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Structure of this sector
Trends in the Indian Oil and Gas Sector Past and Present Growth in the sector
Opportunities in the sector
Major Issues faced by the Oil and Gas sector in India
OIL AND GAS INDUSTRY
Sector Overview .
The local NOCs – ONGC. additional rounds of awards are expected to be rolled out for investors to bid. OIL. with the marketing companies. cost recovery and work programme are biddable. In the downstream sector. However. A snapshot of the same is given below: . GAIL. They compete on equal footing with international investors. The policies have also not been able to attract oil majors with experi. the sector represents an extremely risky environment to operate in for private fuel retailers which do not qualify for subsidy dissuading them from using or expanding their retail portfolio. and so have the Indian private companies. and is in some cases marginally higher. Total foreign direct investment is permitted without any necessity of NOC carry. the the government has continued to exercise its control on pricing. the government has introduced certain reforms including deregulation of petrol prices. under the control of central Government.ence and other technical expertise to invest in India. However. if not the investments the international companies can bring in. The regulatory and legal landscape in the sector involves many agencies and ministries. although. The government has reaffirmed its intents to determine the marketing priorities for natural gas with a pricing formula stipulated by the government. The production share. BPCL and HPCL – have actively participated. the policy has had limited success in reducing the dependence on foreign imports.8 per MMBtu to $4.produced from fields given to ONGC and OIL on nomination basis was increased in May 2010 – more than doubled in price in May 2010. Experience of operating in deepwater and other difficult environments is critically required in India. from US$ 1.2 /MMBtu. Price for gas produced by companies investing through NELP is indexed to oil. IOC. In the gas sector. despite many promising discoveries in the NELP blocks. Nine rounds of acreage awards have been completed in ten years in which over 260 blocks were licensed out to companies. Administered Pricing Mechanism (APM) natural gas . still set the prices at levels which are more reflective of the consumer concerns and not markets. In the coming years.Country’s upstream policies such as the New Exploration Licensing Policy (NELP) are focused at increasing investments in domestic exploration and production (E&P) activities.
processing. petroleum products and natural gas excluding production of crude oil and natural gas Key Acts & Legislations The Petroleum Act. and storage of petroleum The Oilfields Act of 1948 has provisions for regulation of oilfield development 1976 Petroleum Rules has provisions for regulations governing pollution.Policy-making & Planning Empowered group of ministers: Decision on industry issues that that have a strong impact on the country’s economy and investment climate Planning Commission: Helps in formulated policies such as the Integrated Energy Policy Ministry of Petroleum and Natural Gas: Policy making and planning. 1934 sets out rules for the import. transportation. safety and other operating standards New Exploration and Licensing Policy (NELP): Allowed for competitive bidding by foreign oil & gas companies for exploration and production licenses without any bias towards the public sector companies Integrated Energy Policy (IEP) of 2006 outlines goals for dealing with the challenges faced . pricing of regulated petroleum products. transport. marketing and sale of petroleum. regulation of services and refining sector Ministry of Finance: Formulating tax and fiscal regime Regulatory Bodies Director General of Hydrocarbons (DGH) under the Government of India is the upstream regulator and is entrusted with monitoring compliance to Production Sharing Contracts (PSCs) and other E&P regulations Petroleum & Natural Gas Regulatory Board (PNGRB) is mandated to regulate the refining. storage. distribution. overseeing E&P activities in India.
Indian Private E&P players over the last few years. GAIL Gastransport Re-gasified LNG will also form an increasingly & Petrochemicals important part the gas supply mix in the country The Ministry of Petroleum and Natural Gas. It is entrusted with the responsibility of handling legislation and issues related to E&P of oil massive interest since the supply from KG-D6 and natural gas. and the import. refining. Quest for security of supply: milli0n bpd. RIL.by the Indian energy sector Structure of According to the forecasts by the International Energy Agency under its new policies scenario. etc IBP Trends in the oil and gas sector The Indian government is pushing for measures to increase the share of gas in its energy mix. NIKO. This is expected to put a strain on the exchequer as according to IEA forecasts. Hindustan ONGC GGSR the last many years with a sudden increase its Petroleum value in 2010. A major reason for this increase in Numaligarh Refineries adoption is because gas is a relatively greener fuel as compared to petroleum products. This implies that the country’s dependence on import.1% in 2012-13 to 46. The in R/P ratio for Oil has been fairly flat for ONGC growth Videsh Ltd. such as. The has seen India.7% in 2016-17. The R/POil for gas hasReliance been declining Oil India Ltd. and began dwindling. India’s oil and gas import bill will surpass that of Japan prior 2030 and that of the United States by the 2035 and will aggregate to a massive US$330 billion in 2035. Such alarming increase in reliance on imports is likely to force substantial focus being given to the issue of security of supply. Caim.India becoming a global refining hub on the back of major capacity expansions and massive investments: The domestic demand of petroleum products is expected to grow at a Compounded Annual . Refining Marketing The evolution of oil & gas R/P ratios Private in India over Public Private Public the period 1990-2010 is presented below. is the primary agency forsector regulating this sector in in the coming decade.ed crude oil will increase significantly from 73% in 2010 to a shocking 92% in 2035. 11% of total primary energy demand. There are several leading gas supply mix is expected to increase Public Sector Undertakings (PSUs) from and private players across the value chain. This will have an impact on government policies as well as the future strategies of Indian oil & gas companies Exploration and especially Production the publicand sector companies. 37. India’s oil imports will increase by more than this sector 4%per year over the Outlook period to reach 6. the domestic gas market is projected grow from 59 bcm in 2009 Kochito Refinery to 190 bcm in 2035.Natural Gas along with LNG will gain Chennai Petro promi-nence in the overall primary energy mix: Bongaigaon Refineries 3. export.8 1. distribution and marketing. India Ltd. Bharat Petroleum According to IEA forecasts. 2.The share of imported LNG in the conservation of petroleum products natural and Liquefied Natural Gas (LNG).
Economic growth is directly linked with energy demand. with oil and gas together accounting for approximately 45 per cent of the total demand. As shown in Figure 1. despite having significant reserves in India. Market reports estimate that this growth is expected to take the size of the Indian gas market to that of the gas market in Japan. accounting for 15 per cent of the country’s gross domestic product (GDP). and a conservative estimate of 7 per cent growth is expected to double India’s per capita energy consumption from 560 kilograms of oil equivalent in FY10 to 1. Past and Present Growth of the sector . natural gas accounted for 10 per cent of the country’s total energy requirements. As oil and gas is one of the main sources to meet the required demand for energy in India. whereas estimates suggest that this figure will reach 20 per cent by 2025.2. the largest consumer of liquefied natural gas (LNG) in Asia. the increase in demand is expected to be primarily met through imports.Key Developments and current state of the Indian oil and gas sector: The oil and gas sector in India is a critical component of the country’s economy. In 2011. its demand is forecast to rise further. by the end of 20156.1 and Figure 1.124 kilograms of oil equivalent by FY32.
natural gas and infrastructure related to the marketing of . pipelines. petroleum products.To cope up with the high demand. the Indian government has adopted policies such as allowing 100 per cent foreign direct investment (FDI) in many segments of the oil and gas sector such as refineries.
1Regulatory landscape and competitive scenario: The Indian oil and gas sector is highly regulated and largely state controlled. which invites bids all year round unlike NELP that invites bids yearly. and regulating the midstream and downstream segments of the oil and gas sector. with British Petroleum (BP) entering a US$ 7. The NELP allows 100 per cent FDI in small to medium sized oil fields. the NELP may soon be replaced by the Open Acreage Licensing Policy (OALP). Among other initiatives.2 billion deal with Reliance Industries for the exploration of offshore oil and gas.petroleum products. IOC and Reliance Industries. the Chennai Petroleum Corporation Limited (CPCL).8 Owing to many large scale investments. 1. midstream and downstream) of the oil and gas industry. whereas the Indian Oil Corporation (IOC) and its subsidiary. Bharat Petroleum Corporation Limited (BPCL). This body was also tasked with enabling pipeline development. the oil and gas sector experienced one of the biggest FDI deals in the country. the oil and gas sector in India attracted FDI worth US$ 3. Figure 2 shows key regulatory authorities in India and the main legislations that govern the sector. resulting in the discovery of 68 oil and gas fields. Oil and Natural Gas Corporation (ONGC) accounts for approximately 67 per cent of the total oil and gas production. In India.However. . the Petroleum and Natural Gas Regulatory Board was formulated to ensure the smooth supply of petroleum and petroleum products throughout the country at regulated prices. Subsequently. BP formed a joint venture with Reliance for the marketing of gas and took a 30 per cent stake in 23 oil and gas blocks. In 2011. The country’s refining segment is primarily dominated by domestic players such as Hindustan petroleum Corporation Limited (HPCL). command the largest market share (approximately 48 per cent) in petroleum products. The oil and gas sector is dominated by PSUs and a few large private sector companies. Over 246 blocks were given out over eight bidding rounds through this initiative during the last decade alone.152 million over 2000–11. to aid both public and private sector companies in bidding for exploration rights. Some other policy initiatives to promote investments included the New Exploration Licensing Policy (NELP). Figure 3 highlights the credentials of leading players in each segment (upstream.
1. Table 1 demonstrates the total expenditure outlay in the oil and gas sector during the 11th Five Year Plan. First.6 billion). thereby making the sector more profitable. the government tried to focus specifically on infrastructure development for the midstream oil and gas segment. Further. and can be borne by them. as there is currently a significant disparity in the per capita allocation of kerosene between states11 Transparency especially in the distribution of LPG and kerosene can be attained through the UID smartcard scheme. These price hikes will reduce under recoveries to zero. the government undertook numerous measures such as setting up the Integrated Energy Policy. Third. while diesel prices should be adjusted to market rates instead of being subsidised. The government has taken into consideration the Kirit Parikh Committee’s recommendations. the government implemented numerous actionable reforms on the pricing of petroleum products. The implications of these measures would primary reduce the under recoveries in the oil and gas sector. and some indications on the revised projections that were made over the course of the midterm appraisal. Key developments for the Oil and Gas sector during the 11th Five Year Plan: In the 11th Five Year Plan. The recommendations are the following: Petrol prices should be hiked. Second. the Directorate General of Hydrocarbons. The price hike process and distribution system needs to be more transparent. the government focus related to energy was threefold. .2. the government focused on creating a level playing environment in both the upstream and downstream segments by ensuring unhindered access to common infrastructure at the regulated prices. its main objective was to attain energy security and mitigate the need for imports in the oil and gas sector through sustainably scaling up exploration and production (E&P) activities. use of alternate fuels and infrastructure development. and the Petroleum and Natural Gas Regulatory Board to aid the rapid development of the sector. Further. as failing to hike fuel prices will result in under recoveries of approximately Rs 2 trillion (US$ 37. the government focused on tax and pricing reforms. and made numerous actionable reforms on the pricing of petroleum products. with plans to phase out subsidy on LPG and kerosene. as this will not affect consumers significantly. and to align fuel prices with global trends. Acting on these recommendations.
Environmental issues: Offshore mining of oil and gas and deep water exploration poses significant threats to the environment in terms of potential threats of water contamination. The refineries segment is also expected to experience an increase in its expenditure. and by encouraging a higher level of private sector participation. Requirement of advanced technology for upstream segment: The industry faces a shortage of skilled labour for the mining of unconventional assets such as shale gas and Coal Bed Methane (CBM). and technology requirements in the upstream segments through actionable reforms such as the Kirith Parikh Committee’s recommendations. while the participation of state owned players has been high. The primary reason for this could be the country’s regulatory framework. Dominated by state controlled enterprises: The sector is primarily dominated by state controlled enterprises. with only a few foreign players. Factors affecting the Indian Oil and Gas sector Some key factors affecting the Indian oil and gas industry are the following: There was a notable increase in projected expenditure in the E&P segment. Subsidies on Oil and Gas products: Eliminating subsidies on oil and gas products is proving to be a major challenge for the government. the participation of foreign players has been limited during the nine rounds of bidding for exploration rights through the NELP. The Government has proactively aimed to curb some of these challenges including subsidies on oil and gas. These subsidies have led to large scale under recoveries in the Indian oil and gas sector. which offer a huge potential in terms of ensuring sustainability.3.1. where ventures involving foreign players take longer to get the required approvals. due to an increase in infrastructure development cost for pipelines. . due to political pressure. Further particulate emissions of refineries and production plants could have an adverse impact on the environment as well. primarily due to increased drilling costs and high production costs. Further.
This creates a plethora of opportunities for strategic investors having relevant technical expertise and financial muscle such as BP to invest in the country through partnerships with local public and private sector companies. 3. Opportunities in unconventional Oil & Gas (CBM. Many of these opportunities stem from the mega trends discussed above. 1.Opportunities in this sector The Oil & Gas sector in India is replete with opportunities across its value chain and sub sectors. Many Indian companies have been aggressively scouting for opportunities to pick up equity oil abroad or pick up strategic stakes in unconventional acreages in order to acquire technology/expertise for similar developments back home. Shale Gas and UCG): CBM is a proven energy source as it contributes approximately 10% of total natural gas production in USA. The CBM policy devised by Government of India (GoI) . A brief overview of these opportunities is presented below. it is believed by many that deepwater and ultra deepwater Oil & Gas resources hold a key to substantially increasing domestic production. 2. However. 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 foreseeable future. Indian companies especially the PSUs have limited technical and monetary bandwidth or experience to undertake exploration and development activities in such areas. While a lot of exploration activity has taken place in the on-land and shallow basins of the country. Opportunities for transactions and partnerships in assets abroad: The race for securing future energy supplies has led Chinese NOCs to aggressively scout for Oil & Gas assets abroad during the last few years. experts claim significant CBM potential in the country. Given the substantial coal resources in India.
: The CGD sector offers opportunities for both incumbents and new companies to participate. exemption from payment of customs duty on imports required for CBM operations and fiscal stability.encourages investment and provides favourable investment climate like freedom to sell CBM in the domestic market. This creates opportunities for companies in the following areas: Collaboration/partnershipwith large Indian conglomerates for bidding jointly/ in consortium to seek allocation of coal and lignite blocks on offer by the ministry of coal. The draft shale gas licensing policy has been circulated to various industry members. The opportunities available thought unlocking of this latent demand through infrastructure expansion are immense especially as gas is cheaper than crude oil and other feedstock for many industry sectors. The UCG sector offers opportunities for both Indian and foreign companies to participate. It is a well known fact that Shale Gas has transformed the landscape of the energy industry in the United States with the country becoming a net exporter of natural gas from a net importer of gas. 2011 India has technically recoverable Shale gas resources of nearly 63 trillion cubic feet (tcf). The development of UCG projects requires technological capabilities that none of the domestic companies possess at present. vastly unexplored and under explored sedimentary basins b. For incumbents. Owing to the capital intensive nature of the sector. Coal India Limited invited bids from interested parties for the development of two blocks identified for UCG in central and western India. Pending work commitments on NELP blocks c. Earlier this year. Enhanced recovery programs d. Exclusivity for the activity of marketing of natural gas is allowed to the authorized entity for a period of 5 years. UCG project development also offers opportunities for technology companies. project management consultants and other service and equipment providers. PNGRB allows the following incentives to authorized entities: Exclusivity. the marketing exclusivity extends for a period of 3 years. Independent bidding for coal and lignite allocation blocks put up on offer regularly by the Ministry of Coal for UCG Along with investors and project develop.Infrastructure exclusivity is available to the authorized entity for a period of 25 years. Underground Coal Gasification: Underground Coal Gasification (UCG) represents another interesting area of opportunity in the Oil & Gas sector. . The government expects the licensing round to be conducted during the first half of the 12th plan.ers. Shale Gas: According to the preliminary studies carried out by the US Energy Inf ormation Administration in April. Coal gasification has been notified as one of the end uses under the government’s captive mining policy. Opportunities for E&P services and equipment companies: The sector offers great future opportunities for both Indian and international companies driven by factors such as: a. Unconventional hydrocarbon exploration activities gaining momentum in India Substantial latent demand in the natural gas sector: Many of the end customers of the natural gas sector offer significant latent demand on account of factors such as lack of infrastructure or last mile connectivity. Opportunities in the CGD sector: City Gas Distribution (CGD) has been one of the most talked about subsector in Oil & Gas sector in India.
7% as per industry sources. Thus the bidders bid for lower tariffs to obtain authorization. Along with investors and project developers. project management consultants and other service and equipment providers. Opportunities in the LNG sector: LNG has great market potential due to huge demand supply gap (figure 1 below) which according to industry sources.The new and existing players view CGD as a combination of marketing and infrastructure development. The present gas demand supply scenario makes up for a good business case for up LNG terminals. Regulatory aspect: As of now. setting up an LNG terminal only requires notifying the government and there is no competitive bidding for setting up an LNG terminal. The future too holds promising as the following chart below depicts the sector-wise natural gas demand which is overall expected to grow by 12. the activity of marketing is unregulated. While the activity of development of infrastructure for the CGD network is regulated. CGD project development also offers opportunities for technology companies. is expected to widen in future in absence of LNG. .
Limited participation by foreign companies the Indian upstream sector Opportunities for pipeline transportations: Compared in to advanced economies like USA. Government and policy bring makers find suitableexpertise solution for experience. Thus pushing a strong thrust on the infrastructure of storage tanks within the country. India. other such as infrastructure development are applicable to the entire sector. preferred as a cost-effective. Some sections of the attribute approvals. India has a substantial “head room” for growth inindustry both crude and the lack of participa. for transportation of crude oil and petroleum products. these inland refineries. or Policy: Thein nine rounds of NELP where more than 60% of petroleum productProspectivity movements happen by pipeline. They are now a key constituent of the country’smuscle required for development of as capital and high risk infrastructure. regulator. safe and environment friendly mode especially foreign majors has been limited. There has been significant progress in every sub-sector of the Oil & Gas industry. Interference in terms of a signed contractual terms is also counted as a factor that discourages foreign participation Major Challenges faced by the oil and gas sector . The sector is teeming with opportunities but at the same time its dealing with some fundamental issues which can hinder its progress and thwart the achievement of its growth objective. Opportunities in tankage: Import of crude oil will grow at a CAGR of 4. have seen enthusiastic participationpipeline by the state owned currently.the have been playing a vital role in These companies bring a lot of investment meeting India’s energy demand. and finished products from refineries to major consumption centres. If companies the technological andregulatory diverse project industry. transporting crude oil from import terminals well intensive as domestic sources to upstream projects. The country is expected to be one of the major investors in development of refinery infrastructure in the world during the next couple of decades. Average per barrel cost of crude imports has seen a CAGR rise of 6. only 35% of product movement happen over pipelines. the participation by private players networks.tivity of the Indian basins. More importantly however. However the DGH is extremely confident about the prospectivity of Indian hydrocarbon basins and do not deem it as a roadblock. The cumulative investment in refining infrastructure in the country during 2011-2035 as per projection by the IEA under the new policies scenario is expected to be about US$ 140 billion. Other sections of the industry believe that inconsistency and ambiguity in the policy and fiscal framework is one of the major factors due to which foreign companies either stay away or withdraw participation.25% as per IEA projections for the next 20 years. Some of these major issues have been discussed below: Refining Sector: India has its sights well set on becoming one of the major global refining hubs. While some of these issues are specific to a sub-sector.tion of these companies to the petroleum product pipelines.42%. Cross-country companies. right of way etc. energy-efficient. prospec. India will focus on expanding its capabilities and position itself to become an increasingly important player in the international export markets for refined petroleum products.. 1.The Oil & Gas sector in India has come a long way since our independence. In order to realize this aspiration.
A conservative estimate of 7 per cent growth in the Indian economy is expected to approximately double India’s per capita energy consumption over the next 20 years. and is poised to contribute a large share to India’s energy basket over the next 15–20 years. Upstream skills. The participation of the private sector is expected to bring in monetary resources and technological capabilities. technology and equipment shortage: Upstream talent shortage and . In order to further aid the development of the sector. To cope up with the increasing demand.The oil and gas developed in India. has been identified as a key metric that will drive future GDP growth.2 billion deal between BP and Reliance Industries. which provides the country with a significant portion of its energy requirements. and encourage private sector participation. especially in the field of deep sea exploration while simultaneously reducing the dominance of PSUs in the country’s competitive landscape. the government introduces legislations such as the NELP to enable companies to bid for exploration rights. the government has allowed 100 per cent FDI in the oil and gas sector. enabling some large partnerships such as the US$ 7. 1. Since energy demand and economic growth are almost interlinked. the Indian oil and gas sector.
More initiatives are required for strengthening this network so that Indian companies are not at a disadvantage to the international competition. Also. 2. LNG market development has also not realized its potential largely owing to the government’s policies around the two major anchor customer segments viz. The participation of the private sector is expected to bring in monetary resources and technological capabilities. especially the public sector companies have been competing with aggressive Chinese counterparts and IOCs for acquisitions of assets abroad. To cope up with the increasing demand. 4.2 billion deal between BP and Reliance Industries. has been identified as a key metric that will drive future GDP growth. the Indian companies are sometimes also constrained by lack of opportunity tracking resources and networks that can spot opportunities early and pass on to the companies. Also. the government has allowed 100 per cent FDI in the oil and gas sector. and encourage private sector participation. Ambiguity on policies relating to pricing and marketing of domestic gas as well as the gas end-user segment policies creating hurdles to gas market development: 5. the government introduces legislations such as the NELP to enable companies to bid for exploration rights. the Indian government has taken many diplomatic relationship building initiatives with countries in regions such as Africa. In order to further aid the development of the sector. its growth is constrained on account of ambiguity in investor’s mind about pricing and marketing policies of the Government with respect to the domestically produced gas. and is poised to contribute a large share to India’s energy basket over the next 15–20 years.ageing workforce is an issue being faced the global as well as Indian upstream industry. while we are counting the unconventional sources of energy such as Shale gas as major areas of opportunities we must also not forget the associated challenges such as high water and land requirements and also the limited availability drilling equipment. Gas sector in India holds tremendous potential as detailed in the section on opportunities. However. in many cases these companies have to lose out to the competition due to the slow speed of clearances and decision making process in place for making large investment decisions. Since energy demand and economic growth are almost interlinked. Enablers for acquisition of oil & gas assets abroad: Indian Oil & Gas companies. However. 3. power and fertiliser. The industry is especially pressed with shortfall of labor with specialized skills such as reservoir engineering or with experience of developing unconventional gas assets. especially in the field of deep sea exploration while simultaneously reducing the dominance of PSUs in the country’s competitive landscape. enabling some large partnerships such as the US$ 7. . To add to the woes of investors the recent unexpected dip in domestic gas supplies has added new dimension of ambiguity – that of supply uncertainty. CONCLUSION The oil and gas sector is fairly well developed in India. Growth in infrastructure has not kept pace with demand-supply dynamics largely owing to the way the new regulatory regime has unfolded over the years. the Indian oil and gas sector. A conservative estimate of 7 per cent growth in the Indian economy is expected to approximately double India’s per capita energy consumption over the next 20 years. An enabling policy and fiscal environment that makes investment in this area an attractive proposition even after taking into account the associated risk and challenges is required to take advantage of the opportunity associated with unconventional. which provides the country with a significant portion of its energy requirements. However.
Today. politics. this future of Indian petroleum sector bodes well for best of the companies. more and more companies are able to conduct their exploration and production in more and more countries. which is good news and bad for host countries. THANKYOU. safe and efficient business environment to develop. however. regulatory capability. Practices proven best in some regimes may not suffice in this realm. coming in the way of hydrocarbon finds is not uncommon in the world. Unlike in the industrialised world. The bad news is that. Let’s hope they are waiting in the wings for competitive. all enter into it. companies are competing fiercely for the best acreage. Geology. to other countries. fiscal systems. Each solution depends on each country’s individual circumstances. As a result. India having recognized the need of much higher exploration investments must therefore enable that through a scientifically designed regulatory regime. all things considered. . The good news is that they can drive a harder bargain with the oil companies over access to acreage. .The burgeoning demand of hydrocarbons in India necessitates aggressive exploration of reserves. they would like to lay finest of the infrastructure. There exists an open market for exploration rights. Licensing policies. too hard a bargain will drive the companies away.
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