The oil and gas sector is among the six core industries in India and plays a major role in influencing decision making for all the other important sections of the economy.
In 1997–98, the New Exploration Licensing Policy (NELP) was envisaged to fill the ever-increasing gap between India’s gas demand and supply. A recent report points out that the Indian oil and gas industry is anticipated to be worth US$ 139.8 billion by 2015. India’s economic growth is closely related to energy demand; therefore the need for oil and gas is projected to grow more, thereby making the sector quite conducive for investment.
The Government of India has adopted several policies to fulfil the increasing demand. The government has allowed 100 per cent Foreign Direct Investment (FDI) in many segments of the sector, including natural gas, petroleum products, and refineries, among others. Today, it attracts both domestic and foreign investment, as attested by the presence of Reliance Industries Ltd (RIL) and Cairn India.
Backed by new oil fields, domestic oil output is anticipated to grow to 1 MBPD by FY16. With India developing gas-fired power stations, consumption is up more than 160 per cent since 1995. Gas consumption is likely to expand at a Compound Annual Growth Rate(CAGR) of 21 per cent during FY08–17. Presently, domestic production accounts for more than three-quarters of the country’s total gas consumption.
India is the fifth-largest Liquefied Natural Gas (LNG) importer after Japan, South Korea, the United Kingdom and Spain and accounts for 5.5 percent of the total global trade.The LNG imports had increased by 43.38 per cent year-on-year in May 2016 to 2.08 Billion Cubic Metres (BCM).Domestic LNG demand is expected to grow at a CAGR of 16.89 per cent to 306.54 Million Metric Standard Cubic Meter per Day (MMSCMD) by 2021 from 64 MMSCMD in 2015.
The country's gas production is expected to touch 90 Billion Cubic Metres (BCM) in 2040 from 35 BCM in 2013. Gas pipeline infrastructure in the country stood at 15,808 km in December 2015.
State-owned Oil and Natural Gas Corporation (ONGC) dominates the upstream segment (exploration and production), accounting for approximately 68 per cent of the country’s total oil output (FY14).
Indian Oil Corporation Limited (IOCL) operates 11,214 km network of crude, gas and product pipelines, with a capacity of 1.6 MBPD of oil and 10 MMSCMD of gas. This is around 30 per cent of the nation’s total pipeline network. IOCL is the largest company, operating 10 out of 22 Indian refineries, with a combined capacity of 1.3 MBPD.
According to data released by the Department of Industrial Policy and Promotion (DIPP), the petroleum and natural gas sector attracted FDI worth US$ 6.67 billion between April 2000 and March 2016.
Following are some of the major investments and developments in the oil and gas sector:
- Heraeus, one of the world’s largest recyclers of reforming catalyst, has opened a new facility at Udaipur which will allow companies to benefit from less transport costs, easier file processing, faster recycling times, better transparency and overall improved costing for catalyst recycling in the country.
- Honeywell International Inc, the US-based technology and manufacturing solutions provider, has unveiled a new refining technology in Gurgaon, which will be dedicated to helping Indian refiners get more clean transportation fuel, reduce imports of crude oil and produce environmentally preferable diesel fuels.
- Royal Dutch Shell Plc, which has already invested US$ 1 billion in India, has planned further investments in upstream and downstream segments of oil and gas sector, and is also doubling its employee base at its Shell Technology Centre Bangalore (STCB).
- India and Iran have signed agreements related to crude oil imports, petrochemical complexes and gas field development, in addition to India committing to invest US$ 20 billion in the port of Chabahar in Southeastern Iran.
- Kolkata-based Dhunseri Petrochem Limited and Thailand's Indorama Ventures Public Company Limited have agreed to enter into an equal joint venture to manufacture and sell polyethylene terephthalate (PET) resins for Indian market.
- State-run Indian Oil Corporation Ltd (IOCL) plans to invest Rs 34,000 crore (US$ 5.04 billion) on a petrochemical complex at Paradeep in the state of Odisha, which is expected to be commissioned by 2021.
- Petrogas Pvt Ltd, a joint venture of Isomeric Holdings bhd of Malaysia and LEPL Venture Pvt Ltd of India, will collaborate with Krishnapatnam Port Co Ltd and the Government of Andhra Pradesh, to set up a liquefied natural gas (LNG) regassification and floating storage terminal at Krishnapatnam Port in Nellore district with an investment of around Rs 3,000 crore (US$ 444.72 million).
- India's consumption of petroleum products which include domestic and industrial fuels like petrol, diesel, cooking gas, kerosene, naphtha, etc., rose 17.7 per cent to 15.2 million tonne (MT) in October 2015 from 12.9 MT in October 2014, as per Petroleum Planning and Analysis Cell (PPAC) data. The increase in consumption can be mainly attributed to India's high economic growth, low fuel prices, festival season demand.
- Essar Projects, the engineering, procurement & construction (EPC) arm of Essar Group, in a joint venture with Italy’s Saipem has won a US$ 1.57 billion contract from Kuwait National Petroleum Company (KNPC) for setting up part of the Al-Zour Refinery Project in Kuwait.
- ONGC Videsh Ltd (OVL), the foreign arm of state-owned petroleum explorer Oil and Natural Gas Corporation (ONGC), has planned to acquire up to 15 per cent stake in CSJC Vankorneft, which owns Russia's second-largest oil and gas field.
- Kirloskar Oil Engines Ltd (KOEL) and MTU Friedrichshafen, GmbH signed a memorandum of understanding (MoU) towards exclusive cooperation on the building and commissioning of emergency diesel gensets (EDG).
- CDP Bharat Forge GmbH acquired 100 per cent equity shares of Mécanique Générale Langroise (MGL) for € 11.8 million (US$ 12.91 million) to consolidate Bharat Forge’s position in the oil and gas sector by enhancing service offerings and geographical reach.
- Technip won a € 100 million (US$ 109.37 million) contract from ONGC to build an onshore oil and gas terminal in Andhra Pradesh.
- RIL and Mexican state-owned company Petroleos Mexicanos (Pemex) entered into a memorandum of understanding (MoU) for cooperation in the oil and gas sector.
- GAIL Global USA LNG LLC (GGULL) signed an agreement with the US-based WGL Midstream Inc to source gas required to produce 2.5 MT of liquefied natural gas (LNG) a year at the Cove Point Terminal in Maryland, US.
- Russian oil major Rosneft and the Essar Group have entered into a contract for Rosneft to buy 49 per cent stake in Essar’s Vadinar refinery and supply 100 million tonnes of oil to Essar for the next 10 years.
- Essel Group Middle East plans to acquire 60 per cent participating interest in the African oil and gas exploration projects of a Canadian publicly traded oil and gas company, Simba Energy Inc.
- IOCL targets to increase the capacity of its Panipat refinery by 34 per cent, to 20.2 million tonnes by 2020 through an investment of US$ 2.38 billion. IOC also plans to increase capacity of Koyali and Mathura refineries.
Some of the major initiatives taken by the Government of India to promote oil and gas sector are:
- The Union Cabinet has approved the National Mineral Exploration Policy (NMEP), which will pave the way for auction of 100 prospective mineral blocks to attract private sector in exploration, besides involving state-run agencies.
- The government has launched a pilot programme, aimed at introducing compressed natural gas (CNG) as fuel for two-wheelers.
- The Ministry of Petroleum and Natural Gas is seeking to enhance India's crude oil refining capacity through 2040 by setting up a high-level panel, which will work towards aligning India's energy portfolio with changing trends and transition towards cleaner sources of energy generation.
- The Ministry of New and Renewable Energy (MNRE) plans to launch an integrated bio energy mission with an investment of Rs 10,000 crore (US$ 1.48 billion) from FY 2017-18 to FY 2021-22, aimed at enhancing the use of bio-fuels like ethanol and biogas and reducing consumption of fossil fuels.
- The Hydrocarbon Sector Skill Council (HSSC), which was set up by the Government of India under its Skill India initiative, plans to train over 1.9 million people in the oil and gas sector over the next 10 years, to cater to the rising skill needs of the industry.
- The Union Cabinet has allowed state-owned oil firms to evolve their own crude oil import policies which involve freedom to choose source companies as well as pricing for their crude oil imports, thus allowing them to compete in the market effectively.
- In a major drive to enhance the petroleum and hydrocarbon sector, Government of India has introduced initiatives like the Hydrocarbon Exploration Licensing Policy (HELP), Marketing and Pricing freedom for new gas production, grant of extension to the Production Sharing Contracts and assigning the Ratna offshore field award to Oil and Natural Gas Corporation (ONGC) for development.
- Mr Dharmendra Pradhan, Minister of State (Independent Charge) for Petroleum and Natural Gas has released the Hydrocarbon Vision 2030 for North East India, with the objective of leveraging the north-eastern region’s hydrocarbon potential, enhance access to clean fuels, improve availability of petroleum products, facilitate economic development and to involve local population in the economic activities in this sector.
- The Government of India plans to incentivise gas production from deep-water, ultra deep-water and high pressure-high temperature areas which are presently not exploited on account of higher cost and risk, and also to augment the investment in nuclear power generation in the next 15 to 20 years.
- The Government of India is in the process of identifying at least 50 potential blocks of 100 sq km and above to be given to companies for bringing private investment in the mineral exploration sector. The Ministry of Petroleum and Natural Gas has put up for comments a draft policy, to opt for revenue-sharing model while auctioning future oil and gas blocks for exploration to private companies, compared to production-sharing mode earlier, in order to make the process more transparent and market-oriented.
- The Ministry of Petroleum and Natural Gas has announced a new 'Marginal Fields Policy', which aims to bring into production 69 marginal oil and gas fields with 89 million tonnes or Rs 75,000 crore (US$ 11.12 billion) worth of reserves, by offering various incentives to oil and gas explorers such as exemption from payment of oil cess and customs duty on machinery and equipment.
- Government of India entered into bilateral discussion with Norway to extend co-operation between the two countries in the field of oil and natural gas and hydrocarbon exploration.
- To strengthen the country`s energy security, oil diplomacy initiatives have been intensified through meaningful engagements with hydrocarbon rich countries.
- PAHAL - Direct Benefit Transfer for LPG consumer (DBTL) scheme launched in 54 districts on November 11, 2014 and expanded to rest of the country on January 1, 2015 will cover 15.3 crore active LPG consumers of the country.
- 24 x 7 LPG service via web launched to provide LPG consumers an integrated solution to carry out all services at one place, through MyLPG.in, from the comfort of their home.
- The Government of India launched the 'Give It Up' campaign on LPG subsidy that helped it save Rs 140 crore (US$ 20.75 million) as on July 22, 2015 with nearly 1.26 million Indians registering for the cause. As per recent statistics from oil ministry, as many as 30,000 to 40,000 households are giving up LPG subsidy each day.
- As part of the special dispensation for North East Region, for incentivising exploration and production in North East Region, 40 per cent subsidy on gas price has been extended to private companies operating in the region, along with ONGC and OIL.
- The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Mr Narendra Modi, has approved a mechanism for procurement of Ethanol by Public Sector Oil Marketing Companies (OMCs) to carry out the Ethanol Blended Petrol (EBP) Program.
By 2015-16, India’s demand for gas may touch 124 MTPA against a domestic supply of 33 MTPA and higher imports of 47.2 MTPA, leaving a shortage of 44 MTPA, as per projections by the Petroleum and Natural Gas Ministry of India. Business Monitor International (BMI) predicts that India would account for 12.4 per cent of Asia-Pacific regional oil demand by 2015.
Exchange Rate Used: INR 1 = US$ 0.0148 as on July 11, 2016
References: Media Reports, Press Releases, Press Information Bureau, Ministry of Petroleum and Natural Gas, Union Budget 2016-17
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.