Oil and Gas Industry in India

Introduction

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.

Market Size

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 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 increasingly relies on imported LNG; the country was the fifth-largest LNG importer in 2013, accounting for 5.5 per cent of global imports. India’s LNG imports are forecasted to increase at a CAGR of 33 per cent during 2012–17. However, net imports of Natural Gas fell from 13.14 BCM in 2012-13 to 13.03 BCM in 2013-14.

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 million metric standard cubic metre per day (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.

Investment

According to data released by the Department of Industrial Policy and Promotion (DIPP), the petroleum and natural gas sector attracted foreign direct investment (FDI) worth US$ 6.58 billion between April 2000 and June 2015.

Following are some of the major investments and developments in the oil and gas sector:

  • 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.
  • The Carlyle Group plans to invest US$ 500 million in Magna Energy Ltd, an India-focused upstream oil and gas company that aims to secure local licenses in India with a primary focus on development and production.
  • RIL aims to invest US$ 31.7 billion in core oil and petrochemical business over the next 12-18 months.
  • 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.

Government Initiatives

Some of the major initiatives taken by the Government of India to promote oil and gas sector are:

  • 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$ 21.11 million) as on 22nd July 2015 with nearly 12.6 lakh 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.
  • 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.

Road Ahead

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$ 0.01508 as on September 9, 2015

References: Media Reports, Press Releases, Press Information Bureau, Ministry of Petroleum and Natural Gas

– See more at: http://www.ibef.org/industry/oil-gas-india.aspx#sthash.tOAGg1bJ.dpuf

Source : Indian Brand Equity Forum, September 2015

URL : http://www.ibef.org/industry/oil-gas-india.aspx

Salient Features Of The Marginal Field Policy

—-Salient Features Of The Marginal Field Policy—-

The Union Cabinet has approved the Marginal Field Policy (MFP) with the objective to bring marginal fields to the production at the earliest so as to augment the domestic production of oil and gas. Government has attempted to include certain reforms in the hydrocarbon exploration and production management through this policy with sole intention to increase the production at the earliest.

The policy will apply to 69 fields of ONGC and OIL considered under the marginal field category.

The salient features of this policy are given below:

Single license for conventional and non-conventional hydrocarbons

A single license will be provided to enable E&P operators to explore and extract all hydrocarbon resources covered under the Oilfields Regulation and Development (ORD) Act, 1948, and Petroleum and Natural Gas (PNG) Rules, 1959 under one PEL/PML. This will enable the contractor to explore conventional and unconventional oil and gas resources including CBM, shale gas/oil, tight gas, gas hydrates and any other resource to be identified in future which fall within the definition of “Petroleum” and “Natural Gas” under PNG rules, 1959.

No restriction on exploration activity during Contract Period

The contractor will be allowed to carry out exploration activity during entire contract duration. Exploration will be at the sole risk and cost of the contractors.

Model for inviting the bids

Bids will be invited for the Marginal Fields on a Revenue Sharing Contract (RSC) Model. To ensure viability of operations, it is proposed to cluster fields / discoveries, as may be required at the time of Notice Inviting Offer (NIO). This revenue sharing model will be based on a revenue-based linear scale. The contractor shall be required to pay biddable Government share of revenue (net ofroyalty or post-royalty).

A simple and easy to administer contractual model in line with Government’s efforts to promote ‘Ease of Doing Business’ requiring minimum regulatory burden for monetizing these fields has been developed.

Crude Oil Pricing and Sale

The contractor will be free to sell the crude oil exclusively in domestic market through a transparent bidding process on arms length basis. However, for the sake of calculation of Government revenue, the minimum price will be the price of Indian Basket of Crude Oil

(currently comprising of Sour Grade (Oman & Dubai Average) and Sweet Grade (Brent Dated) of Crude Oil processed in Indian refineries) as calculated by Petroleum Planning and Analysis Cell (PPAC) on a monthly basis. If the price arrived through bidding is more than the price of Indian Basket of Crude Oil then the Government’s take will be calculated based on the actualprice realized.

 

Natural Gas Pricing

The contractor will have freedom for pricing and allocation of gas produced from a cluster / field / discovery on arms length basis. The Government share of revenue shall be calculated as per the Domestic Natural Gas Pricing Guidelines in vogue at relevant point of time. However, if the discovered price is more than the calculation based on the Domestic Natural Gas Price Guidelines issued by the Government from time to time, then the Government’s take will be calculated based on actual price realized.

Royalty

Royalty rates applicable under New Exploration Licensing Policy (NELP) regime will be adopted in the Policy for Marginal Field of ONGC and OIL.

Oil Cess

No oil cess shall be applicable on crude oil production from marginal fields.

Customs Duty
Exemption from custom duty will be provided on all machinery, plants, equipments, materials and supplies related to petroleum operations as applicable in NELP.

Mining Lease

Current Mining Lease holder will be required to transfer/assign the Mining Lease (ML) or Petroleum Exploration License (PEL) along with all available clearances to the awardee of the area/ Contractor, to the extent legally possible, or else the Contractor has to obtain the same. Lease / License rent / fees will be governed as per ORD Act 1948 and P&NG Rules 1959 as amended from time to time.

Contract Duration

The contract duration for development and production from the offered Marginal Fields would be a maximum of twenty (20) years from the effective date (effective date is the date of PEL/ML grant/ transfer /signing of deed) or till the economic life of the field as submitted by bidder along with development plan in the bid, whichever is earlier, unless the Contract is terminated earlier in accordance with its terms, but may be extended upon mutual agreement between the Parties for a further period not exceeding ten (10) years. If the production of Crude Oil or Natural Gas is expected to continue beyond the end of the relevant period referred above, the Parties may agree to extend this Contract for a further period upon such terms as may be mutually agreed. The contract can be extended based on the provisions of the contract and extant GOI guidelines, if any. Contract can be terminated earlier by GOI if the production from the offered Marginal Fields ceases for a period of over one (1) year at any instance.

Committee
A management committee (MC) will be constituted with representatives from Government/DGH and contractor.

Eligibility for participation in bids

National oil Companies, Indian Private Companies and foreign companies either alone or in joint venture can bid for the offered marginal fields. Up to 100% participation by foreign companies, joint ventures will be allowed.

Site Restoration

The site restoration fund shall be maintained by the contractor, as per the notified “Site Restoration Fund Scheme-1999”, as amended from time to time. The activity of site restoration will be done as per applicable rules / standards / notifications.

Source : Indianoilandgas.com, November 30th, 2015

URL : http://www.indianoilandgas.com/images/pdfs/MFP.pdf

Govt flips the switch to 20-year power plan

Shifting focus to power transmission, the Narendra Modi government would soon launch a 20-year plan for the sector to keep pace with growing generation and its poll promise of ’24×7 power for all’. The plan, titled ‘Perspective Transmission Plan for 20 Years’ is being circulated to all states and sector stakeholders for their feedback.

The total investment envisaged is Rs 2.6 lakh crore during the 13th Plan (period). According to the current draft, Rs 1.6 lakh crore investment in transmission would come from states and the balance Rs 1 lakh crore from the Power Grid Corporation of India Limited (PGCIL).

Power ministry officials, however, said the project allotment would undergo changes, with PGCIL having overcapacity projects and the government pushing for more private investment in the sector. Also, the Green Corridors project, which entails an alternate transmission network for renewable energy, is being revised, keeping up with the plan to add 1,75,000 Mw of renewable power.

Transmission projects, totalling Rs 1 lakh crore, would be outbid in the coming six months through a tariff-based competitive bidding (TBCB), Minister for Coal, Power and Renewable Energy Piyush Goyal, said recently.

The expected transmission network by the end of the 12th Plan period in 2017 will be 3,60,000 circuit kilometres (Ckm) though the current status is 37,140 Ckm.

Around 113 Gw of generation capacity is likely to be added in the remaining period of the 12th Plan and about 100 Gw during the 13th Plan. According to the latest data, in 2014-15, 3.1 billion units of electricity were lost on power trading platforms due to transmission congestion.

The final draft of the transmission plan would be ready by September and projects would be outbid accordingly. The plan was prepared last year by the Central Electricity Authority (CEA) along with the Power System Operation Corporation Limited (POSOCO) and state-owned power transmission company PGCIL.

The government is planning to increase the size of projects and the scope of work in transmission to prevent congestion in the network. Interstate lines, with a capacity of around 56,000 Mw, are being planned to be built by end of the 13th Plan. The focus would be on new technology such as high voltage direct current (HVDC) and the load forecast would be improved.

“The five-year planning for transmission led to congestion and confusion in the supply network. States were not on board with no forecast of load; demand and transmission were not planned in tandem with power generation as the latter was de-licensed,” said a senior power ministry official.

The ministry is also working on the plan of a general network access (GNA) for power transmission. “This is in line with the massive growth of power generation and transmission falling back. But for any plan around transmission, the states need to be on board. We are discussing the plan threadbare with the states,” said a government official in the know.

The GNA is a kind of transmission network planning. It aims at developing transmission system such that available power can be transmitted smoothly. It would not be necessary to know in advance the destination of supply for a power generation plant.

The Central Electricity Regulatory Commission (CERC), in its latest report on congestion in the power supply, had also advocated the same.

“One of the reasons for this constraint has also been the fact that while in the last 10 years, private sector capacity addition has led to their share in the total generation capacity rising to 35 per cent, ahead of central sector generation capacity, the private sector constitutes hardly three per cent of the total capacity in transmission.

The process of transmission capacity enhancement through public as well as private sector routes has to be accelerated,” said the CERC report on congestion in transmission.

Power Finance Corporation would be outbidding eight critical transmission lines connecting coal-rich east to north and central India in the coming months.

The four major lines – total investment of Rs 4,000 crore – that went under the hammer last week, saw big names pulling out of the bidding process despite being qualified.

MORE POWER TO YOU

  • 20-year plan for transmission to provide forecast for project planning and grid management
  • States and sector majors to be consulted
  • Plan to be launched by Sept
  • Investment and project allotment to be decided according to the plans of the states
  • Project size and role of private sector to be enhanced
  • General Network Access also being contemplated
  • Planned to be in tandem with generation and BJP’s poll promise of 24×7 power

Source : Business Standard, July 7th 2015

URL : http://www.business-standard.com/article/economy-policy/govt-flips-the-switch-to-20-year-power-plan-115070700025_1.html