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. 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.
India is expected to be one of the largest contributors to non-OECD petroleum consumption growth globally. Total oil imports declined by 10 per cent year-on-year in February 2017. Fuel consumption in India increased by 10.7 per cent to a 16-year high of 196.48 million tonnes (MT) in 2016.1
India is the fourth-largest Liquefied Natural Gas (LNG) importer after Japan, South Korea and China, and accounts for 5.8 per cent of the total global trade.3Domestic LNG demand is expected to grow at a CAGR of 16.89 per cent to 306.54 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 23.09 BCM in FY2016-17 (till December 2016). 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), producing around 25.93 MT of crude oil, which is approximately 60.5 per cent of the country’s 36.95 MT oil output, as of March 2016.
According to data released by the Department of Industrial Policy and Promotion (DIPP), the petroleum and natural gas sector attracted FDI worth US$ 6.8 billion between April 2000 and December 2016.
Following are some of the major investments and developments in the oil and gas sector:
- Indian Oil Corporation (IOC) plans to invest around Rs 40,000 crore (US$ 5.9 billion) to set up a 15 million tonne (MT) refinery at Nagapattinam in Tamil Nadu.
- ONGC has signed an agreement with the Government of Andhra Pradesh to invest around Rs 78,000 crore (US$ 11.7 billion) in the Krishna Godavari basin for producing hydrocarbons by FY 2021-22.
- Honeywell International Inc, the US-based technology firm, plans to double the headcount at its Indian petroleum and polymer arm, Honeywell UOP, to 700, in order to tap opportunities from India’s massive refinery upgradation programme and petrochemical capacity expansion.
- Investments in India's oil and gas sector will likely touch Rs 2.5-3 trillion (US$ 37.5-45 billion) over the next few years, which will help raise the share of gas in the country’s primary energy mix to 15 per cent by 2030, as per British multinational oil and gas company BP Group.
- ONGC has launched a start-up fund of Rs 100 crore (US$ 15 million) on its Diamond Jubilee year to encourage and promote new ideas related to oil and gas sector, thereby giving a fillip to Government's Startup India initiative.
- Yara International ASA, a Norwegian chemical company, plans to acquire Tata Chemicals Limited’s Babrala urea plant and distribution business in Uttar Pradesh for about Rs 2,670 crore (US$ 400.5 million), on a debt and cash free basis.
- 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$ 5.1 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$ 450 million).
- 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 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 MécaniqueGénéraleLangroise (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.
Some of the major initiatives taken by the Government of India to promote oil and gas sector are:
- The Government of India plans to merge state oil companies to create an integrated oil major that could compete globally, and utilise the synergy between various state entities for achieving efficiency and cost competitiveness in order to create more value for all shareholders.
- The Government of India plans to unveil a new policy for renewing and extending the lease of 28 oil and gas blocks in the country, with a view to attract more investments into these fields.
- The Cabinet Committee on Economic Affairs, Government of India, has approved the awarding of contracts on 23 onshore and 8 offshore contract areas of discovered small oil and gas fields that earlier belonged to Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL).
- India and Russia have agreed to enhance their bilateral engagement by signing three Memorandum of Understanding (MoU) on October 15, 2016 for co-operation in the field of hydrocarbons sector during the India-Russia Annual Summit held at Goa.
- The Ministry of Mines plans to restart operations in several hundred mines across the country in order to raise the share of mining and quarrying industry in India’s Gross Value Addition (GVA) by one percentage point from 2.4 per cent at present, over the next two-to-three years.
- 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.
- Mr Dharmendra Pradhan, Minister of State for Petroleum and Natural Gas and Mr Prakash Javadekar, Minister of State for Environment, Forests and Climate Change have 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$ 1.49 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, and 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$ 11.25 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.
India’s oil demand is expected to grow at a CAGR of 3.6 per cent to 458 Million Tonnes of Oil Equivalent (MTOE) by 2040, while demand for energy will more than double by 2040 as economy will grow to more than five times its current size, as stated by Mr Dharmendra Pradhan, Minister of State for Petroleum and Natural Gas.
Gas production will likely touch 90 Billion Cubic Metres (BCM) by 2040, subject to adjustment to the current formula that determines the price paid to domestic producers, while demand for natural gas will grow at a CAGR of 4.6 per cent to touch 149 MTOE.
Exchange Rate Used: INR 1 = US$ 0.015 as on February 9, 2016
References: Media Reports, Press Releases, Press Information Bureau, Ministry of Petroleum and Natural Gas, Union Budget 2016-17
Note: 1- According to data from the Petroleum Planning & Analysis Cell, Ministry of Petroleum and Natural Gas; 2- According to a report by Fitch; 3- IGU World Gas LNG Report 2016 Edition