Investment Opportunity in Oil & Gas

1. Investment Opportunity
in Oil & Gas
Dated : 21st November, 2014

2. OIL & GAS
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Introduction
In 1997-98, the New Exploration Licensing Policy (NELP) was envisioned to deal with the
ever-growing gap between demand and supply of gas in India. As per a recent report, the oil
and gas industry in India is anticipated to be worth US$ 139,814.7 million by 2015. With
India’s economic growth closely linked to energy demand, the need for oil and gas is
projected to grow further, rendering the sector a fertile ground for investment.
To cater to the increasing demand, the Government of India has adopted several policies,
including allowing 100 per cent foreign direct investment (FDI) in many segments of the
sector, such as natural gas, petroleum products, and refineries, among others. The
government’s participation has made the oil and gas sector in the country a better target of
investment. Today, it attracts both domestic and foreign investment, as attested by the
presence of Reliance Industries Ltd (RIL) and Cairn India.
Sector Overview
India is the sixth largest consumer of oil in the world and the ninth largest crude oil importer.
India’s oil and gas sector contributes over 15% to the Gross Domestic Product (GDP).
According to Ministry of Petroleum and Natural Gas, India has a total reserve of 1201 million
metric tonnes of crude oil and1437 billion cubic metres of natural gas as on 01 April 2010.
The total number of exploratory and development wells and metreage drilled in onshore and
offshore areas during 2009-2010 timeframe was 428 and 1019 thousand metres respectively.
Crude oil production during 2009-2010 timeframe was 33.69 million metric tonnes and gross
production of Natural Gas in the country was 47.51 billion cubic metres during 2009-2010.
The production of petroleum products during 2009-2010 was 151.898 million metric tonnes
(Ministry of Petroleum & Natural Gas).
However, due to huge demand-supply gap in oil and gas in India, it imports more than 60%
of its crude oil requirement.

3. Further, oil consumption in India is projected to enhance by 4-5% per annum to 2015,
indicating a demand of 4.01 million b/d by 2015.
As per the Business Monitor International (BMI) forecast, India will account for 12.4% of
Asia Pacific regional oil demand by 2015, while satisfying 11.2% of the supply.
Due to increasing refining capacities, exports of petroleum products are high in terms of the
foreign currency amassed and accounts for 17% of the total exports. India’s exports of
refined products stood at 0.95 million barrels per day as of June 2011 and US$ 4.6 billion
worth of petroleum products were exported during July 2011. Vastness of this sector is
corroborated by the fact that there were a total of 130,000 people employed in the petroleum
industry in 2009-2010.
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Market size
During FY14, the total consumption of petroleum products in India was 158.2 million tonnes
(MT). The share of fuels in the country's exports surged from 5.59 per cent in 2003-04 to
20.05 per cent during 2013-14. Total exports of fuel products amounted to US$ 62.69 billion
in value terms during FY14.
India is the fourth-largest consumer of oil and petroleum products in the world. Its energy
demand is projected to touch 1,464 million tonnes of oil equivalent (Mtoe) by 2035 from 559
Mtoe in 2011. Furthermore, the country’s share in global primary energy consumption is
anticipated to double by 2035.
Oil consumption is estimated to reach 4 million barrels per day (MMbpd) by FY16,
expanding at a compound annual growth rate (CAGR) of 3.2 per cent during FY08-16. Also,
backed by new oil fields, domestic oil output is anticipated to grow to 1 MMbpd by FY16.
Investments
According to data released by the Department of Industrial Policy and Promotion (DIPP), the
petroleum and natural gas sector attracted foreign direct investment (FDI) worth Rs
31,501.55 crore (US$ 5.13 billion) between April 2000 and July 2014.
The following are some of the major investments and developments in the oil and gas sector.

4. Reliance Industries Ltd (RIL) plans to invest US$ 2 billion in its three shale assets in the US.
RIL has already invested US $7.3 billion since 2010 towards development of shale gas and
oil in the US market. The company also, along with its partner British Petroleum (BP), plans
to invest about Rs 800 crore (US$ 130.35 million) for exploratory drilling in an offshore
block in the Bay of Bengal. RIL is the operator of the offshore block CY-DWN-2001/2, also
known as CY-III-D5, with 70 per cent equity, with BP holding the remaining stake. BP's
contribution to the investment would be Rs 240 crore (US$ 39.11 million).
ONGC Videsh Ltd (OVL) has signed Production Sharing Contracts (PSCs) for two blocks in
Myanmar. The contracts were signed between OVL, Myanmar Oil & Gas Enterprises Ltd
(MOGE), National Oil Company of Myanmar, and Machine & Solutions Co Ltd (M&S).
ONGC will also invest over Rs 5,700 crore (US$ 928.73 million) to push up production by
6.9 MT of crude oil and 5 billion cubic metres (bcm) of gas by 2030 from its Mumbai High
(North) oil and gas field.
Steel-to-BPO conglomerate Essar is in talks with Germany's BASF, the biggest chemicals
company in the world, for a petrochemicals joint venture (JV), as per sources.
Larsen & Toubro has won an order worth Kuwaiti Dinar 239.7 million from the Kuwait Oil
Company (KOC). L&T arm - L&T Hydrocarbon will carry out the order that entails
engineer-procure-construct work for a gathering centre for KOC, a subsidiary of Kuwait
Petroleum Corporation.
Indian Oil Corporation Ltd (IOCL) through its wholly owned affiliate IndOilMontney Ltd,
Canada, has signed transaction agreements with Progress Energy Canada Ltd and
PETRONAS Carigali Canada BV for acquiring a 10 per cent interest in Progress Energy
Canada’s LNG-destined natural gas reserves in northeast British Columbia and the proposed
Pacific NorthWest LNG Ltd (PNW LNG) export facility in Canada’s West Coast.
GAIL (India) Ltd has entered into an agreement with Japan-based Chubu Electric Power Co
for collaboration in the area of joint LNG procurement. Additionally, the two companies will
look to work together on shipping optimisation.
India and Azerbaijan have proposed to form a joint working group in the field of
hydrocarbon. The two countries have agreed to explore opportunities for partnership in
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5. renewable energy sector, energy efficiency and numerous upcoming projects in petro-chemicals,
oil and gas, pipelines, etc., in India, Azerbaijan or other countries, in collaboration
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or JV.
Government Initiatives
Mr Kazuyoshi Akaba, State Minister of Economy, Trade and Industry, Japan, met Mr
DharmendraPradhan, Minister of State (Independent Charge) for Petroleum and Natural Gas,
India. Mr Pradhan suggested taking the strong Indo-Japan bond to a higher level stating that
Japan has inspired India in manufacturing, technology and philosophy of governance.
The expert appraisal committee of Ministry of Environment and Forests, Government of
India, has given the go ahead to IOCL’s Rs 4,320 crore (US$ 703.81 million) liquefied
natural gas (LNG) terminal project at Ennore, near Chennai. The proposed facility’s capacity
will be five million tonnes per annum (MTPA). The terminal is expandable to 10-15 MTPA.
This is part of the corporation’s Rs 56,000 crore (US$ 9.12 billion) investment plan for the
12th Five-Year Plan (2012-17).
Road Ahead
By 2015-16, India’s demand for gas is set to touch 124 MTPA against a domestic supply of
33 MTPA and higher imports of 47.2 MTPA, leaving a shortage of 44 MTPA, as per
projections by the Petroleum and Natural Gas Ministry of India. Moreover, Business Monitor
International (BMI) predicts that India will account for 12.4 per cent of Asia-Pacific regional
oil demand by 2015, while satisfying 11.2 per cent of the supply. This is not to say that the
gap cannot be met.
ONGC plans to explore 30 additional shale gas wells in the country at an investment of about
Rs 600 crore (US$ 97.7 million) for the project. The use of shale gas can be the first step
towards ‘economic freedom’, as per Mr M VeerappaMoily, India’s former Oil Minister. He
felt that the country could follow a similar path to the US which was initially a net importer
of energy before becoming a net exporter of energy, driven by shale gas and oil.

6. 5
Investment Policy
Government has taken many initiatives to boost investment in this sector. 100% FDI is
allowed for Indian companies in refineries. Also 100% FDI is allowed for petroleum products
and pipeline sector, natural gas and for infrastructure related to petroleum products
marketing.
Indian Government has abolished the administrated pricing policy.
Various measures are also being taken to substantially accelerate exploratory activities for
enhancing domestic oil and gas production. These are Improving the recovery factor from
existing major fields by implementing Enhanced Oil Recovery (EOR)/Improved Oil
Recovery (IOR) schemes-in particular, exploring new areas, especially in deep waters and
difficult frontier areas, as also the deeper layers of already producing fields; and developing
newly discovered fields speedily and stepping up the use of new technologies for seismic
surveys, work over, stimulation operations, drilling of wells etc. in producing areas.
The petroleum and natural gas sector attracted US $ 3,152 million of FDI inflows from April
2000 to March 2011.
INVESTMENT OPPORTUNITIES
SHALE:
 India has technically recoverable shale gas resources of nearly 96 Trillion cubic feet.
UNDERGROUND COAL GASIFICATION:
 Coal gasification has been identified as one of the end uses under the government’s
captive mining policy.
OPPORTUNITIES FOR E&P SERVICES AND EQUIPMENT COMPANIES:
 48% of the country’s sedimentary area is yet to be explored. The city gas and
distribution sector offers opportunities for both incumbents and new companies.The
Petroleum and Natural Gas Regulatory Board allows the following incentives to
authorized entities: the infrastructure exclusivity is available to the authorized entity

7. for a period of 25 years. Exclusivity for the activity of marketing of natural gas is
allowed to the authorized entity for a period of 5 years. For incumbents, the marketing
exclusivity extends to a period of 3 years.
OPPORTUNITIES FOR PIPELINE TRANSPORTATIONS:
 Compared to advanced economies like the US, where more than 60% of petroleum
product movement happens by pipeline, in India, currently, only 35% of product
movement happens over pipelines.
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THE REFINING SECTOR:
 India is already a refining hub with 21 refineries and expansions planned for tapping
foreign investment in export-oriented infrastructure, including product pipelines and
export terminals.
OPPORTUNITIES FOR FOREIGN INVESTMENTS AND TECHNOLOGY PARTNERSHIPS IN THE
UPSTREAM SECTOR:
 Securing supplies is expected to remain on top of India’s energy agenda for the
forseeable future. While exploration activity has taken place on land and in shallow
basins across the country, it is believed by many that deep water and ultra-deep water
oil and gas resources hold the key to substantially increasing domestic production.
This creates a plethora of opportunities for strategic investors having relevant
technical expertise and financial muscle.
CONCLUSION
Policies such as the New Exploration Licensing Policy and the Coal Bed Methane Policy
have been put in place to encourage investments across the industry. Oil and Natural Gas
Corporation, Reliance Industries Limited and Gujarat State Petroleum have reportedly found
natural gas in deep waters. The government approved a new pricing scheme to further align
domestic prices with international market prices and to raise investment for the sector. The
government is preparing to issue the 10th round of bidding for the National Exploration

8. Licensing Policy. 60% of the prognosticated reserves of 28,000 MMT are yet to be
harnessed. All this shows the improvement and opportunity in Oil & Gas sector which
requires immediate attention and investment.1
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Contact Persons:
Mrs Sushila Ram Varma
Chief Legal Consultant
Ph: +91 98111 91142, +91 99492 78548
Email - sushilaram@theindianlawyer.in, contact@theindianlawyer.in,
sushilaram@gmail.com
Mogli S.V
Business Consultant
Ph: +91 78933 37474
Email – msv@theindianlawyer.in
1Sources : http://www.ibef.org/industry/indian-oil-and-gas-industry-analysis-presentation
http://petroleum.nic.in/
http://oidb.gov.in/
http://pcra.org/
http://ppac.org.in/
http://dipp.nic.in/English/default.aspx
http://www.investindia.com
http://www.makeinindia.com