You are on page 1of 33


Sector Analysis

An NSC2 Initiative

Energy India Scenario
Value Chain



Oil &
Oil &
Competition Scenario
Oil &
Policy Framework Oil &GasGas
Oil &
Challenges Coal

Major Players

Future Outlook



Energy Sector comprises of industries involved in with

regard to energy


Energy in our perspective comprises of

Petroleum and allied products

Natural gas
Nuclear and other non-conventional sources of Energy

* Power is covered under a separate sector

Introduction Key Terms

Oil production Most commonly

used term to report is barrel or bbl

Gas production is described in terms of

standard cubic feet or cf





1 bbl

42 US gallons or 120


1 million cubic feet


1 billion cubic feet

1 mbbl

1000 bbl


1 trillion cubic feet

1 mmbbl

1 million bbl

970 cubic feet

1 Bbbl

1 billion bbl

Btu(British Thermal

E&P companies often describe their gas production in units of barrels or tonnes of oil

1 boe (barrels of oil equivalent)= 6040 cf of gas

1 toe (tonnes of oil equivalent)= 7.4 boe of gas
toe can be further used to convert it into equivalent for electricity, energy (joules) and
renewable energy equivalent

1 toe = 45.217 giga joules of renewable energy

Energy India Scenario

Total Energy Consumption in India

Energy Statistics - 2013, US
Energy use per capita, World Bank 2012

India 4th largest consumer after US, China & Russia

Per capita energy consumption 565.5 kgoe/person-annum lowest among comparable economies
Primitive sources of energy (biomass, wastes, wood, etc)
still counts for 23% of total energy consumption; which
equals petroleum products
41% of total energy need is derived from coal
Renewable and nuclear counts for 5%
Industries constitute 40% of total energy consumption
Power sector is the fastest growing energy demand 23%
to 38% between 1990 2009
Transport sector energy demand 8% in 1990 to 14% in
With 17% of world population, India has just 0.35% of oil
reserves & 0.6% of natural gas reserves

Indias growing dependence on foreign energy sources has serious policy implications for its energy
Coal-centred energy mix and rising carbon emissions will create serious challenges for Indias
sustainable development
India has substantially low per-capita energy consumption and per-capita carbon emissions in
comparison with other countries

Value Chain - Oil







Marketing Co





Production World 91.25 million
barrel / day
Production India - 0.89 million barrel /
Top three oil producing nations
Saudi Arabia
Indias Rank 23


Demand world 90.3 million

barrel / day
Demand India 3.3 million
barrel / day
Top three oil consuming nations
Indias Rank 4

*Medium-Term Oil Market Report 2012, International Energy

Value Chain Oil Exploration & Production

Domestic Production Region

wise distribution - 2010

Production v/s Consumption 2001-11 (in thousand


4th largest importer of oil and petroleum

5.5 billion barrels of proven oil reserves
Production - 1 million barrel/day
Domestic Production 47% onshore & 53%

Indias oil supply trend (million barrel / day)

Source: International Energy Statistics 2013, US EIA

Value Chain Oil Downstream

Refining breaking down of petroleum hydro-carbons into usable components like petrol, diesel,
chemicals, lubricants, etc.
Refining a major industry in India
Largely privately owned
As of April 2012, Indias refining capacity
was approximately 4.2 million barrels/day
Third largest in Asia after China and Japan
11th five year plan target 4.9 million
barrels/day by 2012
12th five year plan target 6.2 million
barrels/day by 2017
Due to growing domestic demand, exportoriented refineries were converted to
domestic refineries in 2009, which helped to
ease a domestic shortage of petroleum
Kerosene and LPG, are still imported.
Worlds largest and most complex refinery
was commissioned by Reliance Industries

Refining Capacities April

India a net exporter of petroleum products since
USD 40 billion worth of exports in 2010-11,
comprising of 16% of total exports
In FY 2009/10, 90% of Indias refined product
exports came from RIL and Essar
Major exports: naphtha, motor gasoline, distillate
fuel oil
Source: : International Energy Statistics Key exporting nations:
the UAE, and

Value Chain Oil Transport

India's crude oil pipeline network spans 6400
km and has a total capacity of 1.9 million
Approximately 30 terminals
Pipelines run from ports and producing areas
(particularly from Gujarat) to major oil
refineries in Gujarat, Mathura, Uttar Pradesh,
and Haryana
On the eastern part of the country, pipelines
run from West Bengal to the Paradip oil
The Indian Oil Corporation controls and
operates the oil product pipelines and
supplies most of the oil products going to the
domestic market of north and northeast.
IOC plans to build additional product lines to
move supplies from refineries to growing
demand centres, such as Jharkhand,
Chhattisgarh & Orissa
In 2005, the Indian Government decided to
set up strategic storage of 37 million barrels

Source: International Energy Statistics 2013, US EIA

Value Chain Natural Gas


Natural Gas






Pipe supply

Pipe lines,
Gas Tankers

Production World 3.36 trillion

Production India 42 billion m3
Top three producing nations
Indias Rank in Production 19
Global share in gas reserve
Rank comes
in Import
28% of requirement is imported
(for FY 2011-12)
70% of requirement to be
imported by 2017, due to falling
domestic supply
All imports via two facilities in
Dahej (capacity 10 mtpa) &
Hazira (3.6 mtpa) owned by
Kochi (5 mtpa) & Ratnagiri (1.2

Source: International Energy Statistics - 2013, US EIA

BP Statistical Review of World Energy, 2012

Value Chain - Natural Gas Exploration &


LNG consumption & production


KG-D6 production was expected to compensate for
maturing fields
Production started according to plan in 2009, it has
since dropped significantly due to technical problems
In July 2013, production was at 14 mcm/d, instead of
the projected 80 mcm/d, which would have equalled

Value Chain Natural Gas Downstream

Indias gas transmission infrastructure is mainly concentrated in the northern and western parts
The entire network comprises around 13000 km.
GAIL is largest operator of cross-national pipelines with a network of almost 8 500 km
The sector was opened to private investment in 2006, Reliance Gas Transportation Infrastructure
Limited (RGTIL) built the East-West pipeline of about 1500 km
Gujarat State Petronet Limited (GSPL) owns and operates 3000 km comprise mainly regional
Approximately 15000 km of additional pipelines are to be put into operation during the 12th
Five-Year Plan by 2017
LNG Consumption 2012
Power generation is the largest consumer for LNG
constituting 51% of the total consumption
Fertilizers come second with 31%
14% is used for direct consumption by industries and
domestic and commercial usage for cooking
State owned marketing companies IOCL, BPCL & HPCL
bottle LPG for domestic & commercial usage
Two largest gas consumers i.e. Power & Fertilizers are most
price sensitive
Captive / LPG
Affordability is considered high for industry, captive power
Petrochemical Others
Source: International Energy Statistics production, refining and petrochemicals
2013, US EIA

Value Chain - Coal









Source: International Energy Statistics - 2013, US EIA

BP Statistical Review of World Energy, 2012

Value Chain Coal Exploration &


Production World 7695 million
Production India 588.5 million
Top three Producing nations
India ranks 5th in world for global
reserves with 66.8 billion tonnes
and Orissa account for
reserves in Chhattisgarh,
approximately 70 percent of the country's coal
Other significant coal producing states include
West Bengal, Andhra Pradesh, Madhya Pradesh,
and Maharashtra
Coal production has more than doubled between
1990 and 2011.
Almost all of the country's coal mines are
opencast (less than 1,000 feet deep

Coal consumption & production


Coal import & production

Value Chain Coal Downstream

Washing / Benefication
Indian coal is typically of poor quality, with an average heating value of about 4 500 kcal/kg,
compared to over 6 000 kcal/kg for most internationally traded coals
It is high in moisture content, ash content, but is low in sulphur content
Very little is suitable for iron and steel making
Beneficiation or washing is typically necessary to reduce ash contents and make coal more
suitable for consumers
The washing of coal provides more consistent quality and increases energy efficiency of
conventional pulverised coal combustion
Demand to increase from 280 Mtoe 2009 to 618 Mtoe in 2025, surpassing USA
The power sector consumed over 73% of Indias coal in 2009, which increased notably from a
share of 61% in 1991
The second largest consumer was the steel and iron industry, representing 6% in 2009
The cement industry was the third largest coal consumer, using 2% in 2009
Demand for industry sector has seen a significant dip due to its shift from coal to other forms
of energy like electricity, LNG, etc.
Consumption Drivers
The increase in demand will be due to rapid growth in Power sector. Since Indias power sector is
mostly dependent on coal, it will continue to be largest consumer of coal and contribute largest
Source: International Energy Statistics share in increase in conspumtion.
2013, US EIA

Major Players - Oil & Gas

Source: IEA: Understanding Energy

Challenges in India 2013

Competition Scenario - Oil & Gas

Ministry of Pertroleum & Natural Gas (MoPNG)
Oversees the entire oil and gas sector, ranging from E&P, refining, supply distribution to
marketing and pricing
Initiates and implements the five-year plans for the oil and gas sector
Oversees import, export and conservation of petroleum products and natural gas
Regulates the allocation of gas under the Gas Utilisation Policy and Production Sharing Contracts
Supervises eight statutory bodies and 14 PSUs
Responsible for development and implementation of pricing policy and for supervising the
marketing of biofuels
The Directorate General for Hydrocarbons (DGH)
Represents the Indian government at the Management Committee meetings for the Production
Share Contracts
Monitor the countrys Exploration & Production activities and Coal Bed Methane projects
Collect data from all lessees/licensees to monitor the government revenues from upstream

The Petroleum Planning and Analysis Cell (PPAC)

Gathers and analyzes oil & gas related data to monitor market trends in prices and import /
Source: IEA: Understanding Energy
Challenges in India 2013

Competition Scenario - Oil & Gas

Upstream Exploration &
ONGC (Oil & Natural Gas Corporation)
Largest oil and gas exploration and production company
Produces around 69% of India's crude oil (equivalent to around 30% of the country's total
demand) and around 62% of total annual natural gas demand
Owns and operates over 11,000 km of pipelines in the country
ONGC Videsh is a wholly owned subsidiary of ONGC dedicated for investment in oil & gas
resources in foreign countries
Mangalore Refinery and Petrochemicals Limited is a dedicated refining & petrochemical
plant operated and jointly owned by ONGC
ONGC Tripura Power Company is JV between ONGC & Govt of Tripura for power generation
GAIL (Gas Authority of India Ltd )
Distribution and transport of Natural Gas, Liquid Hydrocarbon, Liquefied petroleum gas,
Lately it has diversified into City Gas Distribution, Exploration and Production, and Electricity
(Oil India Ltd)
Oil & Gas Exploration and production company with focus on in-shore fields in Northeast and
Produced 3.6 MMT crude oil in 2011

Source: IEA: Understanding Energy Challenges in Ind

Competition Scenario - Oil & Gas

Down Stream - Oil Marketing
Oil Marketing Firms IOCL, HPCL, BPCL
Enjoy near monopoly in retailing petroleum products in India
Own and operate refineries, LPG bottling plants, bulk storage facilities
Control distribution and sales of petrol, diesel, LPG and lubricants
IOCL is the largest amongst marketing firms

Source: IEA: Understanding Energy

Challenges in India 2013

Competition Scenario - Oil & Gas

Private Players

Cairn India - major reserves in Rajasthan, it produced 149103 barrels per day (b/d) or
about 20% of Indias domestic crude in FY 2010/11, sold a controlling stake to UK-based
Vedanta in December 2011
Reliance Industries (RIL), has emerged as a prominent player in both upstream and the
refining sector since the discovery of considerable gas reserves in the Krishna-Godavari (KG)
basin in 2002 and the completion of its Jamnagar refinery in Gujarat in 2008. RIL also owns
Reliance Gas Transportation Infrastructure (RGTIL), which operates the 1396 km-long
East-West Gas Pipeline from Andhra Pradesh to Gujarat
Essar Oil is another key player in both upstream and downstream, and is the second largest
private refiner; it recently completed the expansion of Vadinar refinery in Gujarat
Mittal Energy Limited through a JV with HPCL, called HMEL, starting operation of the
Bathinda refinery in Punjab in 2012
British Petroleum (BP) acquired 30% of RIL's share in the KGD6 gas field for USD 7.2
billion in 2011
Royal Dutch Shell has been active in the LNG business in India, owning the Hariza LNG
terminal that was commissioned in 2005
Petronet LNG Limited (PLL) - import LNG and build re-gasification plants. A JV by oil
PSUs, namely GAIL, ONGC, IOCL and BPCL, each of them owning 12.5% of share, the
remaining 50% share is held by private shareholders, including a GDF Suez subsidiary
Source: IEA: Understanding Ene
and the Asian Development Bank (5.2%)
Challenges in India 2013

Major Players - Coal

Ministry of Coal




State Governments

Ministry of Coal



State Governments

Coal India Ltd

Singareni Collieries
Company Ltd

Singareni Collieries
Company Limited

Gujrat Mineral Development

Corporation Ltd

Neyveli Lignite Corporation


Mahanadi Coalfields

Western Coalfields Ltd

Iron & Steel

Competitive Scenario Coal

Government enjoys a near monopoly in Coal production and distribution in India
Ministry of Coal (MoC)
Responsible for all aspects of the coal sector including
determining policies and strategies in respect to exploration and development of coal and
lignite reserves,
permitting coal projects
deciding on production, supply and distribution and, in
determine practice, prices
allocate coal blocks to captive producers
The Coal Controller, under the MOC, functions as a semi-regulator
granting permission for opening of coal mines
setting standards and procedures relating to coal mining
inspecting the quality of produced coal
collecting coal-related data
Three PSUs under MoC
The Coal India Limited (CIL) is the largest coal producer in the world by manpower and output
and is responsible for the entire Indian coal mining sector
CIL produces about 80% of domestic coal and employs more than 370 000 people and is a
Maharatna status PSU
The Singareni Collieries Company Limited (SCCL), Indias oldest mining company, mainly
Source: IEA: Understanding Energy Challenges in India 2013,

Competitive Scenario Coal

State governments
State Governments, under their jurisdiction exercise a restricted influence on coal mining
They exercise rights to to issue mining licenses and leases within their states, which are
prerequisites to obtaining final approval from the MOC
States own stakes significant stakes in coal PSUs
Captive Producers
Private and Public companies who require large and consistent coal supply are allowed to
operate mines since 1976
The produced coal is only for self-consumption and is not commercially tradable or exportable;
surpluses can be only sold to CIL
The share of captive production was 10% of total production in FY 2011/12
Other Stake Holders
The power sector is the largest consumer of coal in India, representing about 75% of total
NTPC alone consumes 137 million tonnes or 25% of domestically produced coal in FY 2010/11,
making it the largest single coal user in India
The Ministry of Environment and Forest is responsible for issuing environmental and forestry
clearances, which are critical statutory permissions to be obtained before implementation of
coal projects
180 coal projects are awaiting forestry clearance from Ministry of Environment and Forest
Source: IEA: Understanding Energy Challenges in India 2013,

Policy Framework Oil & Gas

Key Policies

Under the Industrial Policy Resolution in 1956, the Oil and Natural Gas Commission and Indian Oil
Corporation were created for the upstream and downstream sectors respectively
The Indian government nationalised the hydrocarbon sector during the 1970s, reaching completion in 1981
Upstream blocks for exploration were then allocated to oil PSUs on a nomination basis and private companies
could later participate too, but only through a joint venture with PSUs
Due to slow exploration and development of hydrocarbon reserves led to a re-liberalisation of the sector in
the 1990s

New Exploration Licensing Policy (NELP)

Earlier allocation of upstream projects to PSUs was controlled through administrative orders from the Indian
The NELP, effectuated in 1999, is a cornerstone of Indias upstream policy
Aim was to accelerate exploration and development of hydrocarbon resources in India against the backdrop
of increasing domestic demand
The NELP awards exploration blocks through international competitive bidding and allows 100% foreign and
private participation
The PSUs had to begin competing on equal footing with private and foreign companies
Under the NELP, the Production Sharing Contract (PSC) are the managing instrument
A total of eight bidding rounds of NELP have been implemented since the first in 1999, with mixed outcomes
Through these eight rounds, a total of 326 blocks have been offered and, 236 awarded
A total of 107 discoveries were made, of which 31 were declared commercial and six have started production
Under the NELP, Indias unexplored sedimentary areas decreased from 50% in FY 1995/96 to 12% in FY
9th round of bidding 33 exploration blocks were offered, ONGC bagged
OIL 10 and
RIL 6 were Energy
IEA: Understanding

Policy Framework Oil &Gas

FDI in Oil & Gas

100% (automatic) in Upstream exploration & production, petroleum product marketing & pipeline
100% (non-automatic) Natural gas / LNG pipelines
100% (automatic) in privately owned refineries
26% in state owned refineries

India Hydrocarbon Vision (IHV) 2025

Introduced in 2001, IHV 2025 laid out the long-term vision for the oil and gas sector
The objectives were enhancing energy security and promoting a free market and competition within the
In the medium- and long-term strategies contained in the IHV 2025, some salient features are
notably increasing operational flexibility and autonomy of PSUs
developing the sector to a globally competitive level
better utilisation of domestic hydrocarbon resources

12th Plan (2012 - 17)

The overall availability of energy would need to be increased substantially to bridge the gap in energy
demand and supply
Development of energy markets will be promoted as part of this overall policy to help reduce demand and
supply gap; this will ultimately lead to greater competition and better prices for consumers
For meeting the requirements of the transport and other sectors, development of other domestic energy
sources will be taken up through further exploration of oil and gas with the help of international competitive
Exploration policies will be further refined to attract the major global oil players, international investors and

DGH MoPNG, Wikipedia, IEA: Understanding Energy Challenges

Challenges Oil & Gas

Import Dependence
India spent about USD 92 billion on importing crude oil in FY 2010/11, representing about 25% of
its total import bill That year, India recorded nearly
The challenges from Indias import dependence will increase at least in the short term:
Indias demand is still growing, hence further import increase is inevitable
India is a price taker in the global oil market, so any international price hike will have a
direct impact on Indias current account
India needs the participation of E&P companies with advanced technical expertise and knowhow, particularly for offshore E&P and improvement of Enhanced Oil Recovery (EOR) in existing
India is increasingly focusing on mitigating its growing oil consumption through demand-side
management, such as vehicle fuel efficiency and biofuels
The current pricing system posits problems to all stakeholders in the sector
For the government, even if total tax revenue earned on petroleum products outweighs the
compensation for OMCs,
maintaining the current system is very costly
The complexity of the system entails considerable administrative costs and resources for
monitoring the scale of under-recoveries, transferring funds among PSUs and arranging the
issuance of oil bonds by the Finance Ministry
Consumers already pay a relatively high price for at least gasoline, especially given Indias low
per-capita income level, due to heavy taxation
DGH MoPNG, Wikipedia, IEA: Understanding Energy Challenges

Policy Framework Coal

Key Policies

Indias private coal mining companies were nationalised under the Coal Mines (Nationalisation) Act 1973; CIL
was established in 1975
In 1976 iron/steel and the power industry were allowed to produce coal from designated mines captive
National Mineral Policy 1993 aimed to encourage foreign and private investment in Indias mineral sector
for captive
was expanded to cement producers and coal washing, later to coal
and liquefaction
2007for all coal qualities; distribution remained controlled by the Government
Linkage Policy

New Coal Distribution Policy 2007

Introduced to facilitate supply of assured quantities of coal to consumers of core and non-core sectors at predetermined prices
Introduced Fuel Supply Agreement (FSA) replacing the linkage system
Under FSAs 100% of coal requirements for the power and fertilizer sectors will be met by coal companies and
75% of coal requirements for other large consumers

NCDPs insufficient reliance of market mechanism

The NCDP resulted in huge burdens to CIL due to stagnating coal production
As a FSA is a legal obligation, failing to honour its supply commitments entails an expensive penalty
payment by CIL to consumers
Importing coal to fulfil its commitment turned out to be an enormous challenge, mainly due to the price
CIL has refused to sign a new FSA since March 2009, with 1184 standing FSAs for a total of 304.80 Mt for the
power sector

MoC, Wikipedia, IEA: Understanding Energy Challenges in India

Challenges Coal
Stagnating domestic production
During the 11th Five-Year Plan, Indias coal demand increased at CAGR of 8.5%. However, CILs
domestic production has increased at a CAGR 4.6% during this period
Reasons sighted for stagnating coal production were majorly
rigid and time consuming procedures for land acquisition and environment clearance
frequent strikes and strong unions disrupting work and slowing down production
Import Dependence
Indias coal imports have more than doubled over the last five years
However importing coal is becoming problematic due to following reasons
Limited support infrastructure
Different characteristics of coal typically allow Indian power plants to blend imported coal
with domestic coal only up to 10% to 15%
Price disparity posit a considerable difficulty for both CIL & consumers

India requires a well-integrated infrastructure for its coal supply chain, which includes railroads, importing
ports and washeries
Delayed construction of railways by Indian Railways to connect mines, dispatch centres and end-use
destinations, has already created a considerable bottleneck in coal supply in recent years
The limited supply capacity and poor quality of mining equipment of Indian suppliers can hinder mining

MoC, Wikipedia, IEA: Understanding Energy Challenges in I

Latest Developments
Unconventional Hydrocarbons
Coal Bed Methane
It is a form of natural gas; extracted from coal beds
India began awarding coalbed methane (CBM) blocks for exploration in 2001
the U.S. Geological Survey (USGS) and ONGC to conducted a resource assessment and
estimates anywhere between 9 and 92 Tcf of CBM resources both onshore and offshore India
Great Eastern Energy Corporation (GEEC) has developed the Raniganj block in West Bengal, with
an estimated 1 TCF of gas potential
Essar Oil and RIL have also been developing blocks in Bengal, although there has not been any
significant commercial production
Unconventional Hydrocarbons
Shale Gas
Joshi Technologies made the first shale oil discovery in Cambay Basin in mid-2010
Companies are interested in exploring the Cambay basin in Gujarat, the Assam-Arakan basin in
northeast India, and the Gondwana basin in Central India for shale gas resources,
There has been no commercial production or publicly released reserve figures by Government
MoPNG announced to come up with a policy on Shale gas blocks exploration & production

Future Outlook
World Energy Demand

BP World Energy Outlook 2030

Future Outlook - Global

Future Demand
Population and income growth are the key drivers behind growing demand for energy. By 2030
world population is projected to reach 8.3 billion, which means an additional 1.3 billion people
will need energy; and world income in 2030 is expected to be roughly double the 2011 level in
real terms
World primary energy consumption is projected to grow by 1.6% p.a. from 2011 to 2030, adding
36% to global consumption by 2030. The growth rate declines, from 2.5% p.a. for 2000-10, to
2.1% p.a. for 2010-20, and 1.3% p.a. from 2020 to 2030
Demand Drivers
Low and medium income economies outside the OECD account for over 90% of population
growth to 2030. Due to their rapid industrialisation, urbanisation and motorisation, they also
contribute 70% of the global GDP growth and over 90% of the global energy demand growth
Energy used for power generation grows by 49% (2.1% p.a.) 2011-30, and accounts for 57% of
global primary energy growth. Primary energy used directly in industry grows by 31% (1.4%
p.a.), accounting for 25% of the growth of primary energy consumption
The fastest growing fuels are renewables (including biofuels) with growth averaging 7.6% p.a.
2011-30. Nuclear (2.6% p.a.) and hydro (2.0% p.a.) both grow faster than total energy. Among
fossil fuels, gas grows the fastest (2.0% p.a.), followed by coal (1.2% p.a.), and oil (0.8% p.a.)
Success of North Americas shale gas has sparked an interest in duplicating the results in other
countries. However countries have to overcome geographical and technical challenges to make it
commercially viable
BP World Energy Outlook 2030, Deloitte Oil & Gas Reality C

Future Outlook - India

India will become increasingly import dependent despite increased production of both renewable
and nuclear energy
As per BP Energy Outlook 2030
India's energy consumption growth of 110% outpaces the rest of the BRIC countries with China
(+72%), Brazil (+57%), and Russia (15%)
Indias energy production to double; oil (-23%), gas (+16%), hydro (+99%), nuclear (+342%),
and renewables (+448%)
Coal remains the dominant fuel produced in India growing by 107% and accounting for 67% of
total energy produced; coals dominance drops slightly from 53% today to 50% in 2030
Net energy imports increase by 135% as the country imports 42% of total energy demand in
2030, up from 37% today
Oil maintains its dominance in the transport sector as its share actually increases from 94% in
2011 to 95% in 2030
Fossil fuels account for 88% of Indian energy consumption in 2030, down marginally from 92% in
2011; Renewables share of consumption rises from 2% to just 4% in 2030
Oil imports will rise by 152% as the countrys production meets less than 10% of demand by

BP World Energy Outlook 2030, Deloitte Oil & Gas Reality C