Oil Industry Future Challenges

by
Shri. B.K. Bakhshi

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 Oil - Price Peaks & Effect on Indian
Economy
Sr Year GDP Inflation Event
No Growth (+/-)
1. 1973 - 0.3 % 20 % Yom Kippur
War oct 73
2. 1979 - 5.2 % 17 % Iranian
Revolution
3. 1990 + 1.3 % 14 % 1st Gulf War

4. 2008 - From 12 % + From Katrina

expected Onwards
9% to less
than 8%
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 CRUDE OIL PRICES
(Indian Basket)
Sr No. Year Price ($/BBL)
1. March 2003 23
2. 2005 52
3. 2006 63.35
4. 2007 70.06
5. 2008 (avg 1st 6 months) 110.52

• Peak – July 08 - $142/BBL

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VERTICAL INTEGRATION HELPS OIL MAJORS
• Integrated International Majors profits go down when crude
price go down and profits go up when crude price are up.

Examples:
• The slump in crude prices to less than $15 per bbl in 1998 led
to mergers – such as Exxon Mobil, Philips Conoco, etc.

• When crude prices rose from $33 per bbl in April 2004 to
70.25 per bbl in Aug 2005 – 2 weeks after Katrina Hurricane.
Gasoline prices in USA peaked to $3.06 per USG. The
combined net income of Exxon Mobil, BP, Royal Dutch, Shell
& Conoco Philips totaled $ 32.8 Billion during the quarter
ending Sept 2005 on a revenue of $ 378 Billion.

* Source Black Gold by George Orwell, page 147

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 Journey so far
Government’s liberalization drive hastened the pace of
hydrocarbon market development in India .
1950 1990 2007-08 Comments
1 Population (bn) 0.36 0.84 1.13 2nd most populous country

2 GDP Growth Rate (%) 3.9@ 5.58$ Around 9 >8% for last four years
Crude Production
3 0.26 32.6 34 Almost stagnant since 1990
(MMT)
4 NG Prodn (MMSCMD) NA 49.3 91 Bulk production from Mumbai High field
Refining Capacity
5 0.25 51.85 149 6th largest refining capacity in world
(MMT)
29% & 44% of total import & export in
6 Crude import (MMT) 3.05* 20.7 122
value
7 Pipelines (kM) 37^ 9,945 31,061 World’s longest operating LPG pipeline
Product Consumption >11% growth in MS/HSD & 14% in ATF
8 3.3 55 129
(MMT) last yr
20.2% growth in POL export over 2006-07
9 Product Export (MMT) 0 2.6 39.3
(32.7 MMT)
Catering to more than 80 mn motor
10 Retail Outlets NA 14,264 34,696# 5
vehicles
*
1955 figure @
1950-60 Avg #
As on 1.4.07 $1990-200 Avg ^Product pipeline
Sectoral Overview – Upstream

Upstream sector in India is a relatively unexplored market with reserves

estimated in only 15 of the 26 sedimentary basins.

Key Facts

• 26 sedimentary basins: 3.14 mn sq kM

(44% onland and 56% offshore)
• Prognosticated Hydrocarbon reserves: 28
BTOE (<25% established) ~ 200 bn
barrels
• Crude oil production - 34 MMT

• Upstream NOCs dominate

production/acreage
• Directorate General of Hydrocarbons
(DGH) vested with upstream regulatory
functions
• New Exploration Licensing Policy (NELP)

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Sectoral Overview – Upstream
NELP rounds have opened up large sedimentary areas for
exploration to private and JV companies leading to decrease in
unexplored or poorly explored areas from 67 to less than 37%
Out of total 205 bn bbl of prognosticated resources in 15 basins, 66 bn bbls
have been established since 1947. 15 bn bbl in-place reserves were added
during last 7 years

•Exploration Acreage – April ’96 •Exploration Acreage – April ‘07 Sedimentary Area

Poorly Poorly Unexplored

Explored Explored 15%
18% 21%
Yet to offer
32%

Moderate to Unexplored
well 49%
explored Moderate to
16% well Area under
explored License
20% Exploration 68%
initiated
Exploration 44%
initiated
17%

Source: Directorate General of Hydrocarbon

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 Overall Demand-Supply Gap (MMSCMD)
Natural Gas
2008-09 2009-10 2010-11 2011-12

Supply

Domestic 120 140 147 170

LNG 34 52 70 70

Total 154 192 217 240

Demand 197 222 265 282

GAP MMSCMD 43 30 48 42

MMT 14.9 9.9 15.84 13.9

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 LNG Terminals
Rated Capacity

Company/Location 2008-09 2009-10 2010-11 2011-12

Petronet-Dahej 5.00 10.00 10.00 10.00

Shell-Hazira 2.50 3.50 3.50 3.50

RGPPL-Dabhol - 2.90 5.00 5.00

Total 7.50 16.40 18.50 18.50

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Expected Share of Natural Gas in the Energy Basket in India
(Hydrocarbon Vision 2025)

Year 2006-07 2011-12 2024-25

Coal 50 53 50

Oil 32 30 25

Gas 15 14 20

Nuclear 1 1 3

Hydel 2 2 2

100 100 100

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Sectoral Overview – Downstream

India’s downstream sector is dominated by NOCs.

Major Downstream Players as on April 1, 2008 Key Facts

Refining capacity (MMTPA) • 19 refineries with 149 MMTPA installed capacity
Essar,
ONGC, 10.5, 7%
• 105% capacity utilization in 2007-08
9.8, 7%
• Refined product consumption – 129 MMT
IOC, 60.2,
HPCL, 40%
13.0, 9%
• Refined product consumption: 7% annual growth

BPCL,
• Refined product net exports – 39 MMT, Gross
22.5, 15% exports $26.8 bn 07-08 (50% growth over 2006-07)
RIL, 33.0,
22% Source: MoPNG • Product pipelines stretch over 9,500 km
Market Share of sale of Petroleum Products (in • New entrants in the oil marketing business include
Vol sales excl. CNG & LNG)
Pvt RIL, Shell, EOL, MRPL and NRL
Other 10%
• Domestic auto sales 14.1% CAGR (’06-07 over ’01-
(PSUs)
2% 02); petroleum products consumption jumped by
HPCL 7% from last year
IOC
19% 48% • Over 34,000 retail outlets

BPCL
21% Source: Monthly IPR
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Sectoral Overview – Downstream

Refining industry in India is poised for rapid growth with additional

investments planned over the next decade supported by GoI’s intention
to promote India as an integrated refining and petrochemical export hub.
Developments Refining Capacity Vs. Crude Import in MMT
as on April 1
240.96
• 241 MMTPA refining capacity by 2012 225.88
210.21
• 38 MMTPA addition in the Pvt sector 194.7 195.49
• Private investments from Chevron/Mittal
170.41
• RIL/Essar/IOC venturing abroad (Kuwait, Africa, 148.9 150.51
Turkey etc.)
120.37
• Crude import and product exports expected to 107.27
jump

Investments

• Investment of over $22 bn estimated for creating

new refining capacity
• Refinery upgradation projects to require 2008 2009 2010 2011 2012
investments of the order of $2.5 bn
Source: XI FYP, MoPNG
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Oil Companies Under Recoveries 2007-08
– On price controlled products

Sr. 2007-08 Under- This is BORNE By

No. Recovery
Sr. Agency (Rs Crs)
(Rs Crs)
No.
1. LPG 15,000
1 Upstream 26,000
2. MS 7,000 Companies
2. OIL Bonds 35,000
3. SKO 19,000
3. OIL 16,000
4. HSD 35,000
Companies
Total 77,000 Total 77,000
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 High Taxes on Transport Fuel
Sr. Item MS Percentage HSD Percentage
No

1. Basic Price 23,149.33 50.9% 23,241.11 73.18%

(Rs/KL)

2. Custom/Exchange 22,370.67 49.1% 8518.89 26.82%

Sales/Other
Taxes (Rs/KL)

3. Total Retail Price 45,520.00 100% 31760.00 100%

Rs/KL

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SHARE OF OIL REVENUE IN TOTAL REVENUE IN 2002-05
Year Accrued to Oil Revenue Total Revenue Share of Oil
(Rs. Crs) (Rs. Crs.)* Revenue in Total
Revenue (%)
2002-03 Centre 64595 236936 27.3
States 32156 178001 18.1
Total 96751 414937 23.3
2003-04 Centre 69195 263027 26.3
States 35180 203746 17.3
Total 104375 466773 22.4
2004-05 Centre 77692 300904 25.8
States 43254 235283 18.4
Total 120946 536187 22.6
*Centre’s revenue is taken as net of transfers to States. States’ revenue is the total receipts of own tax and non-
tax revenue.
Source: Report of the Standing Committee on Petroleum & Natural Gas in Parliament, Government of India;
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State Finances, A study of Budget of 2004-05, RBI, Government of India; Budget documents, Government of
India.
 Renewable Energy Sources Potential
Source/ Units Potential/ Potential Exploited
Technology Availability
Units Percentage

Biogas Plants Million 12 3.2 26.8

Biomass- MW 19,500 384 1.9

based Power.
Efficient wood Million 120 33.9 28.2
stoves.
Solar Energy. MW/Sq. Km 20 1.7 8.7

Small Hydro MW 15,000 1,398 9.3

Wind Energy. MW 45,000 1,367 3.0

Energy MW 1,700 16.2 0.9

Recovery from
Wastes.
Hydel. MW 148,700 16,083 10.8 16
* Table 7.3.3/7.3.16 10th plan document
 Biofuels Activities
• JV under formation with Chhattisgarh
Government to produce 30,000 MTPA
Biodiesel
• 2000 ha revenue wasteland allotted by
Government of M.P. In Jhabua district for
energy crop plantation. Investment approval
being obtained
• 10% ethanol blends in MS by 2012 (The end
of the 11th plan)
• Discussions with U.P. and Rajasthan
Government for creating Biodiesel units. 17
 Status - Hydrogen Activities of IOC

 IOC R&D had set up the India’s first Hydrogen Dispensing Station
in October, 2005 which is being used for fueling test vehicles.

 A similar Hydrogen-CNG Dispensing Station is being set up at Delhi

in Dwarka by IndianOil which will be commissioned by end of 2008.

 IOC R&D working closely with SIAM members under an MNRE

project for optimisation of various vehicles to Hydrogen-CNG.

 IOC R&D planning further projects related to Hydrogen production,

development of codes & standards etc.

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Planning Cycle – Key Corporate Activity

Perspective Long Term

Vision
Plan Plan

Annual Plan 5 Year Plan

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 Knowledge Explosion

• Knowledge Doubling

Rate of
itself every 5-7 years
Change of
Everything is
• The importance of
Hyperbolic R&D escalating
exponentially

Years

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 Formula for Organisational Perpetuity

1. Creativity – Without which no new Technologies

products goods & services can emerge.

2. Continuity – Without which in a changing environment

the sense of purpose and/or directions may
get lost and develop aberrations.

3. Discontinuity – The essence of discontinuity / change is

to discard the irrelevant / obsolete on a continuous
basis. Without it no forward progress can take
place.

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