THE OIL AND GAS POLICY FRAMEWORK IN INDIA

Presented by-TEAM JERICHO, Xavier Institute of Social Service, Ranchi.

Team Members-AKHILESH KUMAR MISHRAAMRIT MOHANTY

Submitted To Cairn India

PGDM MARKETING 2014-2016

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Primary energy sources-hydrocarbons(oil, coal, natural gas),fissile/fertile elements (uranium), kinetic energy (wind/water), em rays solar energy ,geothermal energy

Final energy sources-electricity, petrol, gas , firewood , sources available in nature under primary sources it can be divided into commercial and non commercial categoriesCommercial-coal ,lignite ,oil , nuclear ,hydro , natural gas & wind.

Non commercial-wood cowdung , crop residue, biogas

Energy and Power can be divided into Primary energy and Final energy sources-

According to an estimation by Govt of india , we have 253.3 billion tonnes of coal (on january 2007) and 38.27 billion tonnes of lignite (on april 2006) which can sustain upto 140 years of current level of production.As per DGH 2005-2006 report we have 1653 metric tonnes of petrol & natural gas which can sustain current level of production till 2046.Electricity requirement will grow upto 800000MW in 2032 which is 180000MW now .

Expert opinion

• As per experts, India needs to achieve 8%-10% GDP growth rate till 2031-2032 to eradicate poverty and meet human development goals .Estimation of demand for crude oil in India by employing ardl co- integration methodology & f-statistics shows a relation between gdp & crude oil demand in long run. For every 1% increase in real gdp would lead to an increase in crude oil demand by about 1% in long run. Same estimation shows, Diesel price high by 1% , demand will decrease by 0.57%, petrol price high by 1%, demand decreases by 0.85%

Usage Rate

• Presently out of india’s total energy consumption, crude accounts for 24% ,natural gas 6% , coal 40% , combustible renewable & waste 27% , hydroelectric power 2% , nuclear & wind energy 1% each (iea2008). India is self sufficient in coal but imports most of its crude oil requirements.

• Need is 350 million barrels per day , of which 70% is imported. Currently fifth larger importer & likely to become 4th larger importer in 2025 after US , China & Japan. Requirement will increase more than 850million barrels of crude oil per day.

• With expected gdp of 7% , crude price will increase by 5.5% & its demand by 4.72% by 202.

We need oil & gas policy because of –Energy needs of India

Providing energy of desired quality in sustainable manner Competitive prices.

• Efficient use of resources and long-term sustainability remains core objective of economic planning. Sustainability would take into account not only available natural resources and issues related to ecological balance but also established delivery mechanisms, the technological constraints that are prevalent in the system and immediate compulsion to meet the priority needs of the economy, economic equity and self-reliance.

• With the new mandate to bjp led government in centre , Shri Narendra Modi , our new PM is known for his business-centric policies. In his dialogues with Japan & China they have agreed for an investment of 35 billion dollars & 100 billion dollars in next couple of years. Modi’s plan of making 100 ideal cities all over the country and projects like “Make in India”, bullet trains , metro trains, ideal villages and global investments requires a lot of energy & power.

• With one industry growing up , a lot of subsidiary industry grows up side by side. Schools, hospitals ,offices, houses, population, transportation all grow up, which need lot of energy and power.

Efficient, reliable and competitively priced energy supplies are prerequisites for

accelerating economic growth. For any developing country,

the strategy for energy development is an integral

part of the overall economic strategy.

FUTURE PROSPECTS FOR OIL & GAS SECTOR

At present when we see the present situation of india , it is not self sufficient with crude oil demands , but it imports around 70% of its crude and now it is in such a situation that it exports petrol, thus keeping it in a row of being energy secure.

A country will be energy secure if it uses energy for its developmental purpose and has peaceful objectives. Few years back china was energy secure , but due to rise in its economy , it has lost its position.

Although in terms of gas and oil reserves Russia and former soviet rebublics of central asia have the largest reserves but political instability leads to increase the risk of major oil and gas supply disruptions and investors. Moreover security of energy infrastructure is very important for energy sufficiency.

Energy security is not synonymous to Energy self-sufficiency

Self-sufficiency in Oil and Gas

For the best E&P we need to think the profitability of contractor doing it. Time

bound regulatory approvals and Govt. of

India should not introduce a mandatory minimum

percentage share for highest price of the block.

We need best technologies of the world for the E&P of these new provinces

and the existing ageing oil mills.

Article 18.1-18.2 & 19.1-19.2 of NELP VIII needs to

be modified , which advocates for exporting oil

and gas in case of becoming self sufficient rather storage capacities

should be built up for using it in future.

United States Geological Survey has published a study titled “Assessment of Undiscovered Oil & Gas Resources of the Assam , Bombay, Cauvery & Krishna –Godavari Provinces ,South Asia-2011” . Using geology based assessment methodology USGS claimed that these four provinces have 3.534 billion

barrels of crude oil, 79.352trillion cubic feet of natural gas liquids , which shows yet to find potents.

energy security vs self sufficiency in oil & gas

To counter the growing needs we need to develop domestic supply options as well as need to diversify energy resources. We should focus more on renewable energy share for climate change security and energy security.

Govt should increase the

percentage of ethanol blended

petrol and biodiesels sale

countrywide in a time bound and phased manner. Open tenders for

ethanol from sugar mills and other eco

friendly manner should be

encouraged. Likely Jatropha production

should be encouraged for

biodiesel.

Till 2020 we should project for 10% ethanol blended

petrol and biodiesel and 15% ,20 %

respectively at the end of 2025 and

2030 respectively.Thus enhancing

sustainability and profitability of farmers also

Fuel mix as coal bed methane, shale gas , ethanol bended petrol ,

biodiesels, solar energy , wind energy , biofuels, bio gas , and

nuclear energy should be prioritiosed in order to meet the requirements.

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Subsidies to villages for home solar power electric

system set up must be done by the

govt. its benefits should be

communicated by Gram Sabhas and schools. It should

be made compulsory to

every household till 2020 to add a

fraction in their energy use.

Biogas plants must be set up till 2025

in each rural villages having

abundant animal and plant wastes ,

for combustion purposes. Advocacy

for sunrise and energy efficient technologies for

the industries and households

Barren lands can be effectively utilized by setting windmills in

them . This is surely a industry which will grow rapidly. An investor in

this may sell its outputs to the customers new

transport R&D will help. Ex- vehicles will start

and move with batteries in heavy traffic places

and will use hydrocarbons where it

has to move fast. Incentives like cost reduction in tarrifs,

special certificates and medals, display in

newspapers etc can be done to reduce the

energy conservation.

REFORMS AND INITIATIVES FOR ENERGY SECURITY

RECOMMENDATIONS BY VARIOUS COMMITTEES

Rangarajan committee

• The committee suggests new contractual system & fiscal regime based on past royalty payment revenue sharing to overcome the PTIM methodology & cost recovery mechanism, PSC based on daily production, GoI may not introduce a mandatory minimum % share for highest production of block, MINIMUM WORK PROGRAM Commitment.

• CBM contracts will follow NELP norms.• Committee recommends that DGH may undertake codification of Good

International Petroleum Industry Practices(GIPIP) which are relevant to Indian Geological Setup.

Vijay Kelkar Committee

• The most recent committee has favoured the production sharing contract for the NELP. Besides that the committee has advocated for open acreage regime, setting up data repository, administering signed contracts and strengthening DIRECTOR GENERAL OF HYDROCARBONS. It has favoured PSC to attract major investments and technologies to recover all sunk costs

• Establishing university- industry relations, providing infrastructure status to E&P companies, competitive fiscal terms, efforts to obtain gas through in situ gasification of coal and availability of trained manpower and expertise in E&P sector. (based on recommendations of report of working group in petroleum & gas sector for XI plan)

INTERNATIONAL BEST PRACTICES IN OIL & GAS SECTOR OF BRAZIL AND CHINA• Brazil is being considered an emerging leading force in the world’s oil sector. A radical

change occurred when Petrobrás made a number of large deepwater offshore pre-salt22 oil and gas field discoveries

• As part of a government strategy to stimulate local industrial development, the development of new oil fields is linked to a “local content requirement”, which stipulates that part of the services and materials for all the wells, facilities and infrastructure is to be sourced locally within Brazil. The biodiesel production (primarily from soybean oil) has grown rapidly since 2003, when the state-supported National Biodiesel Production & Use Program (PNPB) was launched, with the ambition to gradually substitute petro-diesel with biodiesel. In addition, and similar to the ethanol experience, there is also a mandatory blending of biodiesel in the petrol-diesel

• The oil and gas sector is making considerable investments in Carbon Capture and Storage(CCS) technology. In particular Petrobrás is investing in CCS technology. This results largely from a market-driven effort, as CCS could provide additional benefits for an increase in production via Enhanced Oil Recovery (EOR) or Enhanced Gas Recovery (EGR) in its deepwater reserves. Under the right conditions, CO2 dissolves in crude oil, increasing the mobility of the oil and thus the use of CCS could be an interesting solution.

BRAZIL

• Strengthen micro-economic control and increase the resources input for petroleum and natural gas exploration

• Stimulating resources application and increasing economic profits to decrease the cost of exploration and exploitation, and to popularize the application of clean energy, in particular, to stimulate and enlarge the application of natural gas, gradually increasing the rate of natural gas in one-time energies.

• Standardization of petroleum and gas market and rationalization of the prices• Adopting multi investment and circulation funds types to assure the funds needed in the

development of the oil and natural gas industry.• Open wider to the outside world, explore international market.

CHINA

EXISTING E&P POLICY AND SUGGESTED CHANGES

After the regulation of NELP from 1999 , the blocks are allocated on the basis of highest bidding & PSCs .Under the new design of PSC- removal of any carried interest of the state, freedom of contractors to market crude oil and natural gas in the domestic market ,abolition of cess levied earlier on crude oil, reduction of royality rates, exemption from payment of import duties on goods imported for petroleum operations and benefit of tax holiday upto 7 years from the date of commencement of commercial product.According to NELP X which is going to be introduced , concept of Revenue Sharing Contract(RSC) has been introduced.

Reservoir management , enhancement of recovery factors, health and safety management, & improved oil recovery schemes must be given due attention.

• Changes in NELP are must for attracting foreign & private risk capital in E&P.

CAG issues and delays in approvals are key challenges, stable policies throughout the asset lifecycle aligned to block & business interests, time bound regulatory approvals, autonomy & accountability of contractor without loss of control of government, more strategic decisions by managing committee ex.field development plans, non exploration related work program. Scope of audit should be financial and not performance wise

REFORMS