Oil & Gas Sector Clinching Tremendous Growth

April 26, 2010 4:57 am

Oil & Gas Sector Clinching Tremendous Growth
 
Petroleum and Natural Gas Industry accounts for 35 percent share in the entire energy requirements in India. The FDI policy for the petroleum & natural gas sector allows FDI up to 100% under the automatic route in almost all activities. The recent initiatives by the Govt of India in building stronger association with other countries to for growth in oil and sector would boost the entire Industry. The latest happenings of Oil & Gas Industry are highlighted by Subhajit Roy.
 
The Oil and Gas sector is of strategic importance and plays one of the most significant roles in economical growth of any country. Keeping pace with the rapid developments, Oil and Gas sector in India has expanded itself manifold and is expected to grow at a much faster pace to meet increasing demand. Thus, there is a dire need for intensive exploration of new discoveries.
 
Exploration and Production (E&P)
With the increasing demand for crude oil and gas, the Government of India has initiated several measures to boost the Exploration and Production (E&P) activities that would help the country to explore new resources. Backed by the Cairn India’s Prolific Rajasthan oil field, India’s crude oil production is expected to jump by 11% in the year 2009-10 to touch the highest-ever mark of 36.7 Million Tonnes. The production of crude oil was 33.5 Million Tonnes a year ago. It is also projected that the production of natural gas would reach 50.211 Billion Cubic Meters (BCM) which is 52.8 per cent higher than 32.874 BCM of the previous year.
 
Imports
India depends to a large extent on imports of crude oil to meet its requirement. More than 70% of crude oil is being imported as of now and during the last five years there has been a constant rise in import of crude oil from 95.9 Million Metric Tonnes (MMT) in 2004-05 to 128.16 MMT in 2008-09. However, the country is expected to provide 8.9 MMT of crude oil during 2011-12 that would account for about 25 per cent of the total domestic crude oil production and reduce the country’s crude oil import bill by about 8 per cent, at current crude oil prices.
 
New Exploration Licensing Policy (NELP) & Coal Bed Methane (CBM)
The New Exploration Licensing Policy (NELP) was formulated in 1997-1998 to boost hydrocarbons exploration in the country by providing a level playing field, where exploration licences would be granted through international competitive basis to foreign and national oil companies (NOC). Thus NELP provides an international class fiscal and contract framework for E&P of hydrocarbons.
In order to explore and produce Coal Bed Methane (CBM) and to increase the pace of exploration and development in the country, the Government of India offers ten additional blocks in different coal/lignite fields under CBM Round-IV of international bidding. India, with the fourth largest coal reserves in the world, has significant potential for exploration and utilization of CBM. The total sedimentary area for CBM exploration is of 26,000 sq. km. out of which only 52% of the area is explored so far and a large area remains un-explored. Hence, there is a huge opportunity for potential investors.
In 2009, the Government announced seven year tax holiday for commercial production of gas in respect of contract to be signed under NELP VIII and CBM IV with a view to give a boost to exploration and production. The successful completion of NELP VIII and CBM IV Policy in the face of global recession was in itself a major achievement.  The response of bidders when compared to similar offers elsewhere in the world was one of the best during the year. 
 
Natural Gas
It is the most environment friendly and economical viable gas resource. As a recent attempt, the Government has decided to promote national gas grid on the pattern of national highways that would optimize the utilisation of natural gas in the country. This initiative will help connect various sources of natural gas to different demand centers all over the country.
Krishna Godavari Basin D6 block, operated by Reliance Industries Ltd (RIL) is expected to nearly double the supply of natural gas from the domestic sources, which excluding D6 production is close to 70 mscmd (ONGC fields and joint venture fields) currently. At present, the gas production from D6 is 52 mscmd, which is expected to touch 70 mscmd in January and maintain the natural gas production in the range of 82-89 mscmd up to March 2012. 
Oil and Natural Gas Corporation Ltd. (ONGC), Oil India Ltd. (OIL) and the Joint Ventures of Panna-Mukta-Tapti, and Ravva are the prime producers of natural gas in India. In order to expand natural gas transportation infrastructure in the country, the Government has announced nine new trunk pipelines with total length of 5523 km. These are; (i) Dadri-Bawana-Nangal (ii) Chainsa-Jhajjar-Hissar (iii) Dabhol-Bangalore (iv) Kochi-Kanjirrakod-Bangalore-Mangalore (v) Jagdishpur-Haldia (vi) Vijaywada-Nellore-Chennai (vii) Kakinada-Basudevpur-Howrah (viii) Chennai-Tuticorin and (ix) Chennai-Bangalore-Mangalore pipelines.
 
Oil Refineries
India is a net exporter of petroleum products such as petrol, diesel, naphthalene, Aviation Turbine Fuel (ATF) etc. The country has been able produce an amount of 160.77 MMT during the year 2008-09 and is expected to reach up to 240.95 MMT per year by the end of XI th plan.
 
Foreign Direct Investment (FDI) Policy
Petroleum and Natural Gas Industry accounts for 35 percent share in the entire energy requirements in India. The FDI policy for the petroleum & natural gas sector allows FDI up to 100% under the automatic route in all activities other than refining, investment/financing, setting up infrastructure for marketing in petroleum and natural gas sector subject to sectoral policy including market study and formulation. NELP and CBM policy have been introduced to attract more investments to the sector.
 
LATEST DEVELOPMENTS IN OIL & GAS SECTOR IN INDIA:
Foreign Calling
India and Russia to cooperate on hydrocarbons: India and Russia have agreed to collaborate more on oil and gas besides nuclear energy. During a recent visit of Russian Prime Minister Vladimir Putin to India, the two countries have agreed to strengthen cooperation in hydrocarbons through greater collaboration. This will open many new vistas for oil and gas companies of both the countries.
 
Iraq offers increased long term crude oil supply: Iraq, one of the major crude oil suppliers to India has offered more supply of crude oil to Indian refineries. Iraq is ramping up its current crude oil production capacity substantially in next few years and invited Indian companies to invest in the refining sector in Iraq with assured supply of crude oil. Iraq has also assured of long term crude oil supply arrangement for Indian refineries. On the other had the Indian Government has proposed utilization of the services of leading engineering and consultancy firm, Engineers India Limited (EIL) by the Government of Iraq in developing oil sector infrastructure.
 
Oil project in Venezuela: International consortium of ONGC Videsh, Indian Oil Corporation Ltd., Oil India Ltd., Spanish Repsol YPF, Malaysian Petronas, has been selected to acquire 40% in a ‘Mixed Company’ to develop a multi billion integrated oil project in Venezuela.
 
Uganda seeks India’s help in oil and gas sector: Africa in general and Uganda in particular are looking for Indian assistance especially in the oil and gas sector as India has necessary technique and resources. Recently, the Government of Uganda has sought Indian assistance for faster development of their oil and gas sector by providing simple and inexpensive means to the African nation for accelerating development of different areas along the hydrocarbon value chain.
 
OIL Field Discovery in Syria:  ONGC Videsh Ltd. and its partner IPR Mediterranean Exploration Ltd. have made significant new oilfield discoveries in Block-XXIV located in northeastern part of Syria.
 
Iran-Pakistan-India (IPI) Gas Pipeline Project: The Indian Government has also initiated action on importing natural gas from Iran through Iran-Pakistan-India (IPI) Gas Pipeline Project to enhance energy security of the country.
 
Import of natural gas from Turkmenistan: The Government is also considering on import of natural gas from Turkmenistan. India has been formally admitted as a member of Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project in the 10th Steering Committee Meeting (SCM) of the project held in Islamabad in 2008.
 
Deep Sea Gas transportation technology: In recent years, there have been significant technological advancements in the field of Deep Sea Gas transportation technology. Accordingly, interest has been revived in deep sea gas pipeline route from Middle-East to India for the last few years. India has proposed for Gas supplies from several gas rich countries of Middle East through Gas Gathering pipeline with hub in Oman (or its proximity) to supply gas to Indian Coast through the Deep Sea Pipeline.
 
Saudi Arab to allocate 40 MMT crude oil: India is hoping for doubling of crude oil supply by Saudi Arabia as its three grass-root refinery projects at Bhatinda, Bina and Paradip are near completion. Saudi Arabia assured to increase allocation of crude oil for supply to India from about 25.5 Million Metric Tons (MMT) per annum to about 40 MMT to meet growing needs of India.
 
Impact of General Budget 2010-11: The Finance Minister has announced of giving subsidy on fuels in cash instead of oil bonds which means that the financial assistance from the Government will be timely, transparent and beneficial to the public sector oil marketing companies. The proposal has been welcomed by Ministry of Petroleum & Natural Gas. In June 2008, average price of Indian basket of crude oil had crossed $ 120/barrel. In order to insulate the consumers from high international oil prices, the Government provided full exemption from basic Customs Duty on crude oil.
 
The Government also reduced the basic Customs Duty on petrol and diesel from 7.5% to 2.5%. Further, the Excise Duty on petrol and diesel was reduced by Re. 1/litre. Now since the average price of Indian basket of crude oil is around US $ 70/barrel, the Finance Ministry has restored the basic Customs Duty of 5% on crude oil and 7.5% on petrol and diesel. Also, the Central Excise Duty has been enhanced on petrol and diesel by Re. 1/litre each. However, the financial health of the sector will continue to be negatively affected, especially the public-sector oil marketing companies which bear the brunt of under-recoveries.
 
L&T Wins over Rs. 2000 Crore Order from OMPL: Larsen & Toubro Ltd. (L&T) has secured a major order valued at Rs. 2035 Crores from ONGC Mangalore Petrochemicals Ltd (OMPL), for an Aromatics Complex, to be set up at the Mangalore SEZ.  This complex will produce Aromatic products namely Paraxylene & Benzene as well as other byproducts like Hydrogen, Heavy Aromatics and LPG, starting from Naphtha as a raw material.  The project involves nine process units including Naphtha Hydro-Treating Unit, Continuous Catalytic Regeneration & Platforming Unit, PAREX Unit, ISOMAR Unit etc.
 
GMR into Refinery: The GMR Group, one of the leaders in infrastructure and energy sector intends to set up a refinery and petrochemicals plant at Kakinada in Andhra Pradesh. The company has a plan to rope in a strategic partner or multiple partners for the said project.