Oil and Gas in India

Oil and Gas in India

Key Note address

Mr Ram Naik

(Minister of Petroleum and Natural Gas , Government of India)

World Petroleum Congress

Asia Regional Meeting, Shanghai, China

19th September 2001.

Guest of Honour and other learned fellow members on the panel, distinguished guests, ladies and gentlemen.

II am indeed very happy to participate in this prestigious event. The large number of dignitaries, petroleum executives and professionals from various countries participating in World Petroleum Congress - the First Asia Regional meeting, in the city of Shanghai, testifies the importance attached to the meeting. The meeting with its very apt theme “Technology and Cooperation A fundamental strategy for Asia’s Petroleum Industry’ provides a forum for all the Asian countries having stakes in the petroleum sector to discuss issues of common interest and, arrive at mutually beneficial solutions.

Before I speak on my subject “Oil & Gas in India”, let me refer to the inhuman and heinous attack on USA by terrorists and convey our sympathies and concern to the families of thousands of persons killed in the attack. India has been a victim of such terrorist acts for long and strongly condemns all acts of terrorism whether in India or elsewhere.

The global economic recession coupled with sustained high level of oil prices has already been causing adverse impact on the economies across the world. The oil prices had skyrocketed and rose by more than US dollar 3 per barrel in one day, putting additional strain on the already burdened economies.

In the light of these developments, it is necessary for all nations to guard against such covert actions and maintain requisite stocks of oil and other energy sources. Under this situation, in my opinion, there is a need for the oil exporting countries to re-examine their strategies of supporting oil prices through oil supply restrictions. It may be appropriate for the oil exporting countries to lift all voluntary production curbs so that increased oil supplies in the market would result in reasonable oil prices in the range of US dollar 20 per barrel. This would provide an opportunity for all countries, particularly developing countries to ensure oil supply and economic security for themselves. Such a situation would be in the mutual interests of the importing and exporting countries and these measures have the potential to kick-start the faltering global economy.

Starting from its exploration and production operations at Digboi in the State of Assam where the oldest operating refinery in the world is located and is celebrating its centenary this year, India has a long history of successful operations in the upstream, downstream, petrochemicals and natural gas sector covering the entire gamut of services and core activities. To supplement this, we also have a strong and highly capable group of cost-competitive software personnel. We are open to sharing the experience and expertise with other countries, particularly with developing and less developed countries. This conference which is the first Asia Regional meeting of the World Petroleum Congress gives an opportunity for various countries in Asia to cooperate in the Hydrocarbon sector. There is tremendous scope of cooperation amongst the various countries in Asia ranging from the major producers and exporters of crude oil in the middle east countries to the major consumers like Japan, China and India, Mutual cooperation and understanding would lead to a better future for all the developing countries of Asia.

The per capita consumption of primary energy vis-à-vis the hydrocarbons in India, in terms of kilograms of oil equivalent, are about 285 and 115 respectively as against the corresponding world average of around 1455 and 930 and China’s average of 688 and 169 and Japan’s average of 3962 and 2520. Growth of the economy would automatically leads to increase in energy consumption, as there is a direct correlation between the GDP and energy consumption. Viewed from all angles, the hydrocarbon sector is considered to be very crucial for determining the energy security of our country.

Today, in India, 40- 45% of the total energy needs are met with by the oil and gas sector and this is likely to continue for the next two decades or more, with some increase in the usage of natural gas over the presently more commonly used liquid hydrocarbons.

SUPPLY AND DEMAND OF PETROLEUM & PETROLEUM PRODUCTS

There has been a gap between supply and availability of petroleum and petroleum products in India. India imports 70% of her crude oil requirement at present. Over the last 15 years or so, the demand for petroleum products has risen at an annual average rate of about 6%, while the indigenous oil production rate during the last few years has been more or less constant at around 32 Million Metric Tonnes (MMT) per annum. The current requirement of crude oil in the country stands at around 11 2 MMT and this is likely to increase to about 190 MMT by 2011-12. India’s natural gas production during the current year is about 80 Million Standard Cubic Metre per day (MMSCMD) as against the demand of around 150 MMSCMD. The demand for the natural gas in the country is estimated to exceed 300 MMSCMD within the next 10 years. The increasing trend of demand for petroleum & petroleum products shows the healthy growth of Indian Economy.

INDIA HYDROCARBON VISION-2025

The Government of India in March 2001 has evolved a long-term vision for the hydrocarbon sector known as ‘India Hydrocarbon Vision-2025’, which lays down the framework to guide the policies relating to the hydrocarbon sector of the country for the next 25 years. The actions required to be taken in the medium and the long term to realize the vision have been identified in the document.

EXPLORATION & PRODUCTION SECTOR

In the Exploration & Production (E&P) sector, the main thrust areas identified in the India Hydrocarbon Vision 2025 include: enhancement of exploration and exploitation efforts in the producing basins, extending the work of exploration into non-producing and frontier basins, exploring all the geological basins within a specified time period, optimizing exploitation of the discovered reserves, research and development efforts including technology absorption and environment.

In India, significant hydrocarbon E&P activities have been undertaken for several decades. Considerable scope still exists for carrying out further exploration activities. The sedimentary area of the geological basins in India having commercial production of hydrocarbons constitutes only about 17% of the total area of about 3.14 million sq. km. No commercial production is available today from the balance 83% of the area, which includes the vast deepwater and other frontier areas of the country. Owing to the inherent risk-reward perception, different basins or parts of the same basin are in different stages of exploration.

OPENING UP OF EXPLORATION ACREAGES

In the past exploration activities in India were carried out mostly by the upstream National Oil Companies (NOCs) i.e. Oil & Natural Gas Corporation (ONGC) and Oil India Limited (OIL) in their respective acreages held as Government’s nominees. Opening up of the available acreages in India on yearly basis for active exploration by private and joint venture companies - both Indian and foreign, in addition to the NOCs was launched in 1993, which was improved upon in 1999 through a highly liberalized policy known as New Exploration Licensing Policy (NELP) having internationally competitive fiscal terms. Under the NELP, all companies, including the NOCs, are required to bid for committed work programme; profit petroleum share at various levels of pre-tax multiple of investments and percentage of annual production ought to be allocated towards cost recovery. So tar, two rounds of NELP i.e. NELP-I and II have been completed, wherein Production Sharing Contracts (PSCs) for 47 exploration bloc ks-8 on land, 24 shallow offshore and 15 deep water offshore blocks were signed in a time span of three to seven months from the bid closing dates which is a major improvement over two to three years taken for signing of contracts earlier. An investment of about US$ 535 million is confined for the first phase of minimum work programme in the next two to three years in the blocks awarded under NELP-I and II. The total estimated investment in these blocks for all the three phases of the entire exploration period of seven to eight years is of the order of US$ 1,940 million. With the time bound implementation of the work programme in all the 47 contracted blocks, a total sedimentary area of about 5,00,000 sq. km. shall come under active exploration. It is expected that with the operationalisation of the liberalized NELP route, more than 25% of the Indian sedimentary basin would be explored by 2005.

ENHANCEMENT OF INDIGENOUS OIL & GAS PRODUCTION

An investment of about US $ 3 billion is planned by the Oil & Natural Gas Corporation (ONGC), towards implementation of various improved oil recovery (IOR) and enhanced oil recovery (EOR) schemes in their major ageing oilfields, including the giant Mumbai High Field in western offshore for optimal development of these fields. The project has already been launched in Mumbai High in January2001.

The upstream petroleum sector in India, thus offers diverse opportunities and ample scope for interested players to lend a helping hand in India’s concerted efforts to increase the exploration coverage and enhance indigenous crude oil and gas production.

ALTERNATIVE SOURCE OF ENERGY

Government of India have recently given a thrust for Coal Bed Methane (CBM) exploration by offering 7 CBM blocks in different parts of the country. For a country like ours, with a resource potential of about 1000 Billion Cubic Metres (BCM) of gas from coal deposits, offer of 7 blocks for international bidding is just a beginning of development of yet another source of energy. The bids have been received on 31~ August, 2001 and will be finalised shortly. With this, India will join China in the small club of CBM producers.

ACQUIRING EQUITY OIL ABROAD

Government of India has been encouraging the participation of Indian national and private companies for carrying out E&P business in foreign acreages. ONGC Videsh Limited (OVL), a subsidiary of ONGC, has recently signed a long-term agreement with M/s Roseneft for 20% participating interest in the Sakhalin field in Russia. In addition OVL has a 45% interest in an offshore gas field in Vietnam, which is likely to go into production soon. Similar efforts being pursued by the Indian companies in other foreign countries would be encouraged by the Government, while foreign companies willing to participate in the E&P business in India’s acreages, either solely or as consortium partners or even as service providers are most welcome.

NATURAL GAS SECTOR

The 19th century was the century of coal, the 20th century was dominated by crude oil while the 21st century is going to be the century of natural gas. Recognising this the Government of India is according due importance to encourage the usage of natural gas, ensure its adequate availability by supplementing efforts of gas imports through pipelines and import of liquefied natural gas (LNG) in addition to the exploration and production of indigenous conventional hydrocarbon gas along with exploration efforts for other gas resources like CBM. With various measures that are in hand, the domestic production of gas in the country is expected to increase from the present level of about 29.5 billion cubic meter (BCM) in 2001-02 to about 38 BCM by the year 2004-05.

India allows companies to develop LNG import projects and directly market the natural gas. The import of natural gas/LNG will, however, call for large investment in handling terminal and gas transmission network, for which Gas Authority of India Limited (GAIL), India’s midstream petroleum company, is playing a leading role along with participation by other Indian and foreign parties. Developers of exploration blocks awarded under various bidding rounds also have the right to market the natural gas at market driven prices.

Today, the gas sector in India provides considerable opportunities for organizing gas supplies and input infrastructure, pipeline infrastructure for marketing of gas and related end use facilities like power generation.

DOWNSTREAM SECTOR

The main objectives of the Government of India for the downstream sector are, to maintain refining capability of around 90% of our requirements of middle distillates, to have a free market and healthy competition, to improve quality of products and customer service, to develop infrastructure for increasing the efficiency and to achieve free pricing for products while continuing subsidized prices of some products for certain sections of society and in remote areas of the country.

Towards part fulfillment of the above, investment in refining sector was permitted for private companies including foreign companies. The administered price mechanism (APM) regime was dismantled for refinery sector with effect from 1 .4.1998. In order to increase the domestic refining capacity substantially, the India Hydrocarbon Vision 2025 projects demand of 368 MMT for petroleum products in the year 2024-2025 with envisaged refining capacity of 358 MMT. In view of the anticipated increase in demand, there is a need to further increase refining capacity in future.

The refining capacity of the Country which was 62.24 Million Metric Tonnes Per Annum (MMTPA) in 1996-97 with substantial imports of refined products, grew significantly in the subsequent years and the refining capacity of the country reached the level of 112.54 MMTPA by 1st April, 2001. At present, there are 1 7 refineries in the country, 15 in the public sector, one in the joint sector and one in the private sector. There are five new grass root refineries under implementation, of which three are in public sector and two in private sector, with a total capacity of 40.5 MMTPA. In addition, at several of the existing refineries, expansions are also in progress. Foreign investors are welcome to join these projects as joint venture partners.