OIL AND GAS

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SUMMARY
  • The Oil and Gas industry in India is set for a sea change with recent developmental ambitions of the Government of India – 175 GW of installed capacity of renewable energy by 2022. Moreover, the aim to achieve 100 smart cities mission, 10% reduction of oil and gas import dependence by 2022 and provision of clean cooking fuels.1
  • As on 31 March 2017,
  1. Estimated reserves of crude oil in India stood at 604.10 mn tonnes (MMT).
  2. Estimated reserves of natural gas in India stood at 1289.81 bn cubic meters (BCM). 2
  3. Estimated coal bed methane (CBM) resources are of the order of 2600 bn cubic metres (BCM).
  • The predicted conventional hydrocarbon resources in 26 sedimentary basins are of the order of 41.87 bn tonnes (oil and oil equivalent of gas), which is about 49% increase as compared to earlier estimates of 28.08 bn tonnes.3
  • India is the second largest refiner in Asia after China. It is emerging as a refinery hub with refining capacity exceeding demand.4 The country’s refinery capacity has increased to 247.57 MMTPA. 5
REASONS TO INVEST
  • The growing economy and population growth are the main drivers for oil & gas demand, increasing every year.
  • The import content in the Oil & Gas industry in India is in the range of 15% for a refinery to 67% for upstream.
  • In 2018, the Government of India launched the Bid Round-I under Open Acreage Licensing Policy (OALP) for international competitive bidding. For the first time in India, 55 bidder selected blocks carved out by prospective bidders themselves. 
  • National Data Repository (NDR) has been set up on 28 June 2017, at Directorate General of Hydrocarbons (DGH), to make the entire Exploration and Production (E&P) data available. This is mainly for commercial exploration, research and development and academic purposes.6
  • National Gas Grid (Pradhan Mantri Urja Ganga): India targets to have a gas-based economy and boost the share of gas in the energy basket to 15%. The Government has approved a capital grant of $739 Mn to provide clean energy in East India.
  • Pradhan Mantri Ujjwala Yojana (PMUY): PMUY launched in FY 2016-17 to provide LPG connections to 50 mn women from the Below Poverty Line(BPL) families. PMUY scheme is for a period of 3 years ending in FY 2019-2020.7 
  • Several private companies have emerged as important players. Cairn India contributed ~25% to India's domestic crude oil production in the FY 2017-18. Cairn has the vision to produce 50% of India’s oil and gas.8
  • Supportive Government Regime — ease of doing business moved to industry-specific policy HELP (Hydrocarbon Exploration & Licensing Policy). Also, to encourage private players and global oil companies, income generated from storage and selling of crude oil in strategic crude oil reserves has been exempted from Income Tax.
  • Gas initial is in place for Coalbed Methane (CBM) established at 9.9 tn cubic feet (Tcf) (280.34 BCM) with the possibility of an upside. 9
  • Being a net importer of crude oil, India has also become a net exporter of petroleum products by investing in refineries designed for export, particularly in Gujarat.
  • Investment opportunities are in the upstream, gas pipeline, city gas distribution (CGD) network, LNG terminal, petrochemical and refinery.
  • India's largest grass-roots refinery of 60 MMTPA capacity at west coast to be set-up by oil & gas CPSEs (Central Public Sector Enterprise).
  • Gas based economy is being developed by connecting major cities with green highways. The highways will have vehicles running on CNG and LNG with adequate re¬fuelling stations.
  • The 2 world class gas hydrate reservoirs are discovered in ultra-deep waters of KG basin under national gas hydrate programme-2. This has opened new avenues for alternative resources.
  • Abundant opportunities are present for the development of underground coal gasification, coal to liquids etc.
STATISTICS
  • The Oil and Gas industry in India ranks amongst India's 8 core industries.
  • India is the 3rd largest consumer of oil in the world, after the United States & China, as per 2018. 10
  • Oil imports constitute about 83.7% of India's total domestic oil consumption in 2018-19.11
  • Oil and gas contribute about 41.73% to primary energy consumption in India.12
  • India had 54 tn cubic feet of proven natural gas reserves at the start of 2015. Approximately 34% of total reserves are located onshore, while 66% is offshore.
  • India has 247.566 MMTPA of refining capacity with a surplus refining capacity of about 15%,13 making it the 2nd largest refiner in Asia after China.
  • India is the 4th largest LNG (Liquified Natural Gas) importer in 2017 and accounted for 7.1% of global imports.14
GROWTH DRIVERS
  1. As part of International Energy Outlook 2018, more than 40% of global demand was in Europe & North America. About 20% demand was seen in developing economies in Asia in 2000 and this situation is expected to reverse by 2040.15
  2. The Oil and Gas industry in India plays a predominant role as over 1/3rd of the energy required is met by the hydrocarbons.
  3. As on February 2019, 16,788 km natural gas pipelines are operational and about 14,239 km gas pipelines are being developed, to increase the availability of natural gas.16
  4. Priority for allocation of domestic gas has been accorded to PNG (Piped Natural Gas) / CNG (Compressed Natural Gas) segments for meeting 100% demand and faster rollout of PNG connections and CNG stations. There are plans to connect 326 cities with a city gas distribution network (CGD) by 2022.
  5. In a bid to improve oil security, crude oil strategic storage of 5.33 MMT capacity has been built at 3 locations viz. Visakhapatnam (1.33 MMT), Mangalore (1.5 MMT) and Padur (2.5 MMT). The project at Visakhapatnam is already commissioned, while Mangalore and Padur are under advanced stage of commissioning.
  6. New Domestic Gas Pricing guidelines, reforms in existing contracts, calibrated marketing freedom, clarity on testing requirements under exploration and production have resulted in unlocking of reserves valued at $53.84 Bn.
  7. India's refining capacity is estimated to reach 280.320 MMTPA by 202217 after completion of projects undertaken by several refineries, which are currently under various stages of implementation.
  8. E&P sector has undergone complete re-engineering to strengthen the exploration and production of India's hydrocarbon reserves. Many path-breaking policies have been formulated to revolutionize Exploration & Production (E&P) industry. This includes Hydrocarbon Exploration and Licensing Policy, Discovered Small Field Policy and Gas Pricing Reforms.
  9. The price of diesel has been made market determined effective 19 October 2014, resulting in better service delivery, due to increased competition in the auto fuel industry. The saving in subsidy is available for funding anti-poverty and social sector schemes.
  10. The Government is focused on providing access to affordable, reliable, sustainable and modern energy to every citizen. In a bid to promote clean cooking fuel, the Government has planned to increase LPG coverage. Presently LPG coverage has reached 79.2% in 2017-18.18
  11. With the launch of the BS IV fuel in 2017, a new era of clean transportation fuels has begun. Next step is to pave the way for BS-VI fuels by 01 April 2020, to be at par with global standards.19
  12. There is a renewed focus on biofuels by promoting ethanol blending programme and bio-diesel programme.
  13. The Government has introduced a well-organized system of subsidy delivery to LPG consumers through PAHAL. The initiative is to rationalize subsidies based on the approach to cut subsidy leakages. As on 6 December 2018, more than 230 mn LPG consumers have joined the PAHAL Scheme. PAHAL has entered into Guinness book of World record as a largest Direct Benefit Transfer scheme.20
FDI POLICY
  • The government has allowed 100% Foreign Direct Investment (FDI) automatic route, in the following:
    • Exploration activities of oil and natural gas fields,
    • Infrastructure related to marketing of petroleum products and natural gas,
    • Marketing of natural gas and petroleum products, petroleum products' pipelines, natural gas pipelines,
    • LNG regasification infrastructure, market study, formulation and petroleum refining in the private sector,
    • The policy of the government or private participation in the exploration of oil and the discovered fields of natural oil companies
  • The government offers a 49% automatic route, in case of petroleum refining by PSU, without disinvestment of dilution of domestic equity in existing PSUs.
SECTOR POLICY
  1. Hydrocarbon Exploration & Licensing Policy (HELP) replaces the present policy regime for exploration and production of oil and gas, known as New Exploration Licensing Policy (NELP). HELP provides a uniform licensing system to explore and produce all hydrocarbons such as oil, gas, coal bed methane, shale oil/gas, etc. under a single licensing framework.
  2. With an opportunity to increase domestic production of oil and gas, Government of India in September 2015, in consultation with ONGC and OIL, approved the Discovered Small Field Policy. This policy aimed for monetization of 69 discovered small fields/discoveries of ONGC and OIL, which had not been put into production. Under the Discovered Small Field Policy Round-II, on 9 August 2018, Government of India has offered 59 discoveries clubbed under 25 contract areas for bidding.21
  3. Under the New Domestic Gas Pricing Policy, a transparent new gas pricing formula linked to the global market is made effective from 1 November 2014.
  4. Policy framework for relaxation, extensions and clarifications at the development and production stage under PSC (Production Sharing Contract) regime for early monetization of hydrocarbon discoveries approved on 10 November 2014.
  5. Policy for grant of extension to the Production Sharing Contracts of 28 Small and medium-sized discovered blocks approved on 10 March 2016.
  6. Policy on Testing Requirements for discoveries in New Exploration Licensing Policy (NELP) blocks approved on 29 April 2015.
  7. Hydrocarbon vision 2030 for North East India has been released in February 2016.
  8. Pooling of gas in fertilizer (Urea) industry was approved on 31 March 2015. Mainly to supply gas at a uniform delivered price to all fertilizer plants, through a pooling mechanism of domestic gas with R-LNG.
  9. The Petroleum and Natural Gas Regulatory Board Act 2006 regulates refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas.
  10. The National Biofuel Policy 2009 promotes bio-fuel usage. The Government of India has provided a 12.36% concession on excise duty on bio-ethanol and also exempted bio-diesel from excise duty. The Union Cabinet has approved National Policy on Biofuels – 2018. 22
  11. The Government is implementing an Ethanol Blending Petrol programme under which oil marketing companies are mandated to sell Ethanol blended petrol with up to 10% Ethanol. The mechanism for procurement of ethanol by Oil Marketing Companies (OMCs) to carry out Ethanol Blended Petrol programme approved on 10 December 2014. The Government of India has enhanced the Ethanol Procurement Price and opened an alternate route like cellulosic and lignocellulosic materials, including Petrochemical route.
  12. Direct sale of bio-diesel by private manufacturers/suppliers to bulk consumers like Railways and State Transport Corporations permissible on 10 August 2015.
  13. The milestone set in Auto Fuel Policy 2003 is already achieved. Ministry of Petroleum and Natural Gas has issued a statement to all the concerned stakeholders including oil marketing companies. The statement is for implementation and expansion of the supply of BS-IV auto fuels in phases by 1 April 2017, as per the road map is given in Auto Fuel Vision & Policy-2025.
  14. The Policy on Shale Gas & Oil, 2013 allows companies to apply for shale gas and oil rights in their petroleum exploration licenses and petroleum mining leases.
FINANCIAL SUPPORT

FISCAL INCENTIVES

  • Various exemptions are given from customs duty on goods imported for petroleum exploration licenses. Also, movement of goods from one block to another under various types of licenses/mining leases etc., have been merged into a single exemption, with a unified list of goods and conditions.
  • The central sales tax rules have been amended to facilitate smooth trade of natural gas across India, thereby, helping to build a gas-based economy.
  • To increase investment in the exploration industry, no basic customs duty & countervailing duty (CVD) on imports of goods required for exploration & production of hydrocarbon activities is extended. This is mainly for operations undertaken to Exploration Licenses & Mining Leases issued or renewed before 1 April 1999.

STATE INCENTIVES

  • Each state in India offers additional incentives for industrial projects. Incentives are provided in areas such as
    • subsidised land cost
    • relaxation of stamp duty on sale/lease of land
    • power tariff
    • concessional rates of interest on loans
    • investment subsidies and/or tax
    • backward areas subsidies
    • special incentive packages for mega projects

AREA BASED INCENTIVES

  • Hydrocarbon Vision 2030 for north-east India has been released. It visualizes an investment of $20 Bn in upstream, downstream and midstream industry in hydrocarbon industry till 2030. To incentivize E&P (Exploration & Production) 40% subsidy on gas operation has been extended to private companies operating in the region.
INVESTMENT OPPORTUNITIES
  • One of the main components of Hydrocarbon Exploration Licensing Policy has been launched on 30 June 2017, to call for expression of interest (EOI) for the open acreages. International Competitive Bidding for 55 blocks has been launched because of blocks identified after receiving Expression of Interest (EOI).23
  • For early monetization of discovered small fields, in September 2015, Cabinet approved 69 marginal fields for offer under Discovered Small Fields Policy. Out of these, 67 Discovered Small Fields were clubbed into 46 contract areas and put on offer through online international competitive bidding.24
  • The government announced to construct Strategic Petroleum reserves under Phase II at two new locations. The Ministry is working towards obtaining required approvals to set up these SPRs at Chandikhol in Odisha and Padur in Karnataka.25
  • India plans to connect 326 cities with a city gas distribution network (CGD) by 2022. To promote the use of natural gas, priority for allocation of domestic gas has been accorded to PNG/CNG segments for meeting 100% demand and faster rollout of PNG connections and CNG stations.
  • There is a provision of 100 mn new LPG connections till 2019, of which 50 mn are for BPL households. The Government is focused on providing access to affordable, reliable, sustainable and modern energy to every citizen.

SHALE 

  • As per Energy Information Administration (EIA) USA, 584 tn cubic feet (tcf) of shale gas and 87 bn barrels of shale oil in 4 basins (Cambay Onland, Damodar, Krishna Godavari Onland & Cauvery Onland) are estimated as of 2013.26

UNDERGROUND COAL GASIFICATION

  • Coal gasification has been identified as one of the end uses under the government’s captive mining policy.

OPPORTUNITIES FOR PIPELINE TRANSPORTATIONS

  • In advanced economies like the US, more than 60% of petroleum product movement happens by pipeline. Whereas in India only 35% of product movement happens over pipelines. The city gas and distribution industry offer opportunities for both incumbents and new companies. The Petroleum and Natural Gas Regulatory Board allows the following incentives to authorised entities:
    • Infrastructure exclusivity is available to the authorised entity for a period of 25 years.
    • Exclusivity for the activity of marketing of natural gas is allowed to the authorised entity for a period of five years.
    • For incumbents, the marketing exclusivity extends to a period of three years. Government has ensured City Gas Distribution (CGD) companies for availability of domestic gas for CNG (Transport) and PNG (Domestic) consumption.

THE REFINING SECTOR

  • India is already a refining hub with 23 refineries and expansions planned for tapping foreign investment in export-oriented infrastructure, including product pipelines and export terminals.

OPPORTUNITIES FOR E&P SERVICES AND EQUIPMENT COMPANIES

  • India is yet to explore the 48% of the sedimentary area.
  • From a total sedimentary area of 3.142 mn sq. km, an area of 1.502 mn sq. km is yet to be appraised. Ministry of Petroleum and Natural Gas has framed a plan to conduct 2D seismic surveys in all sedimentary basins of India. As on 31 December 2017, 2D Seismic survey work has started and 14,077 LKM (29.18%) of the survey has already been completed.27 
  • Re-assessment of hydrocarbon reserves in all 26 sedimentary basins in India to be carried out by ONGC in 2017-18.

OFFERING OF EXPLORATION BLOCKS

  • The offering of un-monetized discoveries through international competitive bidding under Small Discovered Field Policy for early monetization of reserves worth $10.76 Bn. The ‘Minimum Government — Maximum Governance’ policy is packed with all possible reforms like uniform licensing, pricing and marketing freedom, and revenue sharing mechanism. As on 9 August 2018, under the Discovered Small Field Policy Round-II, the Government offered 59 discoveries clubbed under 25 contract areas for bidding. This policy has enabled production at unmonetized discoveries/fields to increase the domestic production of oil and gas.28
  • Marketing and pricing freedom would incentivize gas production from difficult areas, such as deep/ ultra-deepwater and high pressure/ high temperature. This will further facilitate in the monetization of 6.75 tn cubic feet of gas reserves valued at $23.07 Bn.
  • National Data Repository (NDR) has been established to consolidate and store all the Geoscientific data generated. The objective of NDR policy is to assimilate, preserve and regulate the E&P data generated by various companies collected till date.29
  • To ease out rigidities in the functioning of Production Sharing Contract (PSC) regime, the Government approved policy framework for relaxation, extension and clarifications for early monetization of hydrocarbon discoveries. This has helped in the resolution of around 40 pending issues and move ahead with discoveries valued at $4.6 Bn.
  • Policy on Grant of extension to the production sharing contracts for small and medium-sized discovered fields would help in the monetization of resources of the order of $7.69 Bn. Policy on the testing requirement in NELP blocks would resolve existing disputes; facilitate monetization of resources of the order of $11.53 Bn.

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 predictable future. While exploration activity has taken place inland and in shallow basins across the country, it is believed by many that deep water and ultra-deep-water oil and gas resources hold the key to substantially increasing domestic production. This creates a plethora of opportunities for strategic investors having the relevant technical expertise and financial muscle.
FOREIGN INVESTORS
  • British Petroleum (UK)
  • Cairn Energy (India)
  • Shell (UK)
  • Niko Resources (Canada)
  • OILEX Limited (Australia)
  • Hardy Oil & Gas Plc. (UK)
AGENCIES
KEY ACHIEVEMENTS
  • Crude oil strategic storage of 5.33 mn metric tonne (MMT) commissioned at Visakhapatnam, Mangalore and Padur 
  • IOCL refinery with a capacity of 15 mn metric tonnes per annum (MMTPA) commissioned at Paradip, Odisha
  • Under OALP Bid Round I, 55 blocks having an area of 59,282 sq. km have been awarded
  • The 2nd Bidding Round under DSF Policy offering 59 discoveries have been launched
  • Development of additional 13500 Km long gas pipeline is underway
  • Remunerative price is fixed for ethanol procurement, based on raw material utilized for ethanol production
  • As on 31 October 2018, the surface coverage of 28485 LKM, out of 48243 LKM has been achieved under 2D seismic data acquisition under National Seismic Programme.30
  • On 14 August 2016, ONGC launched a Start-Up Fund of $1.43 Bn, to support, raise and foster start-ups in the energy sector. 31
SOURCES
  1. Niti Aayog, Energizing India, https://niti.gov.in/writereaddata/files/Energising-India.pdf accessed on 23 May 2019
  2. Ministry of Statistics and Programme Implementation, Energy Statistics 2018, http://mospi.nic.in/sites/default/files/publication_reports/Energy_Statistics_2018.pdf accessed on 23 May 2019
  3. Ministry of Petroleum & Natural Gas, Annual Report 2017-18, http://petroleum.nic.in/sites/default/files/APR_E_1718.pdf accessed on 23 May 2019
  4. National Informatics Centre, Petroleum Refining Capacity in India from 2011 to 2017, https://community.data.gov.in/petroleum-refining-capacity-in-india-from-2011-to-2017/ accessed on 23 May 2019
  5. Ministry of Petroleum & Natural Gas, Annual Report 2017-18, http://petroleum.nic.in/sites/default/files/APR_E_1718.pdf accessed on 23 May 2019
  6. Ministry of Petroleum & Natural Gas, Annual Report 2017-18, http://petroleum.nic.in/sites/default/files/APR_E_1718.pdf accessed on 23 May 2019
  7. Ministry of Petroleum & Natural Gas, Annual Report 2017-18, http://petroleum.nic.in/sites/default/files/APR_E_1718.pdf accessed on 23 May 2019
  8. Cairn Oil & Gas, About Cairn Oil & Gas, https://www.cairnindia.com/Pages/Home.aspx accessed on 23 May 2019
  9. Directorate General of Hydrocarbons, (Ministry of Petroleum & Natural Gas), Unconventional Hydrocarbon, http://www.dghindia.org/index.php/page?pageId=63&name=Hydrocarbon%20Scenario accessed on 23 May 2019
  10. Ministry of Statistics and Programme Implementation, Energy Statistics 2018, http://mospi.nic.in/sites/default/files/publication_reports/Energy_Statistics_2018.pdf accessed on 23 May 2019
  11. Petroleum Planning & Analysis Cell, Snapshot of India’s Oil & Gas data April 2019, https://www.ppac.gov.in/WriteReadData/Reports/201905200627331728813SnapshotofIndia’sOil&Gasdata,April2019.pdf accessed on 23 May 2019
  12. Ministry of Petroleum & Natural Gas, Annual Report 2017-18, http://petroleum.nic.in/sites/default/files/APR_E_1718.pdf accessed on 23 May 2019
  13. Ministry of Petroleum & Natural Gas, Annual Report 2017-18, http://petroleum.nic.in/sites/default/files/APR_E_1718.pdf accessed on 23 May 2019
  14. International Gas Union, IGU World LNG Report- LNG Imports By Market, https://www.igu.org/sites/default/files/node-document-field_file/IGU_LNG_2018_0.pdf accessed on 23 May 2019 
  15. International Energy Agency, World Energy Outlook 2018, https://www.iea.org/media/presentations/WEO2018-Presentation.pdf accessed on 23 May 2019
  16. Press Information Bureau, Government of India, Ministry of Petroleum & Natural Gas, Status of National Gas Grid, http://pib.nic.in/newsite/PrintRelease.aspx?relid=188106 accessed on 23 May 2019
  17. Ministry of Petroleum & Natural Gas, Annual Report 2017-18, http://petroleum.nic.in/sites/default/files/APR_E_1718.pdf accessed on 23 May 2019
  18. Ministry of Petroleum & Natural Gas, Annual Report 2017-18, http://petroleum.nic.in/sites/default/files/APR_E_1718.pdf accessed on 23 May 2019
  19. Press Information Bureau - Minister of State for Petroleum and Natural Gas, Petroleum Minister releases LPG connection to mark the completion of 2 Cr connections under PMUY, http://pib.nic.in/newsite/erelease.aspx?relid=160405 accessed on 23 May 2019
  20. Press Information Bureau, Government of India, Ministry of Petroleum & Natural Gas, Year End Report 2018- Ministry of Petroleum & Natural Gas, http://pib.nic.in/newsite/PrintRelease.aspx?relid=186260 accessed on 23 May 2019
  21. Press Information Bureau - Ministry of Petroleum & Natural Gas, Approval of 69 Discovered Small Field/Discoveries Under the Discovered Small Field Policy, http://www.pib.nic.in/Pressreleaseshare.aspx?PRID=1555635 accessed on 23 May 2019
  22. Press Information Bureau, Government of India, Cabinet, Cabinet approves National Policy on Biofuels – 2018, http://pib.nic.in/newsite/PrintRelease.aspx?relid=179313 accessed on 23 May 2019
  23. Ministry of Petroleum & Natural Gas, Annual Report 2017-18, http://petroleum.nic.in/sites/default/files/APR_E_1718.pdf accessed on 23 May 2019
  24. Press Information Bureau, Government of India - Ministry of Petroleum & Natural Gas, CCEA approves the award of contract in 31 contract areas (44 fields) of Discovered Small Fields of ONGC and OIL, http://pib.nic.in/newsite/PrintRelease.aspx?relid=158497 accessed on 23 May 2019
  25. Ministry of Petroleum & Natural Gas, Annual Report 2017-18, http://petroleum.nic.in/sites/default/files/APR_E_1718.pdf accessed on 23 May 2019
  26. Directorate General of Hydrocarbons, Shale Oil and Gas, http://www.dghindia.org/index.php/page?pageId=37 accessed on 23 May 2019
  27. National Data Repository, DGH, Ministry of Petroleum & Natural Gas, Major Policy Reforms by Government, https://www.ndrdgh.gov.in/NDR/?page_id=2243 accessed on 23 May 2019
  28. Press Information Bureau, Government of India, Ministry of Petroleum & Natural Gas, Approval of 69 Discovered Small Field, http://pib.nic.in/PressReleaseIframePage.aspx?PRID=1555635 accessed on 23 May 2019
  29. National Data Repository, DGH, Ministry of Petroleum & Natural Gas, Objectives of NDR, https://www.ndrdgh.gov.in/NDR/?page_id=503 accessed on 23 May 2019
  30. Press Information Bureau, Government of India, Ministry of Petroleum & Natural Gas, Year End Report 2018- Ministry of Petroleum & Natural Gas, http://pib.nic.in/newsite/PrintRelease.aspx?relid=186260 accessed on 23 May 2019
  31. ONGC, Start-up Initiative, https://startup.ongc.co.in/wps/wcm/connect/ONGCStartup/initiative/ accessed on 23 May 2019
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