4th Newsletter: Hydrocarbons to Fuel the Future

Ministry of Petroleum & Natural GasGovernment of India

PETROTECH-2016, the 12th International Oil & Gas Conference & Exhibition is hosted by the Ministry of Petroleum & Natural Gas, Government of India, in New Delhi from December 5 – 7, 2016. Covering the entire scope of the oil & gas industry and related sectors such as alternative energy, engineering and technology, PETROTECH-2016 is the most important platform for national and international experts and investors across the energy industry to exchange views and share knowledge, expertise and experience. In the weeks preceding the event, PETROTECH’s Committee is pleased to share with you regular industry briefings and updates on its international exhibition and the conference’s program.

An evening with ambassadors An ambassador’s get-together was held on October 26th, 2016 presided over by Shri Dharmendra Pradhan, Minister of State (I/C), Ministry of Petroleum & Natural Gas and Patron-in-Chief of conference in New Delhi, which was attended by Country Ambassadors and Embassy dignitaries from various embassies of different countries stationed in India. Foreign missions represented notably included Afghanistan, Argentina, Brazil, UK, Indonesia, Iran, Mozambique, Nigeria, Qatar, Russia, Singapore etc. This was an occasion for sharing information and generating new ideas for the upcoming PETROTECH-2016.The evening was also attended by CEOs and industry captains from India’s top energy public sector undertakings, notably including IndianOil, NTPC, Oil India, ONGC Videsh, Petronet LNG, Bharat PetroResources, Prize Petroleum etc.

India’s steady transition to a gas-based economy

India’s Quest to Tap Unconventional Hydrocarbons

The story of India’s natural gas sector is one of falling domestic production, increasing LNG imports and a widening supply and demand gap that is unlikely to be filled in the coming years. This scenario, along with the country’s commitment at COP21, has pushed the Indian government to bring in sweeping policy changes that are giving a thrust to the gas market.

With rapidly rising energy demand and staggering energy imports, India is betting its new and improved policies will support the development of unconventional hydrocarbons in the country. Under HELP, companies can now look for, produce and sell shale oil and gas, coal bed methane and gas hydrates using a single license.

New PricingIndia has 1,488.49 billion cubic metres of proven gas reserves, 66% of which is offshore. A majority of it, especially in the gas-rich but deep-water Krish-na Godavari (KG) basin off the eastern coast, remains untapped. Of the 109 gas discoveries made since 2011, pro-duction has started in only 24 due to pricing hurdles and high production costs given the difficult nature of the reserves. In FY2016, the country pro-duced 31,138mmscm of gas and import-ed 21,209mmscm of LNG, bringing its import dependency on gas to 40.6%. In its latest India Energy Outlook, the IEA predicts dependency on LNG imports to increase to 53% by 2025, and 49% by 2040.

Given these projections, the gov-ernment has taken a series of measures to push up gas availability. The policy moves notably include the introduction of a new gas pricing formula to make production more attractive. In October 2014, to arrest declining production, the government introduced a new pricing formula, whereby domestic gas prices are benchmarked to prices at a clutch of international gas hubs in the US, the UK, Canada and Russia. The formula also fixes the price every six months, based on trailing price and volume data of the previous four quarters with a one-quarter lag. Since then however, the formula has failed to bring back in-vestment impetus since prices have been on a steady fall– from $5.05/MMBtu to $2.5/MMBtu since November 2014.

Considering that most future gas pro-duction will come from deep water, ultra deep water and HP/HT areas anyway, the government has now also granted marketing and pricing freedom for gas produced from these reservoirs under the Hydrocarbon Exploration and Licensing Policy (HELP) of March 2016. Proof of the industry’s receptive-ness to this policy measure, state-run ONGC has approved in March 2016 an investment of $5.076 billion to develop its cluster-2 deep water gas fields, locat-ed in its KG-DWN-98/2 block. ONGC expects to supply 16.29 mmscmd of nat-ural gas from the project by 2020.

Gas UsageThe share of natural gas in India’s ener-gy mix stands today at about 6.5%, and a lot must happen in terms of balancing supply and demand creation before the country can be put on the path towards a “sustainable gas economy,” as Minister for Petroleum & Natural Gas Dharmen-dra Pradhan has suggested.

To this purpose, India’s gas infra-

structure is rapidly expanding, driven first by a massive gas pipeline expan-sion. The current 15,000-km gas pipe-line network is currently being doubled to slightly over 30,000 kilometres. Its current capacity of 431.3 mmscmd shall be increased to over 982mmscmd upon completion of under-construction and planned pipelines. It is to be noted, how-ever, that against an installed capacity of 431.3mmscmd, the average gas flow of the country’s gas pipelines network in FY2016 was only about 148mmscmd. This reveals the potential the country has to further increase the usage of ga-sacross the economy.

Given the growth opportunities in LNG, whose imports have increased by 15% between FY2015 and FY2016, investments have increased in setting up LNG terminals from where gas im-ports, predominantly from Qatar, are being regasified and distributed in India. There are currently four LNG regasifi-cation terminals in Dahej, Hazira, Kochi and Dabhol, with capacity utilisation ranging from 5.6% for Kochi to 110% for Dahej. These four terminals, whose combined capacity currently stands at 22MMTPA, are undergoing capacity expansions totaling up to 10.5MTPA.

According to EYE ON’s research, the numbers of LNG terminals are set to multiply across the west and the east coasts, with as many as 15 new projects announced, planned or under-con-struction. New companies are entering the fray, with new entrants including Adani, Hiranandani Energy, AGPDC, LNG Bharat, IOCL and HSEL. EYE ON’s LNG database indicates that up to 72.15MMTPA of greenfield LNG capacities are planned across new proj-ects, with up to 7 projects combining 34.7MMTPA under-construction or with the necessary clearances and ap-provals to start construction works.

The path aheadWhile natural gas demand its set to grow, domestic gas production fell by another 3.8% in 2015, its fifth contin-uous year of decline. However, the fu-ture of India’s domestic gas production looks promising with renewed brown-field and greenfield investments in off-shore assets such as KG-DWN-98/2, and increase contribution from coal-bed methane acreages. The development of the gas industry worldwide, however, is a story of infrastructure development and demand creation. India will be no exception to the rule, and the benefits of raising domestic output will remain limited as long as pipeline and regasifi-cation capacities are not commissioned and demand is not created.

Coal Bed MethaneTo complement the government’s 1997 CBM policy, the 2016 HELP policy now allows companies to explore and exploit all types of hydrocarbons from a single license, including CBM.

India has high hopes pinned on coal-bed methane (CBM). The country’s potential CBM resources trapped in coal seams are about 91.8 trillion cubic feet (Tcf) and of these, 9.9 Tcf as gas-in-place has been established in eight blocks. As of mid-2016, India’s CBM production stood at about 1.4mmscmd, most of which was coming from Essar Oil’s Raniganj East block. The coun-try’s CBM production is now expected to reach 5.77mmscmd in FY2018 with the ramp up of production from oth-er blocks under developed by ONGC, Reliance Industries and Great Eastern Energy Corporation.

While 33 coal blocks were offered up for exploration and exploitation of CBM under India’s 1997 CBM policy, only 8 blocks have reached the devel-opment phase as of August 2016, out of which 5 are producing. As many as 18 blocks have been relinquished or are in the process of being relinquished, due to untimely granting of statutory clear-ances or poor CBM prospectivity.

Shale gas & oilEstimates of India’s shale gas and oil re-sources vary from 187.5Tcf to as high as 2,100Tcf. To exploit these possible reserves, the government formulated a policy for shale oil and gas in October 2013, allowing state-run ONGC and Oil India (OIL) to explore and produce from onshore acreages under the nom-ination regime.

Shale deposits have been found so far in the Cambay, Gondwana, Krish-na-Godavari, Assam-Arakan, Damodar and onshore Cauvery basins, in 56 dif-ferent areas. ONGC and OIL have iden-tified 28 shale gas blocks in Gujarat, 10 in Andhra Pradesh, 9 in Tamil Nadu, 8 in Assam and 1 in Arunachal Pradesh.

In total, ONGC and OIL’s total spending on exploration activities up to 2015 has been about $28 million (Rs. 192.08 crore), at their own risk and without government funds. ONGC alone has drilled 18 assessment wells for shale oil and gas so far, and plans to drill an additional 10 wells in FY2017. To further research and development in this area, in February 2016 ONGC also signed an MoU with Shock Wave

Technology (SWTL), part of Banga-lore’s Indian Institute of Science (IISc), to develop a collaborative research and development initiative on shock wave assisted fracking technology and over-all alternative technology for hydraulic fracturing.

However, environmental hurdles and expensive costs of production makes India’s shale future uncertain. The IEA for instance does not project large-scale shale gas production in In-dia to start before 2025, reaching a vol-ume of 15 bcf by 2040.

Gas hydratesNowhere in the world have natural gas hydrates been tapped. Yet the depos-its of ice-like combinations of gas and water in the oceans and polar regions are massive. A strong reminder of this was given when, in July 2016, India an-nounced the discovery of large deposits of gas hydrates in the Bay of Bengal.

India started investing in the explo-ration of gas hydrates under a National Gas Hydrate Programme (NGHP) near-ly two decades ago. As of 2016, two Na-tional Gas Hydrate Program (NGHP) Expeditions, NGHP 01 in 2006 and NGHP 02 in 2015, have been under-taken. NGHP 02 alone estimates a to-tal 134 Tcf of gas in 8,400 km2 in the Krishna Godavari Basin. It was com-pleted on the 28th of July 2015 and a pilot production testing was planned during 2017-18 in the KG area.

India’s gas hydrates expeditions benefit from a strong established co-operation with agencies like the US Geological Survey agency and Japan’s Agency for Marine-Earth Science & Technology. To improve and acceler-ate such R&D efforts, in June 2016 the MoPNG signed an MoU with the US Department of Energy to understand geologic occurrence, distribution, and production of natural gas hydrates along the continental margin in India and the US.

Driven by India’s domestic energy sup-ply and demand scenario, the exploita-tion of unconventional hydrocarbons in the country offers attractive produc-tion opportunities. However, with gas hydrates remaining at an R&D stage and shale oil and gas activities limited by current low oil prices, CBM remains the most promising form of unconven-tional hydrocarbons development for India in the short to medium term.

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In the News:

Ministry of Petroleum and Natural GasGovernment of India

A pre-event conference on the contribution of women professionals, especially in the Energy sector, is being held during Petrotech - 2016. Join us for this thought-provoking session led by a high-level panel of national and international speakers.

Theme: Women in Oil & Gas Sector : Emerging Trends(Empowerment beyond biases & barriers)

December 4, 2016 I 1000 to 1230 hrs.nd

Venue: Hall No. 06, 2 Floor, Vigyan Bhawan, New Delhi

Pre-Event Conference for

Women Professionals

Ms. NishiVasudeva

(former CMD, HPCL)

Dr. Reena Ramachandran

(former CMD, Hindustan Organic

Chemicals)

Ms. Rebecca Liebert

(President & CEO, Honeywell UOP)

Ms. AudreyMascarenhas

(President andCEO of QuestorTechnology Inc.)

Ms. Mekala Krishnan

Fellow, (McKinseyGlobal Institute,Washington DC)

Speakers at the event

Look forward to some memorable takeaway (only for women delegates) and join us for an invigorating & exhilarating Zumba® session by a licensed Zumba Fitness Instructor to Celebrate Energy! This will be followed by networking lunch.

Nominations are invited from lady professionals, senior HR functionaries working in energy-based organisations, and allied manufacturing sectors partnering the Indian Oil & Gas Sector, including girls students from engineering and management institutes. All registered delegates of Petrotech-2016 Conference & Exhibition are also welcome for the event.There is no delegate fee for participation in this specific event.Details of nominations may please be sent to womenatpetrotech@gmail.com in an excel format with the following mandatory details:

**The above extracts are from a report published by Mckinsey Global Institute (MGI) in November 2015 titled 'The Power of Parity: Advancing Women's Equality in India'

*Yet to confirm

**Take a look at some facts :

v v Women are currently under-represented in India’s economy compared with their potential. MGI estimates suggest that at 17 percent, India has a lower share of women's contribution to GDP than the global average of 37 percent, and the lowest among all regions in the world. Advancing gender equality can deliver sizeable additional economic growth vand broad-based prosperity to the world nowhere more so than in India. The lack of specific company measures to vrecruit, retain, promote and develop women is the most important barrier to increasing gender diversity within the top management of their organisations. To change the value proposition for female workers, India's CEOs and vOrganisations could commit to targets and ensure their companies embrace policies that promote diversity.

Designation Address:City & State E-Mail Mobile No.Sr. No

Organisation Name

Name of the

Delegate

Delegates have to carry their official ID of their organisation/institution for the event. For any information you may please contact on 011-24365000 (6 am to 10 pm)

*Ms. Chanda Kocchar(MD & CEO, ICICI)

*Ms. Arundhati Bhattacharya (Chairman, State Bank of India)

In the Program

In the Industry

In the Industry

India’s Natural Gas Production and Imports*

Domestically produced natural gas prices based on new pricing formula

0

10000

20000

30000

40000

50000 FY20

16

FY20

15

FY20

14

FY20

13

FY20

12

FY20

11

FY20

10

FY20

09

FY20

08

FY20

07

Domestic Production R-LNG ImportsRD

*all figures in mmscm Source: PPAC

0

1

2

3

4

5

Nov ‘14Mar ’15

Apr ‘15Sep ’15

Oct ‘15Mar ’16

Oct ‘16Mar ’17

Apr ‘16Sep ’16

5.054.66

3.82

3.06

2.50

*Prices in dollar per mmBtu basis gross calorific valueSource: Petroleum Planning and Analysis Cell (PPAC)

Current CBM production (May 2016): About 1.4mmscmd

Targeted CBM production by FY2018: 5.77mmscmd

CBM resources: 91.8 Tcf

Estimated gas hydrates reserves in the Krishna Godavari basin: 134 Tcf

Shale oil & gas assessment wells drilled by ONGC: 18

Domestic gas production (FY2016):31,138mmscm

R-LNG imports (FY2016): 21,309mmscm

Gas consumption (FY2016): 52,448mmscm

Commissioned LNG terminals: 4

Current regasification capacity:22MMTPA

Current cross-country gas pipelines network: 14,760.6Km

Under-construction & planned cross-country gas pipelines network: 15,639.6Km

CBM production as of May 2016: 1.3757mmscmd

DIAMOND

GOLD

SILVER SILVER SILVER EMERALD EMERALD

CRYSTALCRYSTALCRYSTAL

SAPPHIRE SAPPHIRE SAPPHIRE SAPPHIRE SAPPHIRE SAPPHIRE

GOLD GOLD GOLD

DIAMOND DIAMOND DIAMOND DIAMOND

*Ms. Rupshikha Saikia Bora (Director Finance, Oil India Ltd)