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Oil and Gas

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Oil and Gas Industry in India

May, 2014

Introduction

The Indian oil and gas (O&G) sector is projected to touch US$ 139,814.7 million by 2015 from US$ 117,562.9 million in 2012. The sector provides vast opportunities for investors. The New Exploration Licensing Policy (NELP) of 1997–98 was envisioned to deal with the ever-growing gap between demand and supply of gas in India. It has successfully attracted both foreign and domestic investment, as attested by the presence of Cairn India and Reliance Industries Limited in the country.

India’s economic growth, as with all other countries, is closely linked to energy demand. The need for oil and gas, which are among the primary sources for meeting energy requirements, is thus projected to grow further.

To meet this demand, the government has adopted several policies, such as allowing 100 per cent foreign direct investment (FDI) in several segments of the sector, including petroleum products, natural gas, pipelines, and refineries.

Key Statistics

In 2011, India’s O&G sector witnessed one of the biggest FDI deals in the country, with British Petroleum (BP) formalising a US$ 7.2 billion partnership with Reliance Industries, for exploring offshore gas reserves.

At the end of FY 2011–12, India had total reserves of 1330 billion cubic metres (bcm) of natural gas and 760 million metric tonnes (mt) of crude oil.

Diesel & Petrol

Diesel is the country’s most consumed fuel, accounting for almost 45 per cent of the total demand for petroleum products. Since 2003–04, the demand for the transportation fuel has been increasing at a rate of 6–8 per cent.

About 62 per cent of petrol in the Indian market is consumed by two-wheelers, 27 per cent by cars, and 6 per cent by three-wheelers. The rest are consumed for other purposes such as operating generators, and by people in rural areas who need the fuel to run their livelihood, according to a survey conducted by global information and measurement company, Nielsen.

Gas

  • India's natural gas output was 3.01 bcm in July 2013.
  • India's natural gas output will increase by 67 per cent in the next three years owing to higher production from several blocks, especially Reliance Industries-operated KG-D6, according to the country’s Oil Minister, Mr M Veerappa Moily.

Oil & Gas – Key Developments and Investments

  • Bharat Petroleum Corp Ltd (BPCL) plans to invest around US$ 4 billion to increase its refining capacity, according to a top executive of the corporation. The company has already stated its desire to hike its refining capacity from the current annual output of 30.5 mt to 47.5 mt by 2016–17. Capacity expansion and innovation are vital for a company to sustain in today’s business environment, said Mr S Varadarajan, Chairman and Managing Director, BPCL, at a Refinery Technology Meet in Kochi.
  • Pune-based My Eco Energy has announced its foray into the bio-fuel industry. The company is involved in the production of bio-diesel, a non-petroleum based fuel. Bio-diesel is manufactured from waste materials such as vegetable oils and animal fat, and is available for commercial and consumer use. Bio-diesel manufactured by My Eco Energy caters to the demand for non-petroleum based fuel, according to Mr Santosh Verma, Director of the company.
  • The lubricants-making arm of Malaysia's national oil company, Petronas, has formalised a land-lease agreement with Maharashtra Industrial Development Corporation (MIDC) for building a lubricant plant near Mumbai. Petronas Lubricants International aims to consolidate its position in the growing Indian lubes market that is projected to reach US $8 billion by 2017. The plant will cost around US$ 50 million and will possess an initial capacity of 60 kilo tonne per annum (kta).
  • ONGC Videsh Ltd (OVL), the overseas arm of Oil and Natural Gas Corporation (ONGC), has agreed to buy an additional 12 per cent stake in a Brazilian oil block from Brazil’s Petrobras for US$ 529 million. This purchase will raise the company’s stake in the field to 27 per cent, the company stated.
  • Indian major Larsen & Toubro (L&T) has bagged two engineering, procurement and construction (EPC) projects believed to be around Rs 1,100 crore (us$ 177.57 million) in the hydrocarbon segment in the United Arab Emirates (UAE) and Qatar. The company has secured the contract for the fuel depot expansion of the Abu Dhabi International Airport. This project aims to improve the facility to meet demand for jet fuel over the next 20 years. Also, L&T has secured an EPC contract from Dolphin Energy for third party gas interconnecting facilities in the coastal city of Ras Laffan, Qatar. The construction periods for the Abu Dhabi and Qatar projects are 30 months and 20 months, respectively.

Oil & Gas - Government Initiatives

The Government of Assam has agreed to allow the clearing of forest areas that were hindering a major investment by ONGC. The investment was endorsed by Indian Prime Minister, Mr Manmohan Singh as a means to revive the hydrocarbons industry in the state. ONGC had previously embarked on a Rs 7,800 crore (US$ 1.25 billion) investment plan to revitalize its operations in the state with fresh technology and infrastructure, in 2008.

With the objective of harnessing the country’s hydrocarbon prospects and to give them greater flexibility in future, the Government of India plans to establish a National Data Repository (NDR) centre. The centre is expected to be complete by 2015 or 2016. The companies would use the data and pick acreage for prospecting, which is an attempt at reforming the existing production sharing contract system. Also, there will be hydrocarbon production linked payments (PLP) as against the present production sharing basis. Most of the reforms are aimed at encouraging indigenous energy exploitation, by offering flexible terms to companies.

Oil & Gas - Road Ahead

ONGC will explore 30 additional shale gas wells in the country over the next two years, according to its chairman and managing director Mr Sudhir Vasudeva. The company plans to invest about Rs 600 crore (US$ 96.81 million) for the project. Shale gas is natural gas that can be found in fine-grained sedimentary rock. The gas is often locked in small spaces and is called ‘tight gas’ due to this characteristic. It requires high-end technique to produce the hydrocarbon at economic rates.

The use of shale gas can be the first step towards ‘economic freedom’, according to Oil Minister M Veerappa Moily. The minister feels that India could follow a similar path to the US, which turned from a net importer of energy to a net exporter of energy with the use of shale gas and oil. The news could not have come at a better time. By 2015–16, India’s demand for gas is set to rise to 124 million tonnes per annum (mtpa) against a domestic supply of 33 mtpa and higher imports of 47.2 mtpa, which still leaves a shortage of 44 mtpa, according to projections of the Petroleum and Natural Gas Ministry.

Exchange Rate Used: INR 1 = US$ 0.01613 as on December 18, 2013

References: Media Reports, Press Releases.