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Oil And Gas 2006
- 1. Indian Oil and Gas Industry October 2006
- 2. Contents Market Overview Government regulations & policy Business opportunities and Advantage India
- 7. Government’s exploratory measures bearing fruits.. Major Upstream Players Major Discoveries Source: DGH GSPC RIL OIL HOEC ONGC Cairn British Gas RIL Oil in KG Basin shallow waters 2005 GSPC Gas in KG Basin shallow waters 2005 RIL Gas in Mahanadi basin shallow waters 2004 Cairn Oil in Barmer-Sanchor basin (Rajasthan) 2003 RIL Gas KG Basin Deep waters (World’s biggest discovery for the year) 2002 Cairn Oil & Gas Krishna Godavari Deep waters 2001 Cairn Gas – Gulf of Cambay 2000 Operator Discovery Year
- 11. Presence of both State and Private players in the Indian oil market… Marketing Infrastructure – Oil Marketing Companies Source: MoP&NG Marketing Infrastructure Others Controlled Pricing Market Determined Pricing Administered Pricing 6,607 9,270 29,838 381 89 3,468 IBP 1,014 2,123 7,318 BPCL 1,648 2,202 7,313 HPCL 3,564 4,856 11,739 IOC SKO Dealers LPG Distributors Retail Outlets Company 516 Essar 12 Shell 1,218 RIL 58 NRL 1 ONGC Retail Outlets Company
- 13. Contents Market Overview Government regulations & policy Business opportunities and Advantage India
- 14. Government regulations have evolved over time in tune with domestic compulsions and international hydrocarbon scenario…. 1947-1962 1962-1970 1970-1990 1990-2000 Post 2000 Upstream Downstream Setting up of Public Sector Upstream Oil Companies – ONGC (1956) and OIL (1959) Free Investment Multinationals like Shell, Caltex, and Esso conducting operations Dismantling of APM (2002) Passing of Petroleum and Natural Gas Regulatory Board Act, 2006 Nationalization of foreign Companies (1970) Strict Government controls Increasing Government participation Formation of national oil refining companies Coexistence of Public and Private Sectors Liberalised FDI regime Delicensing of Refinery sector (MRPL – 1996) Open marketing of many products Selective private participation Government, the only player Offer of exploration blocks to international oil companies (1979 onwards) Setting up of regulator – DGH (1993) Introduction of NELP Implementation and award of NELP blocks CBM policy
- 16. Contents Market Overview Government regulations & policy Business opportunities and Advantage India
- 23. The India Brand Equity Foundation is a public-private partnership between the Ministry of Commerce & Industry, Government of India and the Confederation of Indian Industry. The Foundation’s primary objective is to build positive economic perceptions of India globally India Brand Equity Foundation c/o Confederation of Indian Industry 249-F Sector 18, Udyog Vihar Phase IV Gurgaon 122015, Haryana, INDIA Tel +91 124 401 4087, 4060 - 67 Fax +91 124 401 3873 Email ajay.khanna@ciionline.org Web www.ibef.org
Editor's Notes
- India is the fifth largest energy consumer in the world at 387.3 Million Metric Tons of Oil Equivalent (MMTOE) behind the USA (2336 MMTOE), China (1554 MMTOE), Russia (679.6 MMTOE) and Japan (524.6 MMTOE) Oil and Gas accounted for 36% and 9% (total 45%) of India’s energy consumption. Coal is the dominant fuel contributing 51% to Indian energy pool. Energy consumption grew at an average Compounded Annual Growth Rate (CAGR) of 3.62% during the period 1996-2005. The Energy-GDP elasticity was about 0.58 considering the average GDP growth rate of 6.2 % In spite of increasing energy consumption, the Energy-GDP elasticity is decreasing over the years considering the fact that India’s GDP is lately being driven by the Services sector, which is less dependent on fuels as coal and oil as compared to industry and agriculture However the industry is still a significant player in the national scene contributing to nearly 64% of the Govt. revenues India’s petroleum import bill for 2005-06 was about USD 44 bn, almost 29% of India’s current FOREX reserves of USD 151 bn
- Though coal has been India’s primary source of energy and would continue to remain so in the next decade, there is a large domain of energy consumption (Transport etc) where oil/gas cannot be replaced by any other source in the near future While the demand for oil has grown steadily, indigenous production has remained stagnant at about 33 million metric tons per annum As a result, India’s oil dependence has increased from 30% in 1984-85 to more than 70% in 2005-06 Similar is the case with Natural gas, once considered a useless commodity that needed to be flared Considering the quantum of oil and gas demand in the years to come, import dependence cannot be done away with. However, it is necessary to increase the indigenous production by resorting to intensive E&P, Coal Bed Methane (CBM), Coal gasification/coal to oil technologies, and enhanced oil recovery.
- Only 19% of India’s sedimentary area has been extensively explored About 44% of India’s sedimentary basin unexplored/ poorly explored Even in the blocks where exploration has been initiated the drilling intensity is very poor Less than 30% of the total prognosticated reserves has been established One of the main reasons for this slow progress is lack of availability of comprehensive data on the geological build up of the sedimentary basins Recently the Government has empowered the Directorate General of Hydrocarbons (DGH) to get data from all private and public sector companies free of cost These data would be made available by DGH during the various bid rounds
- Discoveries in India’s offshore basins in the recent past has attracted the attention of global oil majors. This can be seen from the enthusiastic response of the global oil majors to the NELP VI bid. A total of 35 foreign companies including British Petroleum, British Gas, Total and ENI participated. Arrival of global oil majors armed with sophisticated exploration and production technologies has the potential to change the Indian hydrocarbon scene.
- ONGC made 10 new oil and gas findings in 2005-06 resulting in reserves accretion of 51.53 MMTOE Gujarat State Petroleum Corporation (GSPC) had in July 2006 struck oil and gas near Bopal in the Sanand-Bopal block on the outskirts of Ahmedabad. Similar discoveries were earlier made by Cairn (April 2006) and BG in May 2006. Recently, RIL has announced discovery of huge oil and gas reserves off the Jakhau coast in Western Kutch (Saurashtra). Numerous hydrocarbon discoveries in the recent months has definitely put the Indian sedimentary basin on the global E & P radar.
- Capacity to refine crude has more than doubled over the last 8 years. The capacity has increased from 62.2 MMTPA in 1998-99 to 138.5 in June 2006. The capacity to process crude has exceeded the demand for Petroleum products and as a result the country has turned into a net petroleum product exporter from being a net importer in petroleum products.
- Petroleum products now rank among the top 5 product exports from the country. Exports of petroleum products was made to several countries including the USA, Singapore, Iran, Brazil, Malaysia, Indonesia, Mexico and Japan. However, the mix of petroleum products consumed does not match with the mix of petroleum products produced through refining of crude. In most products, refineries are able to exceed requirements. However, consumption of LPG exceeds its domestic production and is met through imports.
- There would be a gradual shift from Rail transportation to pipeline transportation because of the following reasons: Economics – Pipeline freight is about 75% of rail freight Low operating cost Highly environment friendly, no pollution No empty haulage High reliability – high immunity from external factors Not prone to movement congestion Safety of the highest order No possibility of adulteration Very low handling losses
- Till March 2002, the Government controlled the prices of petroleum products through the Administrative Pricing Mechanism (APM). The oil companies were compensated for actual cost of inputs, refining cost, marketing cost plus a reasonable rate of return on investment. Prices were fixed on the basis of socio-economic factors. Prices for products consumed by weaker sections of the society such as kerosene and LPG were subsidized, and other products which were then considered to be consumed by affluent sections of the society such as petrol (for cars) and Aviation Turbine Fuel (ATF) cross-subsidized kerosene and LPG. APM was dismantled with effect from 1 st April 2002. The pricing of all products except LPG and Kerosene would be market determined from April 1, 2002. LPG and Kerosene would continue to be subsidized through budgetary allocations. However, these subsidies were to be phased off within 3-5 years Post April 1, 2002 the international oil prices remained quite high due to the Iraq war, OPEC decisions to cut oil production quotas, low stocks in the USA, increased winter demand and disruptions in global supplies from Nigeria and Venezuela. Considering the sensitive nature of these domestic fuels of mass consumption and with a view to facilitate smooth transition to the post APM period, Government decided that the increased crude prices would not be passed on to the consumers and the resultant under recoveries of the Oil Marketing companies would be absorbed/ shared between the Government and the oil companies. Government has also resorted to compensating the public sector oil companies by way of bonds Thus, the global crude supply situation led the Indian Government to resort to controlled pricing. Government’s future policies in this regard would continue to remain dependent on the prevailing international oil scenario.
- Unlike petroleum products, the marketing of gas requires development of anchor load consumers and pipeline infrastructures and therefore, gas projects are not only capital intensive but also require "lumpy" investments upfront. The Indian gas market is at early stages of development with the Hazira-Vijaipur-Jagadishpur (HVJ) pipeline and the Dahej-Vijapur pipeline (DVPL) catering the large volume of gas transportation to different geographical markets. There are regional pipeline networks but with projected increase in gas supplies, an extensive gas pipeline infrastructure would need to be developed. The need of the hour is to create a reliable country-wide infrastructure (National Gas Grid) to ensure uninterrupted gas supplies to the market. GAIL has plans to develop such a national gas grid. Transnational gas pipelines like the Iran-Pakistan-India pipeline, Myanmar-India pipeline and Turkmenistan-Afghanistan-Pakistan-India pipeline have also been planned to bring gas from the gas rich countries to the gas hungry Indian market. These pipelines would be connected to the National gas grid.
- The regulatory environment has gone through a full circle from extensive private and foreign participation in the early 1950s to the nationalization of the 1970s and back to an encouraging FDI regime in 2006. The passing of the Petroleum and Natural Gas Regulatory Board Act, 2006 providing for a downstream regulator has met a long standing industry demand. The Petroleum and Natural Gas Regulatory Board (PNGRB) that is proposed to be constituted is expected to oversee and regulate all downstream activities including refining, processing, storage, transportation, distribution, marketing and sale of petroleum products, protect the interests of consumers, ensure uninterrupted and adequate supply of petroleum products and promote competitive markets. However, there are many concerns and questions centered around authorization, open access, fixing of transportation rates, exclusivity and conflict over jurisdiction with other regulatory authorities. These would only be resolved once the board is formed and lays down guidelines for each area. The Government is in the process of finalizing a pipeline policy that would provide for equitable distribution of natural gas amongst different regions by increasing gas supply , promote competition among entities as well as protect consumer interest.
- The gas hydrates occur below the seabed in deep oceans as well as in the permafrost regions of the world. The rough estimate for gas hydrates reserves in India is about 1900 Trillion Cubic Metre (TCM). In Indian offshore, the probability of getting gas hydrates is higher in Mahanadi, Krishna-Godavari basin in east coast, Kerala-Konkan basin in west coast and in Andaman sea. Government of India initiated the National Gas Hydrate Programme in 1997. Underground coal gasification (UCG) is a potential economic means for extracting energy from deep seated and/or isolated coal deposits, which may not be amenable to conventional physical extraction economically. UCG is a process by which coal is converted, in situ, into combustible gas that can be used as a fuel or chemical feedstock. The conversion of coal into oil by direct hydrogenation route is not new to the world. R&D work in this area has been initiated since early fifties but it is only in the seventies the interest has grown considerably due to oil crisis. Since India has coal reserves sufficient to last for another 200 years or so, conversion of coal to oil is one of the solutions to the rising crude oil imports. Biofuels – ethanol and biodiesel- are gaining worldwide acceptance as a solution to environmental problems, energy security, reducing imports, rural employment and improving agricultural economy. City Gas Distribution - Through its April 5, 2002 order, the Supreme Court issued a directive to introduce CNG in 11 Indian cities in order to control the pollution levels in these cities. These include Agra, Lucknow, Jharia, Kanpur, Varanasi, Faridabad, Patna, Jodhpur and Pune, apart from Delhi and Mumbai. This gave a boost to the CGD activities in India.