Wednesday, January 24, 2018

India’s energy demand is expected to double to 1,516 Mtoe by 2035 from 723.9 Mtoe in 2016. India became the 3rd largest energy consumer in 2015 and continued to remain so in 2016.

As of 2016, the country had 600 million metric tonnes (MMT) of proven oil reserves. In FY17, oil production in the country reached 36.008 million metric tonnes as compared to 36.942 million metric tonnes in FY16.

India had 1.2 million cubic metres of proven gas reserves at the end of 2016 and produced 30.84 bcm of gas in FY17.

Market Segment

Indian Oil and Gas sector is divided into three segments:

  1. Upstream segment - exploration and production
  2. Midstream segment - storage and transportation
  3. Downstream segment - refining, processing and marketing

Upstream Segment

State-owned ONGC dominate the upstream segment. It is the largest upstream company in Exploration and Production (E&P) segment, accounting for approximately 61.5% of the country’s total oil output (FY17).

Midstream Segment

IOCL operates a 13,391 km network of crude, gas and product pipelines, with a capacity of 1.896 mbpd of oil and 9.5 mmscmd of gas. This is around 30% of the India’s total pipeline network.

Downstream Segment

India has 19 refineries in the public sector and 3 in the private sector. Private companies such as Reliance Industries Ltd. and Essar Oil have become major refiners. In FY17, India had 234.5 MMTPA of refining capacity, making it the second largest refiner in Asia. By the end of 2017, the oil refining capacity of India is expected to rise and reach more than 310 million tonnes. Private companies own about 40% of total refining capacity.

IOCL is the largest company, controls 10 out of 22 Indian refineries, with a combined capacity of 1.31 mbpd. Reliance launched India’s 1st privately owned refinery in 1999 and has gained considerable market share (30%). Essar’s Vadinar refinery has a capacity of 20 mmtpa, currently accounting for around 10% of total refining capacity.

Oil Supply and Demand

Oil consumption has expanded to reach 4.13 mbpd by 2017. Due to the expected strong growth in demand, India’s dependency on oil imports is likely to increase further. Rapid economic growth is leading to greater outputs, which in turn is increasing the demand of oil for production and transportation. With rising income levels, demand for automobile is estimated to increase, in turn leading to augmented demand for oil and gas.

In FY17, total crude oil imports were valued at US$ 80.3 billion as compared to US$ 70 billion in FY16. In FY17, imports accounted for 82% of the country’s total oil demand.

Crude Oil Production

In 2016-17, crude oil production stood at 36.009 million tonnes. ONGC accounted for 61.7% of total crude oil production in India.

Gas Supply and Demand

Domestic production accounts for more than three-quarter of the country’s total gas consumption. Demand is expected to increase due to higher economic growth, ensure less dependency on imported crude and a desire to use cleaner fuel.

Domestic Gas Production

Domestic gas production in India stood at around 30.84 billion cubic metres (bcm) in FY17. In India, auto LPG sector registered sales growth of 4.9% in the fiscal year 2016-17.

LNG Imports

LNG imports into India accounted for about one-fourth of total gas demand, which is estimated to further increase by two times, over next five years. To meet this rising demand the country plans to increase its LNG import capacity to 50 million tonnes in the coming years.

India increasingly relies on imported LNG. It is the fourth largest LNG importer and accounted for 5.68% of global imports. India imported 18.787 MMT of LNG during 2016-17, in comparison to 16.217 MMT in 2015-16.

Petroleum Products

Consumption of petroleum products in India stood at 183.5 mmt in FY15, 184.6 mmt in FY 16 and 193.75 mmt in FY17.

Petroleum products derived from crude oil include light distillates such as LPG, naphtha; middle distillates such as kerosene; and heavy ends such as furnace, lube oils, bitumen, petroleum coke and paraffin wax.

Policy and Regulatory Framework

The Government has enacted various policies such as the New Exploration Licensing Policy (NELP) and Coal Bed Methane (CBM) policy to encourage investments.

National Biofuel Policy, 2002: A 16% concession on the excise duty on bio-ethanol and exemption of bio-diesel from excise duty to promote biofuel usage.

Freight Subsidy (for far flung areas) Scheme, 2002: It compensate public sector Oil Marketing Companies (OMCs) for the freight incurred to distribute subsidised products in far flung areas.

Auto Fuel Policy, 2003: It provides a road map to comply with various vehicular emission norms and corresponding fuel quality upgrading requirements over a period of time.

Petroleum and Natural Gas Regulatory Board (PNGRB) Act, 2006: It regulates refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas.

The National Biofuel Policy, 2009: It promotes bio-fuel usage, the Government of India has provided a 12.36% concession on excise duty on bio-ethanol and exempted bio-diesel from excise duty.

Shale Gas and Oil Exploration Policy: Approved in September 2013, it allows companies to explore energy resources trapped within rocks to meet India’s growing energy needs.

New Domestic Natural Gas Pricing guidelines has been enforced on 10 January 2014, which will be revised on an half yearly basis.

FDI

The government allows 100% Foreign Direct Investment (FDI) in upstream and private sector refining projects. The FDI limit for public sector refining projects has been raised to 49% without any disinvestment or dilution of domestic equity in the existing PSUs.

Developments

Coal Bed Methane (CBM)

Government approved the CBM policy in 1997 to boost the development of clean and renewable energy resources. The CBM policy was designed to be liberal and investor friendly. The first commercial production of CBM was initiated in July 2007.

Underground Coal Gasification (UCG)

The technology was first widely used in the US in the 1800s and in India (Kolkata and Mumbai) in the early 1900s. UCG is currently the only feasible technology available to harness energy from deep non-mineable coal seams economically in an eco-friendly manner and it reduces capital outlay, operating costs and output gas expenses by 25–50 per cent vis-à-vis surface gasification.

Gas Hydrates

The government initiated the National Gas Hydrate Programme (NGHP), a consortium of national E and P companies and research institutions, to map gas hydrates for use as an alternate source of energy.

Biofuels

Bio-fuels (bio-ethanol and bio-diesel) are alternate sources of energy from domestic renewable resources. These have lower emissions compared to petroleum or diesel.

Open Acreage Licensing Policy

The Open Acreage Licensing Policy (OLAP), which allows an explorer to study the data available and bid for blocks of his choice has been initiated in parallel with NELP to increase foreign participation by global E and P companies like Shell, BP, Conoco Phillips, etc.

Recent Developments

In March 2017, the Indian Strategic Petroleum Reserve Ltd (ISPRL) and Abu Dhabi National Oil Company (ADNOC) of UAE signed an agreement, to fill up 0.81 MMT or 5,860,000 million barrels of crude oil at ISPRL storage facility at Mangalore, Karnataka.

Domestic Oil & Gas Companies

  1. Indian Oil Corporation Limited
  2. Hindustan Petroleum Corporation Limited
  3. Bharat Petroleum Corporation Limited
  4. Reliance Industries
  5. ONGC
  6. GAIL India Limited
  7. Oil India Limited

International Oil & Gas Companies Operating in India

  1. Cairn India Pvt Ltd
  2. Shell
  3. BP