100% in exploration.  For petroleum product marketing, 100% Foreign Direct Investment (FDI) is permitted.  The import of NG and LNG is under Open General License.  For gas fields developed in the private sector, promoters are free to market the gas at market related prices.  All petro-products taken out of the administered price mechanism from 1st April 2002.  All petroleum products, except MS, HSD, kerosene, ATF, and LPG have been decontrolled.  Recently, exports of ATF, HSD, and MS have been decanalised.  Sourcing and import of crude to joint and private sector refineries allowed under actual user-licensing policy.  In the petroleum product pipeline sector, pipelines will be developed through joint ventures, or otherwise 100% FDI permitted.  100% FDI allowed in NG/LNG Pipeline.  The Petroleum and Natural Gas Board Bill has already been passed in the Parliament, which proposes a Petroleum and Natural Gas Regulator to regulate the downstream activities. A Common Carrier Pipeline Policy allowing two or more companies to use a single pipeline for the transportation of products is also announced. At least, 25% of the product carrying capacities of the pipeline will have to be shared with other interested companies by the parent pipeline laying company  A Draft Gas Pipeline Policy is also on the anvil. 57
  58. 58. Policy for Development of Natural Gas Pipelines and City or Local Natural Gas Distribution Networks The objective of the policy is to promote investments from public as well as private sector in natural gas pipelines and city or local natural gas distribution networks to facilitate open access for all players to the pipeline network on a non-discriminatory basis, to promote competition among entities and to protect the end consumer. A Gas Advisory Board (GAB), will be set up to promote and develop the gas pipeline network in India. Supports and incentives in oil and gas sector 58
  59. 59.  There is a seven-year tax holiday after the commencement of commercial productionfor blocks in North-East India.  Specific equipment imported for oil and gas exploration or exploitation has been exempted from customs duty.  A new Petroleum Tax Code, based on similar codes in existence in more mature markets to provide a fair basis of taxation and which promotes private investment in the sector.  The model Production Sharing Contract for exploration provides that capital expenditures incurred in respect of exploration and drilling operations are fully tax-deductible.  Attractive terms are being offered to investors for the construction of liquefied NG import terminals.  Duty on petroleum products has been reduced to 7.5% from 10%.  No Customs & excise duty on LPG & Kerosene.  Present Crude oil customs duty has been reduced to 5%. 59
  60. 60. Growth and advantages The oil and gas industry has been instrumental in fuelling the rapid growth of the Indian economy. The petroleum and natural gas sector which includes transportation, refining and marketing of petroleum products and gas constitutes over 15 per cent of the GDP. Petroleum exports have also emerged as the single largest foreign exchange earner, accounting for 17.24 per cent of the total exports in 2007-08. Growth continued in 2008-09 with the export of petroleum products touching US$ 18.34 billion during April-September 2008. In November 2008, the Cabinet Committee on Economic Affairs awarded 44 oil and gas exploration blocks under the seventh round of auction of the New Exploration Licensing Policy (Nelp-VII). The overall number of blocks brought under exploration now exceeds 200. The allocation is likely to bring in investments worth US$ 1.5 billion Production • The production of natural gas went up to 32.27 billion cubic metres tonnes (BCM) in 2007-08, from 31.74 BCM in 2006-07. Consumption India's domestic demand for oil and gas is on the rise. As per the Ministry of Petroleum, demand for oil and gas is likely to increase from 176.40 million tonnes of oil equivalent (mmtoe) in 2007-08 to 233.58 mmtoe in 2011-12. • 60
  61. 61. Infrastructure OF GAS MARKET The Indian gas market currently has a limited transmission infrastructure consisting of small regional pipelines and the HBJ pipeline, which carries gas from the offshore Bombay High basin to the North Indian hinterland. Growth of the domestic gas market, in the coming years, would hinge on the development of the National Gas Grid (NGG) project, besides of course higher supplies. At present, Gail is expanding its transmission infrastructure through the implementation of the Dahej-Vijaipur and the Dahej-Uran pipeline projects, which would allow it to handle the increased supply of gas from the PLL and Shell LNG facilities. Further, the draft pipeline policy formulated by the GoI proposes to notify the organised development of the NGG project. Such a project, by connecting the emerging supply sources with the potential markets, would even out the regional demand-supply imbalances that currently exist. The NGG project, which involves an 8000km cross-country pipeline network, is likely to be implemented in phases over the next six-seven years, at an estimated outlay of Rs. 200 billion. Projects of this nature are highly capital intensive and are characterised by long gestation periods. Thus their commercial viability would be a function of the adequacy of tariffs offered by the regulator, and the extent of capacity that would be underwritten on a long-term basis by creditworthy consumers. 61
  62. 62. Opportunities in the Gas Sector In the last few years, the trend in natural gas regulation has been towards opening up the sector for greater investment, setting up an independent regulator to monitor post- production activities and enabling a transition from the administered control regime to a market driven mechanism. Significant opportunities that exist in the gas sector in India include: natural gas reserve. For example, Gujarat’s coal reserves could produce as much as 70 times of ONGC’s current free gas reserves. Growing energy demand of India and necessity to service that to ensure economic growth is not compromised, presents business opportunities in the complete value chain of oil and gas sector. Exploration for domestic production growth, development of discovered fields, transportation of crude oil, gas and products, refining to service the petroleum product domestic demand and exports, retailing infrastructure; prospective blocks to encourage all these sectors provide business and investment opportunities. 62
  63. 63. Challenges Facing the Indian Oil & Gas Industry This increasing demand for oil and gas as an energy source, poses the following challenges for India: Upstream  Upstream segment operating at almost full capacity  Drilling complex wells in highly hostile environments and at deeper, farther locations  Cost reduction required for economic viability of the E&P projects  Paucity of skilled manpower in the upstream segment Midstream  Requirement of strict adherence to stringent fuel quality norms and staying technologically updated to incorporate product mix flexibility  Spiralling growth in demand is unmatched by nominal increase in refining capacity  Sustaining the cost-competitiveness of Indian refineries  Augmentation in infrastructure (port, storage) and logistical (pipeline) offerings  Encouraging increased participation by the private sector including foreign Players Downstream  Gradual shift to non-APM gas pricing  Linking Indian gas market to international gas markets  Promotion of pipeline as the preferred infrastructure  Subsidy on petroleum products distorting the market – burden on oil companies due huge under-recoveries  Continued subsidy on SKO and LPG 63
  64. 64.  High incidences of duties and state taxes on transportation fuels  Falling financial viability of petroleum retail outlets due to unplanned expansion of retail outlet networks, marginal increase in volume growth, spiraling real estate prices and high prevalence of adulteration activities Key challenges being faced by the Oil & Gas sector in India at the present time are - rising demand by the fast growing economy, securing energy supply, technology upgradation and developing skill. 64
  65. 65. Priorities for the Gas Sector in India Upstream  Acquisition of equity oil an gas abroad (both producing properties and prospective exploration blocks).  Development of pipeline infrastructure for effective supply and promoting utilization of gas.  Consistent and investment-friendly regulatory framework to minimize policy and regulatory risks  Development of technology to exploit our reserved of gas hydrates Midstream & Downstream  Realising the potential of oil and gas conservation (20-25 per cent) in various end-use sectors by increasing efficiency along the entire value chain in the sector.  Providing a flexible taxation mechanism for the petroleum sector keeping in view the rising trend of international oil and gas prices so as to minimize the impact on consumers.  Effectively target the subsidies for kerosene and LPG to BPL (below poverty line) families.  Policies enhancing penetration of gas for meeting energy requirements on a pan-India basis  Extending tax holidays to local Gas Distribution Networks 65
  66. 66. 66