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.
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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.
Currently the prices of four main petroleum products i.e. petrol, diesel, [PG and kerosene for
domestic use are controlled through the Administered Pricing Mechanism (APM) in India. There is
a subsidy on LPG and kerosene while petrol is priced higher to provide cross subsidy. To attract
private domestic/foreign investments and to provide better service to consumers at competitive
prices, it was considered necessary to dismantle APM and move to market determined prices.
Accordingly, Government in November, 1997 announced the phased programme of dismantling of
APM over a period of four years effective 1 .4.1998 and total deregulation is envisaged by April,
2002.
IBP the oldest marketing company in India controlling about 1500 retail outlets is slated to be
disinvested to a strategic investor with the Government of India selling 33% of its present stake of
59%. International competitive bids have been invited and the process is likely to be completed
soon. Disinvestment of IBP provides an opportunity to private/foreign companies to participate in
the lucrative marketing sector in India, which now caters to a population of over 1 billion.
In order to facilitate pipeline transportation of the petroleum products, a separate holding company
by the name of ‘Petronet India Limited’ has been formed with the objective of setting up of the
cross-country pipelines expeditiously. This holding company will implement pipeline proposals
through subsidiaries/JVs for different pipelines with private participation. It is expected that product
pipeline capacity in the country would be increased to about 53 MMTPA by 2002 as compared to
about 20 MMTPA at the beginning of 1997-98.
The need to maintain an eco-friendly environment has not been lost sight of. Several environmental
related measures are being introduced to achieve the best operating practices in the world. Low
Sulphur Diesel (LSD) (0.25 % max.) and unleaded petrol is being supplied throughout the country
since the year 2000. Further, petrol & diesel with sulphur content of 0.05% (max.) which is
comparable to Euro-Il standard is being supplied in the four metros in India.
CONCLUSION
I have very briefly outlined the Oil & Gas Scenario in India and the wide range of opportunities
available in our country in this sector. We hope to significantly increase investment for expeditious
exploration, improving indigenous supply of crude oil and natural gas, enhance refinery capabilities
and bringing new players in marketing the petroleum products for the existing vast market by taking
various measures in the sector. There are significant investment opportunities for international
investors in India in the hydrocarbon sector. Production sharing contracts for 47 blocks have been
signed under New Exploration Licensing Policy (NELP) in the last two years and more such blocks
will be offered in future rounds. Bids for 7 CBM blocks have been received in the first round. The
second round of CBM blocks will follow shortly. Joint venture partners are welcome to invest in the
five grass root refineries under implementation in India. Disinvestments of IBR a marketing
company is in an advanced stage and gives an opportunity for interested parties to enter into the
lucrative marketing sector. Several LNG projects are in various stages of implementation and
natural gas sector is likely to see a lot of activity in the future. I invite all those present to participate
in the various investment opportunities offered by India and to take benefit of growing market of
more than one billion people.
I will end by thanking the hosts, the Chinese National Committee for the WPC for their warm
hospitality and for providing this opportunity to all of us to meet and deliberate on issues of
common interest. I also thank the dignitaries and everyone else present here in this forum for their
patient attention.
Thank you!