Infrastructure Facilities For Infrastructure Facilities For Future Import and Future Import and

Domestic ConsumptionDomestic Consumption

CII Conference on Energy Security in IndiaCII Conference on Energy Security in India

R SridharR SridharReliance Industries Ltd.Reliance Industries Ltd.

October 31, 2003October 31, 2003

To assure energy security by achieving self-reliance through increased indigenous production and investment in equity oil abroad

To enhance quality of life by progressively improving product standards to ensure a cleaner and greener India

To develop hydrocarbon sector as a globally competitive industry which could be benchmarked against the best in the world through technology upgradation and capacity building in all facets of the industry

To have a free market and promote healthy competition among players and improve the customer service

To ensure oil security for the country keeping in views strategic and defense considerations

Hydrocarbon Vision 2025

Group set up by Prime Minister had deliberated among other things on –

E&P for indigenous oil & gas External policy and oil security Natural gas Refining and Marketing

- and submitted their recommendations which has been accepted by the Govt.

Focus Areas

Recognised availability of crude and gas is far below country’s demand

Govt. is aggressively pursuing the E&P activities to intensify exploration in existing blocks and discovery of new reserves

Policies are being put in place for the domestic companies to compete with the international companies in E&P area

Increased focus on

• usage of natural gas • policy initiatives for import of LNG• transportation policy for the indigenously available natural

gas Formulation of long term policy to facilitate investment in refining,

pipelines and marketing infrastructure

Govt. initiative - Hydrocarbons

EmphasisGreater participation by private companies and increased joint working with PSU companies for asset utilisation

Present scoreGreater participation of private companies already achieved in --

E&P Refining

Private companies have begun investing in -- Terminals and Tankages Pipelines Marketing infrastructure

Hydrocarbon Vision 2025

Oil

Gas

Electricity

This presentation will focus on infrastructure requirements of refining crude oil and distribution of petroleum products

Energy

Current refining capacity of 115 MMTPA is in excess iof demand

Forecasted Demand v/s Refining CapacityWithout price elasticity,

demand number would be even higher

• Therefore, refinery expansions a must

Refining

Figures in MMTPA

2006-07 2011-12 2016-17

Demand 123.6 147.5 175.6

Refining Capacity

220.7 ? ??

Expn New

PSU 26,275 15,000

Private 24,950 23,980

TOTAL 51,225 38,980

• Increase in refining capacities planned in Xth Plan

Additions and expansions in various capacities to meet growing demand

Liberalised policies to permit free import / export of products

Process upgrades needed for -

increased efficiencies to survive in international markets

• plant automation

• overall optimisation

• reduced energy and other inputs

changed product specifications to meet international environment

norms

additives for better / differentiated products

Refining

Oil Logistics

•

IndianPort

OverseasCrude

DomesticCrude

Terminal

Depot

Terminal

Retail Outlet (RO)/ Customer

Ref

iner

ygi

ves

Pro

duct

s

Pipeline

Sea Pipeline

Coastal

Railway

Pipeline

Road

Road

Road

Security through participation by all players in each of the box and arrow

… in India & USA

•

Road29%

Pipeline25%

Railway38%

Coastal8%

Mode wise Transportation of Petro Products

Road5%

Rail3%

Coastal33%

Pipeline59%

India

???Will India move

this way ?

USA

Imp[ort of crude as well as coastal movement of products

Domestic crude production of 32 MMTPA v/s 210 MMTPA projected demand by Year 2025

large import of crude

development of receipt and storage facilities

• jetties to handle large size vessels, support SBMs• larger storage tanks• pipelines to carry crude to inland refineries

Pot capacities build up required to match refinery expansions

To facilitate free import / export of products

Larger vessel bringing in freight economics calls for matching jetty facilities

Ports & Shipping

Desired Port up-gradation and operations

Composite port facilities (for liquid and dry cargo)

Capital and revenue dredging

Operations through third party operators e.g. P&O

State Port Authorities provide very friendly and conducive business environment

High need of private investment in this time of fund crunch

BOT and BOOT opportunities

Govt.’s initiative of SEZ

Ports & Shipping

Port authorities to become proactive to facilitate all these

Why pipelines ?– for movements of crude from ports to inland refineries as

well as oil fields to nearby refineries– for movement of products from refineries to marketing

terminals and depots– economical (least loss, no pilferage / adulteration), safe and

environmental friendly– bulk movements of products– minimal storage terminal / depot requirement– Least energy consuming mode of transportation

Contd…..

Pipelines

Energy ConsumptionBTU/MT-Km

Road 1700Railway 320Pipeline 50 - 135

Mode

Why pipelines now ? To match projected demand growth and proposed refinery

expansions Make products available in all parts of the country at least cost Reduce load on Railways, free rail infrastructure for movement of

other goods Common Carrier to allow all possible users access the pipeline

improved utilisation reduced transportation cost

Joint initiative of Govt. and private oil companies in form of Petronet

Oil companies planning for number of pipelines to link markets not covered hitherto

Contd…..

Product Pipelines

How it can secure supplies ? Multiple users make products available in all markets at all the times Investment risk minimised with broader user base Product evacuation from refineries ensure higher utilisation and lower

costs Pragmatic tax structure by individual states t enable pipelines to cross

through different states

Challenges Cost efficient methods of interface disposal Govt. support for statutory clearances and RoU acquisition

Product Pipelines

Expansion required in rail infrastructure to match demand growth

Freight equalisation to make rail transportation more competitive

Competing road and pipeline transportation requires Railways to operate more efficiently

Railways

Rail

•

Rail transportation• Pros

– Very well established network– traditionally used for inland movement of crude and

products– presently adequate track and rolling stock capacity

• Cons– necessitates depot arrangements for distribution of

products– capital intensive infrastructure required at both ends of the

chain

– has resulted into more days coverage (storage) due to delivery uncertainties

– higher tariff as other goods and passenger traffic subsidised by POL products

With new pipelines and Railway increasing its reach, new terminals and tankages are natural consequences

Additional capacities required to meet projected demands

2.6 million KL additional tankage planned by oil industry during Xth Plan, yet to materialise

Strategic Storage initiative - for crude and products Tankage-2000 Plan to have

- 45 days cover for crude, 13 MM tonnes- 15 days cover for POL products, 5 MM tonnes

Industry Committee recommendations (draft) has identified 16 locations for locating strategic storage

Estimated investment of Rs. 3000 Cr.

Terminals & Tankage

Shared facilities can increase tank turn around resulting into “virtual” increase in tankage

Road infrastructure

– “last mile” mode of movement– transportation cost independent of volumes /

throughputs private investment encouraged, greater and wider penetration widening of roads a priority work for Govt.- Golden Quadrilateral substantial quality improvement in road surfaces this will result into faster movement of larger capacity vehicles road transportation will be more competitive - a major threat to

Railways Road movement at a level of 35-38 KL against the current level of 12-

20 KL will give major advantage in freight cost per KL of transportation Improved roads to reduce travel time

>>>> lead to clocking more mileage >>>> reducing road freights further

Roads

Watch the road as a serious transportation means

•

Rail or Road ?

Freight Costs (HSD)

0

500

1000

1500

2000

2500

3000

3500

100 400 700 1000 1300 1600 1900 2200 2500

Distance, Km.

Frei

ght,

Rs.

/MT-

Km

RailRoad

Basis : Road tariff Rs. 1.50 per MT-KmTerminal charges Rs. 160 / KL

With current rly freights, road transportation is cheaper for leads up to 2200 Km.

An essential last mile transportation mode Internationally, 45-70 KL tankers extensively used for long hauls and

deliveries Economic compulsion to upgrade capacity With Golden Quadrangle and expansion of National Highways, truck

speed and capacity to increase Oil Industry has already initiated pilot project and has approached

various authorities for enhancement of capacity to 35 KL, potential freight reduction

Higher capacity engines readily available in Indian market Direct deliveries to destination will remove intermediate movement

by Railway

HiCap Vehicles

Till recent past, under APM, market prices of transportation fuels were regulated by Govt.

Freight under recoveries and over recoveries were met through oil pool account

marketers insulated from the vagaries of fluctuation of freight costs by different modes

With deregulation of oil sector, logistics efficiencies would come in Freight, for POL products varies between 12% to 30% of basic cost Rail freight component is around 14% to 18% Thus, rail freight is an essential component to be watched to compete

effectively in the market Pipeline freights in direct competition with Rail Even road freights competing with Rail

Freights

Choice of economics will ensure security of supplies

Present Situation • Adequate capacities available in sea, rail and road

modes- pipelines have limited capacities available- dominated by captive use- absence of facility sharing mechanism

• Rail and Pipeline modes heavily controlled by Govt. / PSU companies

• Road and Sea modes have very active participation (vessels and storage tanks) of private companies

- port facilities still under Govt. control

- can handle only smaller parcel sizes (for coastal movements)

•

Future Scenario• Crude procurement costs need to be optimised through

lower transportation costs- Ports would handle more crude than products in future

- cost optimisation through larger parcel size and inland transportation by pipelines

- additional investments in SPM and onshore storage tanks

- with adequate refining capacities built up, further emphasis on reducing cost of transportation of crude from port to refinery - pipelines are the best mode

• Pipelines offer greater growth opportunities with natural cost advantages

• Rail traffic would get affected in the areas where new pipelines come up- to re-align its operations as well as pricing in light of competition

offered by pipelines

- rationalisation of fares resulting in reduction of POL tariff

•

Future Scenario• Road transportation will continue to be the “last mile”

solution for product distribution- will shift to tankers with higher capacities (say 33 KL) with

improvement (new roads, private participation, 4 laning etc.) in roads

• Regulatory mechanism to control access to and tariff of pipelines- open access to all users- regulated return on investment

• Financing- shift from Balance Sheet finance to Project finance

- private participation and bankable cash flows

- TOP contracts between owner and shipper

•

Economics of competition would ensure security

India is already recognised as a major growing global power Increased competition and threat form developed and developing country Oil & gas would continue to be the major energy sources Substantial increase in per capita energy consumption expected Life would hinge on energy – recent black out of New York Ascertaining energy security is need of the hour – even for within country

supplies Increased participation and competition would drive towards security Equal and shared access to existing and new infrastructure would minimise

exploitation by any one player – local or international Government’s participation as an equal player, shared responsibility of all

players

Take away

Security through competition