“ India’s unmet energy demand: Business model to increase Oil supply by 10%” (done with Himanshu :) )

1. Tomorrow’s Consulting Guru Challenge “ India’s unmet energy demand: Increase Oil supply by 10%” 1

2. 2 Agenda

3. 3 Methodology

5. By 2030, India & China would need around 28% of world energy consumption

7. Enhanced extraction requires more energy input than the output oil contains

8. Extraction from oil shale and tar sands is slow, expensive, heavily polluting and resource- (e.g. water) and time-consuming4

9. Energy Scenario: Oil & Gas Consumption of Gas increasing at a higher rate Total Energy Consumption = 469.5 Mtoe Oil Consumption = 148.5 Mtoe Gas Consumption = 46.7 Mtoe Mtoe- Million Tonne Oil Equivalent 195.2 Mtoe Source: BP Statistical Review of Energy 2010 5

10. Problem “ India’s unmet energy demand: Business model to increase Oil supply by 10%” “Assume you have been hired by the Government of India to provide a series of recommendations on developing a business model to increase India’s oil production potential by 10 %” 6

12. Alliance

13. Local barrier

14. Contract terms & conditions

15. Shale Gas/ Oil

16. Coal Bed Methane

17. Coal Gasification

18. Enhanced Oil Recovery

19. Gas Hydrate

20. Marginal Oil Fields

21. Total maintenance reliability

22. Lean process execution

23. Superior contractor management

24. Recovery from flare & Coker in downstream7

26. CBM resources to be estimated at 70-100 TCF

28. Estimated 66,900 TCF of gas hydrate reserves in the country

29. NGHP (National Gas Hydrate Program) for achieving commercial production

30. Discoveries in KG-Basin, Andaman Islands, Mahanadi Basin

31. Still in the R&D stage8

33. The shale rock found in India is similar to those in the U.S. The cost of producing the gas may be different because the rocks are found deeper in the ground in India than in the U.S.

34. India’s largest gas field of Reliance Industries in the KG basin —estimated to hold some 10 tcf of gas.

35. The resource estimation of all potential shale gas areas has not been carried out except the preliminary one for Damodar and Cambay Basin.

37. Advances in hydraulic fracturing

38. Rapid increases in natural gas prices in the last several years as a result of significant supply and demand pressuresSource 9

40. $3 - $4 million to drill a horizontal well in US

41. Cost of producing estimated at $6.00 per MBTU

42. Indian cost would be 25-30 per cent more than the US It would be in the region of $7-8 per MBTU

43. So, unless the price of gas reaches $8-9 per MBTU, it would be unviable to trade shale gas

44. Non Core Sector gas price in India now at $4.75 per MBTU

46. APM price be hiked to encourage exploration

47. Tax & other incentives need to be given

48. The experience with the case of coal bed methane is not inspiring — India has reserves of some 480 BCM , production only .5 BCMhttp://www.financialexpress.com/news/shale-gas-cant-do-without-us/711108/0 10

50. Lack of Infra & Technology

51. Inaccessibility to the area of remoteness

52. Market for gas

54. Dragon Wells , Multilaterals

55. Horizontal wells

56. It Reduces profile length

58. Peak Gas Rate – 13.5 MMm3/d

59. Total Oil Production by 2012 950 + 160* = 1110 (000b/d)* Source : J C Chaturvedi - ONGC

60. Challenges & Actions in Award & Execution of Projects Licensing & Tendering Challenges Action to be taken Tendering Process Contract Terms & Conditions Award to the lowest bidder Lack of Alliances Local Barriers 12

62. Lean Process Execution

63. Superior contractor management

64. World class well management system – Extracts more than 15% of the oil in comparison to the industry average Good Well management can have a big impact Additional Volume delivered by well & reservoir management 17 GAP =16 1 4th Quartile 1st Quartile $10 $2 Cost per barrel of oil equivalent Source: Mckinsey Quarterly

66. Unconventional Resources – CBM (Coal Bed Methane), Gas Hydrates, UGC (Underground Coal Gasification), Shale Gas etc.

67. E&P based services

68. Enhanced Oil Recovery & Improved Oil Recovery

69. Conducive Policy Environment

70. Deepwater, Ultra deepwater exploration technological barriers

71. Transportation and logistics infrastructure to enable timely commercialization of E&P potential

72. Regulatory & Policy Risk

73. Capital Risk

74. Market RiskKey Issues/Risks Technological Risk Infrastructural Risk Regulatory Risk Capital Risk Market Risk 14

75. Finally - Meeting Supply – 10% Actions CBM Shale Gas/Oil UGC Gas Hydrate Flare recovery system – Saves 2-3% fuel Coke to Natural Gas Reducing T&D losses Decreasing Demand Without Reducing Growth Upstream Downstream 469.5 Mtoe (3.5 million bpsd) 10% increase 46.7 Mtoe 214.7 Mtoe 148.5 Mtoe Energy Consumption Increased Oil + Gas Consumption Oil + Gas Consumption 15

77. Explore possibilities for trade in both liquefied and piped natural gas.

79. Location of Refineries supplying Oil

80. Cluster of refineries to be supplied oil16

82. Adopting OALP (Open Acreage Licensing Policy) instead of NELP

84. Flare Recovery system in the downstream of CDU: A recovery system to be placed in the downstream of CDU, to recover the gas & oil that are passed for flaring. On an average 8% of the fuel gets wasted in flaring .

86. Strategic Storage & Diversify ImportsT&D loss in China 6%, in US it is 7% 17

87. 18 Thank you Annexure

88. Annexure- Refining Capacity 19 HMEL Bhatinda (9.0) Existing Capacity 178 MMT Planned Capacity 78 MMT IOC Panipat (12.0, 3.0) IOC Digboi (0.7) IOC Bongaigaon (2.4) IOC Mathura (8.0) IOC Barauni (6.0) IOC Numaligarh (3.0) IOC Guwahati (1.0) BORL Bina (6.0) IOC Haldia (6.0), (1.5) IOC Koyali (13.7) RPL (SEZ) EOL Jamnagar (33.0, 29.0, 10.5+24.5) East 19.1, 16.5 IOC Paradip (15.0) HPCL Mumbai (5.5, 2.4) North & West 123.7, 44.9 Visakh (7.5, 7.5) BPCL Mumbai (12) ONGC Tatipaka (0.08, 0.08) MRPL Mangalore (9.7, 5.3) CPCL Chennai (9.5, 1.7) BPCL Cochin (7.5, 2.0) CPCL Narimanam (1.0) South 35.28, 16.58

90. NELP 8 saw only 36 blocks bid for from the offered 70.

91. Number of bids are also decreasing from the peak of 180’s

92. NELP 9 is also not expected to generate interest as the blocks offered are small in size & are discarded by earlier bidders

93. Exploration efforts have increased in the past few years. Players are now focusing on Gas, Shale Gas in India.

94. Indian oil production got boost in 2010 due to starting of production from Cairn Oil fields

95. Production is expected to peak in 2012 at 950,000b/d

96. Big Oil companies were missing from NELP

97. In order to attract them GOI is coming with Open Acreage Licensing Policy (OALP), which will enable companies to bid round the yearIndian Sedimentary basin: level of Exploration Need to look for other unconventional sources of oil & gas - CBM, Shale Gas, Gas Hydrates 20

99. Natural gas accounts for 9% of the India’s energy mix. Projected to reach at 15-16% by next decade

100. No fixed pricing mechanism today

101. Huge uncertainty in trans national pipelines: Iran, Myanmar, Bangladesh, Oman & TurkmenistanEnergy resources diversification and overall energy security  Increase in Natural Gas consumption. At present 8%. Investment in building LNG( Liquefied natural gas) terminals. LNG demand projected to double by 2015. 21