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Oil And Gas 2006
- 1. Indian Oil andGas Industry October 2006
- 2. Contents Market OverviewGovernment regulations & policy Business opportunities and Advantage India
- 3. Indian Oil andGas Industry - Prime mover of the Indian economy Oil and Gas Industry Size is estimated at USD 110 bn (about 15% of Indian GDP) Contributes to about 64% of gross revenues of Government (both Central and State together) through Taxes and Duties Total Contribution to Government exchequer in 2004-05 = USD 27 bn Contributes to about 45% of India’s primary energy consumption Constitutes 30.87% of India’s imports in 2005-06 Accounts for 11.21% of India’s exports in 2005-06 India is the Sixth largest crude consumer in the world India is the Ninth largest crude importer in the world India’s has the sixth largest refining capacity - 2.56 million barrels per day representing 2.99% of world capacity India is the Fifth largest energy consumer in the world Primary Energy Consumption (2005) – 387.3 MMTOE Oil and gas accounts for 44% of India’s primary energy consumption Compounded Annual Growth rate of Energy Consumption (1996-2005) – 3.62% Energy-GDP Elasticity = 0.58 Source: Integrated Energy Policy; BP Statistical Review 2006, Ministry of Commerce, MoP&NG, Stg Comm Report, FICCI Report, ABN AMRO , IMaCS Analysis India’s GDP would fall by 1.5% for every USD 10 increase in the price of oil per barrel
- 4. Supply has failedto keep pace with demand Source: DGH Presentation Yawning Demand-Supply Gap : Need to Intensify exploration efforts to convert the remaining prognosticated hydrocarbon reserves to established reserves Increase recovery factor of producing fields Tie up crude oil and gas imports – setting up of LNG Regasification terminals/ laying of transnational pipelines Scout for equity oil and gas from abroad Explore new technologies like coal gasification, coal to oil conversion, gas hydrates exploration, coal bed methane extraction etc.
- 5. Intensive Exploration &Production a must …. Sedimentary Area – 3.14 million sq km Only 19% of the area extensively explored Domestic Hydrocarbon Scenario (as on 1.04.2006): Source: DGH / MoP&NG 88.22 MMSCMD Current Gas Production 32.19 MMT Current Oil Production 1.85 BMT Balance Recoverable Reserves (O + OEG) 1.42 BMT O + OEG already produced 8.2 BMT Established Geological reserves (O + OEG) 28-32 BMT Prognosticated Resources (Oil + Oil Equivalent Gas)
- 6. Exploratory measures initiatedby Government…. New Exploration Licensing Policy Coal Bed Methane Policy 110 Production Sharing contracts in 5 New Exploration Licensing Policy (NELP) rounds 30 discoveries with hydrocarbon in-place reserves of over 600 MMT in last 3-4 years Investment commitment of about USD 5 bn in exploration phases under NELP Perception of prospectivity of Indian sedimentary basins reflected in NELP VI response Exploratory Measures 16 Blocks already awarded with production potential of 25 MMSCMD under Coal Bed Methane (CBM) I & II rounds Significant commercial finds in blocks held by RIL and ONGC First commercial production of CBM by 2007-08 54 Bids received for 10 CBM blocks offered in the third round Award of blocks in near future
- 7. Government’s exploratory measuresbearing 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
- 8. Oil Refining Capacity… from shortage to surplus Refinery Capacity in MMT Refinery Throughput 127 MMT (2005) Imported Crude – 78% Domestic Crude – 22% Source: MoP&NG, BP Statistical Review 2006 Refining Capacity more than doubled between 1998 and 2006 210.0 153.7 138.5 18 12.0 12.0 Essar 60.0 33.0 33.0 1 RIL 9.8 9.8 9.8 2 ONGC/ MRPL 25.2 16.2 13.0 2 HPC 30.5 22.5 22.5 3 BPC Group 72.2 60.2 60.2 10 IOC Group 2011-12 2006-07 June 06 No Refineries
- 9. Petroleum product exports- a major Foreign Exchange earner Consumption 2005-06 (MMT) Exports Sector with vast export potential Exports increased by about 65% from 2004-05 to 2005-06 Source: MoP&NG, Ministry of Commerce & Industry 100% 111.9 16.5% 18.5 Bitumen, ATF, Lubes, Solvents 10.9% 12.2 Naphtha 11.4% 12.7 FO/LSHS 8.4% 9.4 Kerosene 9.2% 10.3 LPG 7.7% 8.6 Petrol 35.9% 40.2 Diesel % MMT Product
- 10. Inland Petroleum transportation– gradual shift from railways to pipelines Source: MoP&NG, Infraline, IMaCS analysis Mode of Transportation Share of pipeline transportation in India much lower as compared to USA, inspite of its advantages Total POL pipeline length currently under operation in India – 12,204 kms POL pipelines under implementation – 5,561 kms (Investment of USD 1.5 bn)
- 11. Presence of bothState 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
- 12. Massive Investments plannedin gas pipelines… Total Investment required in the proposed projects is about USD 15-20 bn Transnational Gas pipelines planned Iran-Pakistan-India pipeline Myanmar-India Pipeline Turkmenistan-Afghanistan-Pakistan-India pipeline Source: MoP&NG, Infraline, IMaCS Research
- 13. Contents Market OverviewGovernment regulations & policy Business opportunities and Advantage India
- 14. Government regulations haveevolved 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
- 15. Policy initiatives toattract Foreign Direct Investment… Upto 100% FDI through automatic route Through incorporated/ unincorporated Joint Ventures or directly Upto 100% FDI if set up as a private Indian company Upto 26% in case of state owned companies Upto 100% FDI through automatic route Upto 100% FDI through automatic route Upto 100% FDI allowed Approval required from Foreign Investment Promotion Board. Exploration & Production Refining Marketing Product Pipelines Natural Gas/ LNG pipelines
- 16. Contents Market OverviewGovernment regulations & policy Business opportunities and Advantage India
- 17. India offers significantadvantages for the domestic and global oil and gas majors… Strategic location Nearness to the premier crude oil and gas supply market (Middle East) Geographical Proximity to the major petroleum product importers – China and Japan Well Developed Maritime infrastructure Government policies conducive to the growth of the sector – tax holidays, Special Economic Zones for Petroleum products Availability of experienced manpower at lesser costs –Cost advantage Existence of hi-tech indigenous EPC Companies – lower construction periods Large domestic market Anchor customer of the various petroleum products Possibility of achieving economies of scale Source: IMaCS Research 71 183
- 18. Significant Business Opportunitiesexist for foreign players… NELP rounds and Open acreage system (Opportunities for providers of services – platforms, rigs, Offshore vessels etc.) Redevelopment of existing fields to improve recovery factor Offer of CBM blocks through Competitive bidding route. Natural gas hydrate programme Underground coal gasification Coal to oil conversion Refining – Expansion of existing capacities, setting up of new refineries, acquiring stakes in these refineries Ethanol and Biodiesel production – cultivation of Sugarcane and Jatropha Petroleum marketing – setting up of retail outlets, new product pipelines. LNG imports Setting up of LNG Regasification terminals. Offshore Transshipment (Single Buoy Mooring) Laying of cross country gas grid and transnational gas pipelines City Gas Distribution including laying of CGD and CNG networks Upstream Midstream/ Downstream
- 19. Key Players inthe Indian Oil and Gas Sector PSU engaged in refining and marketing of petroleum products Has two subsidiary companies – Kochi Refineries Ltd. And Numaligarh Refineries Limited Refining Capacity – 22.5 MT (16.25% of India’s refining capacity) 368 India’s largest private sector company on all major financial parameters Presence in Upstream, midstream and downstream segment 342 India’s largest company by sales (Turnover of USD 37 bn) India’s flagship Downstream company - Along with subsidiaries accounts for 47% of Petroleum market share among Public Sector Oil Companies, 41% of National refining capacity and 51% downstream pipeline capacity Operates the largest and widest network of petrol and diesel stations in the country 153 Profile Fortune 500 Rank Company
- 20. Key Players inthe Indian Oil and Gas Sector All the five Indian companies in the Fortune 500 list are from the oil and gas industry India’s Flagship E & P Company Accounts for 77% of crude oil and 81% of natural gas produced in India Venturing into downstream refining and marketing 402 Another mega Public sector company with focus on refining and marketing Turnover of about US$ 17 Billion Accounts for about 10% of India’s total refining capacity 378 Profile Fortune 500 Rank Company
- 21. Global majors presentin India 71% stakeholder in Castrol, India’s major lubricant company Plans to develop a 2.5 MTPA LNG Terminal at Kakinada Participated in the CBM III and NELP VI bidding rounds – expected to win some blocks One of the bidders for strategic sale of HPCL Presence in both upstream and downstream Stakeholders in Tapti gas fields and Panna/Mukta oil and gas fields, Cambay basin block Interests in city gas distribution through participation in Gujarat Gas Limited and Mahanagar Gas Limited Leverages its distribution assets to operate Broadband service, Iqara Among the top FDI investors in India (Hazira port and LNG terminal project – milestone for FDI in the sector) Interests in both upstream and downstream (LNG, Lubricants, LPG, Bitumen, retail fuels and even solar energy)
- 22. Global majors presentin India Owns 10% stakeholder in Petronet LNG Limited, a JV promoted by Indian public sector companies to set up LNG terminals to import LNG 5% stakeholder in Reliance Petroleum Limited’s proposed new refinery at Jamnagar Possibility of increasing the stake to 29% Wholly owned subsidiary TotalFinaElf, a major player in lubricants market Another 100% subsidiary ElfGas India Ltd owns and operates LPG Import Terminal at Mangalore 50% stakeholder in LPG Import terminal at Visakhapatnam
- 23. The India BrandEquity 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
- 24. Disclaimer This presentationhas been prepared jointly by the India Brand Equity Foundation (“IBEF”) and ICRA Management Consulting Services Limited, IMaCS (“Authors”) All rights reserved. All copyright in this presentation and related works is owned by IBEF and the Authors. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of the Author’s and IBEF’s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. The Author and IBEF neither recommend or endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed in this presentation. Neither the Author nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation. ICRA Management Consulting Services Limited
Editor's Notes
- #4 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
- #5 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.
- #6 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
- #7 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.
- #8 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.
- #9 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.
- #10 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.
- #11 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
- #12 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.
- #13 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.
- #15 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.
- #19 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.