11th Petro India
Regional Cooperation in Accessing & Developing
Resources
Soft Infrastructure – Bridging the Gap
R.P. SHARMA
Reliance Industries Limited
11th December, 2012
Policy Initiative to Enhance Domestic
Energy Resources
Volatile International Prices of Energy, fluctuating
dollar and ever increasing demand of energy in
country makes it imperative to find new resources
of energy to bring modicum of stability
NELP framed in 1997 has been a Policy initiative in such
direction to enhance oil / gas resources
www.ril.com
2
New Exploration Licensing Policy (NELP)
1997
Objective:Step-up level of investment in exploration for higher level of domestic
production by attracting large private investment in oil/gas sector
Features :• No mandatory State participation
• ONGC/OIL also to compete on same terms that to private companies
• Freedom for marketing of crude oil and natural gas in domestic market
• Crude oil - import parity
• Natural gas - market related price
• Fiscal stability during entire period of contract.
A move from Administrative Regime to Free Market Regime
www.ril.com
3
NELP – Offer Process
• NELP Blocks are carved and statutory clearances are obtained by
MoP&NG before offer
• NELP round is launched with block data/ technical dockets/model PSC
• Offers evaluated by DGH and scrutinized by MoP&NG considered by
ECS and recommendation made to CCEA
• CCEA approves award of blocks
• PSC signed by GoI based on model PSC
Government commitments under PSC being at highest level,
as such are sacrosanct
www.ril.com
4
Salient Features of
Production Sharing Contract
• Government enters into a PSC with Contractor for a specified period
• Contractor takes exploration/development as per committed MWP
• Contractor finances exploration and development work
• Cost of unsuccessful exploration/development is borne by Contractor
• Successful exploration/development Government and Contractor
share the value
Government is absolved of all risks and expenses involved in
highly risky business of Exploration and Development
www.ril.com
5
NELP Status
Award of Blocks under NELP-1 in year 2000
Current Status
Bidding Rounds
Blocks awarded
Blocks Relinquished
Discoveries
Under Production
Blocks
Fields
9
254
32
113
3
6*
*Out of Six producing fields three are in KG D6
www.ril.com
6
NELP - Contribution
Blocks under oil/gas production
Operator
GSPCL
RIL
NIKO
Block
# of Fields under
Date of
Production
Commencement
CB-ONN-2000/1
1 (Oil)
July, 2007
KG-DWN-98/3 1 (Oil) & 2 (Gas) September, 2008
& April, 2009
CB-ONN-2000/2
2 (Gas)
May, 2004 &
October, 2004
Production
< 500 bpd
10,000 bpd
25 MMSCMD
50,000 SCMD*
-
* Production Peaked at 3 Lakh SCMD
Production from blocks other than KG D6 is less than 500 bpd of
crude oil and around 0.05 MMSCMD of Natural Gas
www.ril.com
7
Production During XI FYP
Sector/
Source
2007-08
2008-09
2009-10
2010-11
2011-2012
Crude Oil
(in TMT)
Share of
PSUs
29019
28834
28243
28003
27559
Share of
Private/JV
5087
4674
5262
9682
10527
Total
34106
33508
33505
37685
38086
Natural Gas (in MMSCM)
Share of
PSUs
24678
24757
25523
25447
25949
Share of
Private/JV
7727
8090
21985
26774
21609
Total
32405
32847
47508
52221
47558
Crude oil & Natural gas production by NOC remained
stagnant through XI FYP
www.ril.com
8
Projected Availability and Demand of
Fertilizer / Power Sectors
In MMSCMD
Source
2012-13
2013-14
2014-15
2015-16
Domestic
104
105
113
118
RLNG
73
105
115
170
Total
177
210
228
288
197
263
284
302
66
21
18
Demand
Price Sensitive
Power/ Fertilizer
Growth in Price
sensitive
demand*
*While the domestic availability is projected to be stagnant growth in
Fertilizer / Power sector through 2016 is projected at 105 MMSCMD
Affordability and sustainability of RLNG in Fertilizer / Power Sector?
www.ril.com
9
Gas Supplies in India
• Producer Suppliers
:
E & P Companies
• Merchant Suppliers
:
LNG
Trans – National
Pipelines
• Producer suppliers under NELP are regulated
• Merchant Suppliers enjoy absolute freedom and support
Level playing field between producer suppliers and merchant
suppliers is missing
www.ril.com
10
Gas Pricing and Marketing Provision
Under NELP - Article 21.1
NELP-I
NELP-V
Subject to Article 21.2, the
Same as under NELP-I
Indian market shall have the
first call on the utilization of
natural gas discovered and
produced from Contract Area.
Accordingly, any proposal by
contractor relating to
Discovery and production of
natural gas from Contract
Area shall be made in context
of the Government’s policy on
utilization of natural gas and
shall take into account the
objectives of the Government
to develop its resources in the
most efficient manner and to
promote conservative
measures
www.ril.com
NELP-VIII
Until such time as the
total availability of natural
gas from all petroleum
production activities in
India meets the total
national demand as
determined by
Government, each
company comprising the
Contractor, shall sell in
the domestic market in
India all of the
Company’s entitlement to
Natural Gas from the
Contract Area.
11
Gas Pricing and Marketing Provision
Under NELP - Article 21.3 & 21.6
NELP-I
NELP-V
NELP-VIII
21.3
For the purpose of sale in
domestic market in India,
Contractor shall have freedom to
market gas
21.3
For the purpose of sale in the
domestic market, the
Contractor shall have freedom
to market gas and sell its
entitlement
21.3
For the purpose of domestic sale
obligation, the Contractor shall have
freedom to market gas and sell its
entitlement as per Government
Policy for utilization of gas among
different sectors
21.3.1
For purpose of Article 21,
Government may from time to
time frame policy for utilization
of gas among different
sectors, both for ANG as well
as NANG which would cover
issues relating to different
consumer sectors.
21.6.1
Same as NELP-I
21.6.1
21.6.1
The Contractor shall endeavour Same as NELP-I
to sell all natural gas produced
and saved from Contract Area at
arms-length prices to the benefit
of the parties to the contract
Modification amounts to restricting marketing freedom
www.ril.com
12
Whether NELP Achieved its
Objective?
• Award of E&P blocks under NELP since year 2000 was step in
right direction to enhance domestic resources
• During its 12 years of operation 254 blocks have been awarded
but only one block worth reporting resulted in addition of resource
Reasons - attributable
1. Changes in various rounds of NELP and to make them applicable
to earlier rounds creating uncertainty
2. As NELP provided marketing freedom to contractor, Gas Linkage
Committee was abolished in year 2005 but all gas is allocated by
Government for specific
- Plant location
- Purpose
- Quantity
Contd….
www.ril.com
13
Continued
3. Specific allocations by Government amounts to going back to
administrative pricing mechanism
4. Allocation and price discovery are mutually exclusive
5. Current pricing mechanism shows a shift from arms length
price to focus on sharing of Government subsidy
1-5: Creates economic climate which discourages investment
in E & P sector.
Dr. Rangarajan Committee has been formed to go into PSC
related issues
www.ril.com
14
Dr. Rangarajan Committee on Designing
Future PSCs
• Main issues under reference
- Review of existing PSC
- Minimize monitoring
- Suitable mechanism for managing contract implementation
- Guidelines for determining basis/formula for price of
domestically produced gas
Committee report likely to be submitted in December 2012
www.ril.com
15
Pricing Presented by Industries to
Committee
• Crude oil*
- Import parity
• Petroleum Products**
- Import parity
- Trade Parity@
• Natural Gas* (NELP)
- Arms Length pricing
(Market price)
• Long Term LNG
- Indexed to JCC
@Trade
Parity – 80% Import parity + 20% Export parity
*NELP / PSC
** Rangarajan Committee (2006)
Mechanism of gas price fixation to be same that of oil/oil
products
www.ril.com
16
Ex Terminal Prices of Gas (NHV)
In $/MMBtu
Domestic
2007
APM
2.0
Non APM-Nominated Blocks *NELP-KG-D6
4.2
Imported
LNG Qatar
LNG Australia( $100/bbl)@
TAPI P/L($100/bbl)@
@Supply
3.86
-
Current
4.2
4.5 to 5.25
4.2
12.96
17.63
14.29
yet to start
*NELP (KG D6) Price was highest in 2007 but today it is the
lowest– a deterrent for investment in high risk exploration in
Deep / Ultra deep water
www.ril.com
17
Conclusion
Need to Incentivize domestic resources
• Sanctity of PSC
• Separation of regulated and regulating agencies
• Independent agency for monitoring obligations under PSC
- Contractor
- Government
Dr. Rangarajan Committee may address these concerns
www.ril.com
18
Thank You