Oil Gas

TEDDY

E N E R G Y

S U P P LY

AT A GLANCE Domestic crude oil production during 2006/07 increased by 5.6% over the previous year, while natural gas production for 2006/07 registered a decline of 2% from its value in 2005/06. Equity oil acquisition abroad was noteworthy, as OVL (ONGC Videsh Ltd) signed three MoUs (memoranda of understanding) and one PSC (production sharing contract), and acquired 20% stake in Iran’s Yadavaran Fields. Refining capacity at the beginning of the Eleventh Five-year Plan was 148.97 MTPA (million tonnes per annum), with refining capacity addition of 34.3 MTPA during the Tenth Five-year Plan. Essar Oil Ltd commissioned its grass-root refinery at Vadinar, which had a capacity of 10.5 MTPA in November 2006. The IOCL (Indian Oil Corporation Ltd) expanded its refinery at Panipat by 6 MTPA in January 2007. While the consumption of petroleum products increased by 7%, ATF (aviation turbine fuel) recorded maximum growth among all products in 2006/07 over the previous year. GAIL (Gas Authority of India Ltd) commissioned three gas pipelines during 2006/07, namely, Kelaras-Malanpur pipeline (95 km), Bijaipur–Kota pipeline (192 km), and JagotiPithambur pipeline (91 km). After a lot of controversy over pricing of natural gas discovered by the RIL (Reliance Industries Ltd) in Krishna–Godavari Basin, the EGoM (Empowered Group of Ministers) approved the price at $4.20/mBtu (million British thermal unit) including the pricing formula at landfall point as against $4.33 mBtu proposed by the RIL. The PNGRB (Petroleum and Natural Gas Regulatory Board) was notified on 1 October 2007 to regulate the downstream segment of the sector. The government issued the Policy for Development of Natural Gas Transmission Pipelines and City or Local Natural Gas Distribution Networks.

Introduction

W

ith the production of domestic crude oil remaining nearly stagnant for the past 15 years, the gap between the domestic demand and supply is continuously on the rise. To meet the deficit demand, India imported crude oil during 2006/07; the import dependency increased to over 75%. To improve domestic production of crude oil and natural gas, exploration was intensified through NELP (New Exploration Licensing Policy). There was a reduction in the number of crude oil discoveries by private players during 2006/07; however, the number of their discoveries was still more than that of the NOCs (national oil companies). To acquire oil blocks abroad, the OVL (ONGC Videsh Ltd) signed MoUs (memoranda of understanding) with three foreign companies, namely, PetroEucador (Ecuador’s state oil company), Petrobras (Brazilian oil company), and INTEVEP (Instituto de Tecnología Venezolana para el Petróleo, subsidiary of NOC of Venezuela, PDVSA [Petroleos de Venezuela SA]) and one PSC (production sharing contract) with CUPET (Cubapetroleo, the state oil company of Republic of Cuba). The OVL also acquired 20% stake in Iran’s Yadavaran Fields.

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On the regulatory front, there were significant developments during the year. The PNGRB (Petroleum and Natural Gas Regulatory Board), set up in June 2007 to regulate the downstream segment of the sector, was notified on 1 October 2007. The Government of India issued the Policy for Development of Natural Gas Transmission Pipelines and City or Local Natural Gas Distribution Networks.

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Crude oil production and discoveries Increasing at the rate of about 5.6% over the previous year, the crude oil production for 2006/07 was 33.98 MT (million tonnes), of which 11.33 MT was onshore and 22.66 MT offshore. Details of crude oil production by company and region are given in Tables I and II, respectively. Crude oil production has been almost stagnant for the last 15 years. However, since 1996/97, production by private/JVs (joint ventures) has registered a CAGR (compounded annual growth rate) of about 13.6%, whereas total production of crude oil by two NOCs – ONGC (Oil and Natural Gas Corporation) and OIL (Oil India Ltd) – taken together declined over the years. This was mainly due to a decline in crude oil production of ONGC at CAGR of about 1% in the last decade. Despite the high growth rate of private sector/JVs in the oil production, the segment is still dominated by NOCs, accounting for about 85% of the total crude oil production in 2006/07. The dominance of NOCs in crude oil production is mainly due to Bombay High offshore oilfields of ONGC, which, even after 31 years of commercial production, contributed about 80% of total offshore

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In the downstream, India achieved the target for refining capacity addition of 34.3 MTPA (million tonnes per annum) in the Tenth Five-year Plan (2002–07). As of April 2007, India’s refining capacity is about 148 MTPA. The year witnessed setting up of India’s third private sector refinery, with a capacity of 10.5 MTPA, by Essar, and capacity addition of 6 MTPA at the IOCL’s (Indian Oil Corporation Ltd) Panipat refinery. India, with its growing surplus refining capacity, is seeking for opportunities to emerge as a refining hub. During 2006/07, price of crude oil showed high degree of volatility, starting from $65/bbl (barrel) in April 2006 and peaking at price above $70/bbl in July 2006. However, the price decreased sharply thereafter till January 2007 when it was about $50/ bbl. Thereafter, it increased and hovered around $65–70/bbl. Debates and controversies regarding multiple gas pricing mechanism in India intensified in 2006/07, with the RIL (Reliance Industries Ltd) seeking the government’s approval for fixing the price of its gas from KG (Krishna–Godavari) Basin. With the increasing pressure from the Government of Andhra Pradesh, the Ministry of Power, and the Ministry of Chemicals and Fertilizer to keep the prices low, the Committee of Secretaries was asked to look into the RIL’s proposal. Their report was reviewed and finally the matter was entrusted to the EGoM (Empowered Group of Ministers). The group approved the price at $4.20/mBtu (million British thermal unit) as against the proposed price of $4.33/mBtu at landfall point with minor modification in the formula.

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TERI Energy Data Directory and Yearbook 2007

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Table I

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Crude oil production (by company, in MT) Onshore OIL

ONGC

Private/ JV

Total

1996/97

2.87

8.50

0.04

11.41

Offshore ONGC

Private/JV

Total

Grand total

20.18

1.31

21.49

32.90

19.86

2.47

22.34

33.86

18.29

2.97

21.25

32.72

16.73

3.92

20.65

31.95

16.63

3.79

20.42

32.42

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Year

3.09

8.39

0.04

11.52

1998/99

3.30

8.10

0.08

11.47

1999/2000

3.28

7.92

0.09

11.30

2000/01

3.28

8.43

0.09

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1997/98

3.18

8.64

0.07

11.89

2002/03

2.95

8.45

0.08

11.47

2003/04

3.00

8.38

0.07

11.46

17.68

4.24

21.92

33.38

2004/05

3.20

8.32

0.07

11.59

18.16

4.23

22.39

33.98

2005/06

3.23

8.10

0.10

11.43

16.31

4.45

20.76

32.19

2006/07

3.11

8.06

0.16

11.33

17.99

4.67

22.66

33.99

16.07

4.07

20.14

32.03

17.56

4.01

21.57

33.04

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2001/02

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OIL – Oil India Ltd; ONGC – Oil and Natural Gas Corporation; JV – joint venture; MT – million tonnes Source PPAC (2007)

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Table II

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Crude oil production (by region, in MT)

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Assam/ Nagaland

Gujarat ○

Arunachal Pradesh

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Year

Andhra Pradesh/ Tamil Nadu

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Onshore

Onshore total

Offshore Andhra Pradesh/ Tamil Nadu

Bombay High

Offshore total

Total

0.04

0.38

4.81

6.18

11.41

1.31

20.18

21.49

32.90

1997/98

0.04

0.39

5.12

5.98

11.52

2.47

19.86

22.34

33.86

11.47

2.97

18.29

21.25

32.72

11.30

3.92

16.73

20.65

31.95

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1996/97

0.08

0.45

5.08

5.86

1999/2000

0.10

0.52

4.97

5.70

2000/01

0.08

0.70

5.20

5.82

11.79

4.01

16.63

20.64

32.43

2001/02

0.07

0.72

5.10

6.00

11.89

4.07

16.07

20.14

32.03

2002/03

0.07

0.70

4.66

6.04

11.47

4.01

17.56

21.57

33.04

2003/04

0.08

0.66

4.59

6.13

11.46

4.24

17.68

21.92

33.37

2004/05

0.08

0.62

4.70

6.19

11.59

4.23

18.16

22.39

33.98

2005/06

0.10

0.60

4.47

6.25

11 .430

4.45

16.31

20 .760

32.19

2006/07 Source PPAC (2007)

0.12

0.61

4.39

6.21

11.33

4.67

17.99

22.66

33.99

Enhanced oil recovery/improved oil recovery Recovery from the existing major fields by implementing EOR (enhanced oil recovery)/IOR (im-

Figure 1 Increasing import dependency and fiscal strain Source MoPNG (2007)

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With the increasing crude oil imports, dependency on the Middle East region is also increasing. In 2001/02, India imported about 68% of its crude oil from Middle East region, which increased to about 73.5% in 2005/06.1 In Middle East, the country that accounts for maximum share of export to India is Saudi Arabia, which accounts for nearly a quarter of our total imports.

Rajya Sabha Unstarred Question No. 148, dated 25 July 2006; Ministry of Petroleum and Natural Gas, Government of India ○

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production in 2006/07. But, production of this offshore field witnessed a decline between 1996/97 and 2006/07, with a CAGR of about –1.1%, while other offshore basins of Andhra Pradesh and Tamil Nadu gained ground. The CAGR of 13.5% in production, since 1996/97, from these regions has been impressive, resulting in increased production share, from about 6% in 1996/97 of total offshore production to 20% in 2006/07. With regard to onshore oilfields, production from the two major regions – northeastern and western Gujarat – has remained nearly stagnant between 1996/97 and 2006/07 (Table II). Continuous increase in crude oil demand and stagnant domestic production have resulted in increased dependency on imported crude oil. This dependency has increased over the years to about 76% in 2006/07, with India importing 111.5 MT of crude oil valued at Rs 2192 billion. However, the dependence on imports for meeting domestic demand for crude oil was about 71% in 2006/07. With the increasing crude oil import dependency and prices, the fiscal strain on the economy is also increasing, with large foreign exchange outflow of about 38% of the total foreign exchange earnings of India in 2006/07. While the monetary value of crude oil has gone up about 12 times between 1996/97 and 2006/07, quantum of import has increased nearly three times, from about 33 MT (1996/97) to 111.5 MT (2006/07) (Figure 1).

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1998/99

Oil and gas

77

Oil discoveries (by company) Year

ONGC

OIL

Private/JV

2002/03

1

5

0

2003/04

2

3

4

2004/05

2

3

5

2005/06

1

5

7

2006/07

1

0

4

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Table III

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in the Upper Assam oilfields between 2002/03 and 2005/06 and CEIL’s (Cairn Energy India Ltd) crude oil discoveries in 2003/04 in Rajasthan (RJON-90/1) had been noteworthy, but during 2006/ 07 and first quarter of 2007/08, both the companies did not make any crude oil discovery.

Natural gas production and discoveries

Table IV

Production of natural gas (by company, in BCM) Year

OIL

ONGC

Private/JV

Total

1996/97

1.50

21.28

0.48

23.26

1997/98

1.67

23.05

1.68

26.40

1998/99

1.71

22.84

2.87

27.43

1999/2000

1.73

23.25

3.47

28.45

2000/01

1.86

24.02

3.60

29.48

2001/02

1.62

24.04

4.05

29.71

2002/03

1.74

24.24

5.41

31.40

2003/04

1.88

23.58

6.49

31.96

2004/05

2.01

22.99

6.78

31.77

2005/06

2.27

22.57

7.36

32.20

2006/07

2.27

22.25

7.04

31.56

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The natural gas production for 2006/07 registered a decline of 2% from its value in the previous year. It was 31.56 BCM (billion cubic metres), of which 9.27 BCM was onshore and 22.28 BCM offshore. Details of natural gas production, by company, are given in Table IV.

OIL – Oil India Ltd; ONGC – Oil and Natural Gas Corporation; JV – joint venture; BCM – billion cubic metres Source MoPNG (2007); PPAC (2007)

Details available at , last accessed on 29 August 2007. Details available at , last accessed on 29 August 2007. ○

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Taking into account the discoveries made by private players during 2006/07, the BGEPIL (BG Exploration and Production India Ltd) discovered oil and gas in Panna Mukta fields and the RIL discovered crude oil in KG-DWN-98/3 block, and named it as Dhirubhai-26. Another private player, the GSPC (Gujarat State Petroleum Corporation Ltd), made two oil and gas discoveries in KG-OSN-2001/3 block and CB-ONN-2000/1 block during the same period. During the first and second quarters of 2007/08, various private players discovered oil and gas. The EOL (Essar Oil Ltd) discovered oil in its Mehsana onshore exploration block CBON-3 in Gujarat. Essar, which is the operator, holds 70% interest in the block, while the ONGC has the remaining 30% interest.3 The RIL discovered oil and gas in Cauvery deep-water basin in CY-DWN-2001/2 block. Other oil and gas discoveries include discovery by the GSPC in CB-ONN-2002/3 block and by Cairn Energy in Ravva fields. During 2006/07 and first quarter of 2007/08, the NOCs and private players did not witness similar success in terms of number of crude oil discoveries as compared to past few years (Table III). For instance, OIL made a number of crude oil discoveries

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Oil discoveries by private players/joint ventures

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The ONGC made a single oil discovery in 2006/07 in Kalanpur-1 (KPAA) in South Assam shelf.2 In the first and second quarters of 2007/08, the ONGC made two crude oil discoveries in Assam and Assam Arakan Basin, namely, Disangmukh-3 discovery and Panidihing-6 discovery (ONGC 2007). All these discoveries are still under evaluation by the DGH (Directorate General of Hydrocarbons). Another NOC, OIL (Oil India Ltd), had not come up with any oil discovery during 2006/07.

ONGC – Oil and Natural Gas Corporation; OIL – Oil India Ltd; JV – joint venture Note Discoveries of type ‘oil and gas’ are included in the above table. Source DGH (2007)

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Discoveries by the national oil companies

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Oil exploration and discoveries

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proved oil recovery) schemes, in particular, is targeted to improve India’s crude oil production. The ONGC has completed 12 IOR/EOR projects and another six are under implementation. The estimated gain from these projects is placed at 110 MT by 2030. Another measure to improve the crude oil position is to intensify domestic exploration and production efforts to explore new fields and increase the proven reserve base of the country.

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Oil and gas

Discoveries by national oil companies During 2006/07, the ONGC made seven natural gas discoveries. It notified two gas discoveries in deepwater block, namely, KG-DWN-98/2 and KG- DWS1, three discoveries in western onland, namely, Deloli, Mahelaj, and Wadsar, one discovery in Cauvery onland, that is, Adichapuram, and the last discovery in Mahanadi deep waters in block MDW-2. Total reserve accretion during 2006/07 by the ONGC was 65.56 MTOE (million tonnes of oil equivalent).4 The ONGC recorded few more discoveries during the first and second quarters of 2007/08—one discovery in Mahanadi Basin in MN-DWN-98/3 block on East Coast of India about 60 km off Paradip coast, one in North Agartala dome in Northeastern region, and another one in KG Basin.

Discoveries by private owners/joint ventures The private companies and JVs also met with success in their exploration activities, and the major discoveries during the year are summarized in Table VI.

Discoveries by Reliance Industries Ltd The RIL has made some significant oil and gas discoveries in 2006/07. The company announced two major discoveries in KG Basin off the East Coast of India. The first in KG-OSN-2001/1 (NELP-III) block5 and the second in KG DWN 98/3 (KG D6) 6 block. These discoveries were named Dhirubhai-28

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Natural gas exploration and discoveries

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Unlike crude oil production in India since 1996/ 97, natural gas production has registered about 3% CAGR. This is essentially due to significant increase in gas production by private owners/JVs with a CAGR of about 31%. However, there has not been any major increase (CAGR of about 0.74%) in gas production by the NOCs between 1996/97 and 2006/07. In spite of the increasing share of private owners/JVs over the years, the gas production is still dominated by the NOCs. In 2006/07, the NOCs together accounted for 77.69% of the total natural gas production, down from about 98% in1996/97. Similar to the dominance of north-eastern states and Gujarat in onshore crude oil production, the areas mentioned in Table V jointly account for about 63% of the total onshore gas production in 2006/07; however, the share has declined when compared to the production in 1996/97 (about 82%). When the onshore basins of Andhra Pradesh and Tamil Nadu are taken into account, the production performance seems to be impressive with CAGR of about 7% and 28%, respectively, between 1996/97 and 2006/07. They accounted for about 28% of total onshore gas production in 2006/07 (Table V). Despite the growing share of onshore gas production, India’s natural gas production was still largely dependent on Bombay High offshore. Owned and operated by the ONGC, it contributed more than 98% of offshore gas production till 1999/2000, after which private owners/JVs had significant production growth.

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TERI Energy Data Directory and Yearbook 2007

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Table V Assam/ Nagaland

1996/97

0.80

0.03

1.94

1997/98

1.02

0.03

2.02

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Arunachal Pradesh

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Andhra Pradesh

Gujarat

Rajasthan

Tamil Nadu

Tripura

Total

2.96 3.18

0.01

0.09

0.15

5.98

0.15

0.10

0.20

6.68

3.28

0.16

0.11

0.31

7.17

3.27

0.15

0.14

0.35

7.40

0.04

2.06

1.36

0.04

2.08

2000/01

1.60

0.03

2.20

2001/02

1.80

0.03

1.99

2002/03

2.04

0.04

2.05

2003/04

1.93

0.04

2.20

2004/05

1.71

0.04

2.25

2005/06

1.66

0.05

2.41

2006/07

1.53

0.04

2.53

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1.22

1999/2000

3.15

0.16

0.20

0.38

7.73

3.28

0.10

0.35

0.42

7.97

3.53

0.16

0.47

0.45

8.73

3.52

0.17

0.61

0.51

8.97

3.71

0.21

0.68

0.50

9.09

3.83

0.24

0.91

0.48

9.58

3.29

0.24

1.13

0.52

9.27

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Source MoPNG (2007); PPAC (2007)

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1998/99

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Year

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Production of onshore natural gas (by region, in BCM)

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Details available at , last accessed on 9 August 2007. Details available at , last accessed on 7 August 2007. Details available at , last accessed on 7 August 2007. ○

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Table VI

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Oil and gas discoveries by private players in 2006/07

Month of discovery

Oil/gas

May 2006

Declared commercial on 16 August 2007

Gas

May 2006

Under evaluation by operator

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Oil/gas

Operator

Name of discovery

Panna-Mukta

Field

BGEPIL

SWP-1

RJ-ON-90/6

Pre-NELP

Focus

SGL#1

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KG-OSN-2001/3

NELP-II

GSPC

KG-17

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Bidding round

KG-DWN-98/3

NELP-I

RIL

Dhirubhai-26

Present status

Oil/gas

June 2006

Under evaluation by operator

Oil

June 2006

Under evaluation by operator

Pre-NELP

GSPC

Tarapur-G

CB-ONN-2000/1

NELP-II

GSPC

Sanand East (1)

KG-OSN-2001/1

NELP-III

RIL

Dhirubhai-28

CY-OS/2

Pre-NELP

HARDY

FAN A-1

KG-DWN-98/3

NELP-I

RIL

Dhirubhai-31

NEC-OSN-97/2

NELP-I

RIL

Dhirubhai-32

Gas

July 2006

Under evaluation by operator

Oil and gas

July 2006

Under evaluation by operator

Gas

September 2006

Under evaluation by operator

Gas

January 2007

Under evaluation by operator

Gas

March 2007

Under evaluation by operator

Gas

March 2007

Under evaluation by operator

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CB-ON/2

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Block/field

Strategic oil reserves

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Gas discoveries in the last four years have assumed a new dimension. The RIL, for example, came up with a series of gas discoveries10 in KGDWN-98/3, NEC-OSN-97/1, and NEC-OSN-97/2 during 2002/03 and 2005/06. The ONGC, on the other hand, had most of the gas discoveries in KG deep-water basin. The recent gas discoveries followed similar pattern, unlike oil discoveries, compared to the past gas discoveries (Table VII).

Table VII

Gas discoveries (by company) Year

ONGC

OIL

Private/JV

2002/03

5

0

6

2003/04

4

0

3

2004/05

2

0

7

2005/06

9

0

8

2006/07

9

0

8

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For enhancing energy security and to safeguard the country against the short-term supply disruption, the government has approved setting up of 5 MT of

ONGC – Oil and Natural Gas Corporation; OIL – Oil India Ltd; JV – joint venture Source DGH (2007)

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Discoveries by other private players The GSPC made two oil and gas discoveries in 2006. One was in block CB-ON/2, which was awarded to it in pre-NELP round. HARDY Oil and Gas made gas discovery, named Fan-A-1, in Block CY-OS/2 in the Cauvery Basin off India’s East Coast. HARDY, the operator of the block, has 75% interest in the block. Another discovery was made by the Focus Energy (formerly known as Phoenix Overseas Ltd). The company discovered natural gas in Rajasthan block, Rj-ON90/6. All these three discoveries are under evaluation.9 During the first and second quarters of 2007/08, the GSPC made two natural gas discoveries in Block KG-OSN-2001/3.

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and Dhirubhai-31, respectively. Other hydrocarbon discoveries on the East Coast of India by the RIL include discovery in NEC OSN 97/2 (NEC 25) block. 7 The RIL also discovered natural gas in Saurashtra basin in SR-OS-94/1 block. The RIL made significant natural gas discoveries during the first and second quarters of 2007/08. The RIL made two natural gas discoveries in KG Basin. The first in KG DWN 98/3 (KG D6) block8 and the second in KG-DWN-98/1 block. The RIL announced a single discovery on the West Coast of India in GS-OSN-2000/1 (GS01) block.

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NELP – New Exploration Licensing Policy; GSPC – Gujarat State Petroleum Corporation; RIL – Reliance Industries Ltd; BGEPIL – British Gas Exploration and Production India Ltd Source DGH (2007)

7

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Details available at , last accessed on 7 August 2007. Details available at , last accessed on 7 August 2007. 9 Details available at , last accessed on 7 August 2007. 10 Both oil and gas were discovered in D-24 and D-25 blocks in 2005/06, while the rest were only gas discoveries. ○

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8

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Details of six NELP rounds Parameter

NELP-I NELP-II NELP-III NELP-IV NELP-V

NELP-VI

Number of blocks offered

48

25

27

24

20

55

Number of blocks for which bids have been received

28

23

24

21

20

52

Number of bids received

45

44

52

44

69

165

Number of blocks awarded

24

23

23

20

20

52

Number of production 24 sharing contract signed

23

23

20

20

52

Number of bids/block

0.90

1.76

1.93

1.82

3.40

3.00

Signed in

April July February February September March 2000 2001 2003 2004 2005 2007

NELP – New Exploration Licensing Policy Source DGH (2007); compiled from various reports

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Table VIII

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acreages either through NELP route or OALP (Open Acreage Licensing Policy), to be announced by the government (MoPNG 2007). Coming to the present status of NELP, there has been a significant improvement in private sector participation under these rounds. Of the total 162 blocks, 55 blocks have been awarded to either private companies or to a consortium of private companies. Foreign companies have also been awarded seven blocks for exploration and they can bid without entering any JVs (Table IX). In the sixth round of NELP, of the 52 blocks that were awarded, ONGC bagged 24 blocks (12 deepwater blocks, two shallow water offshore, and 10 onland), Reliance got seven blocks (all in deep water), while OIL got six onland blocks. Naftogaz of Ukraine was awarded three onland blocks and Santos of Australia was awarded two deep-water blocks. The GSPC and Essar Oil signed for two blocks each.12 Apart from these awardees, Cairn Energy, Geoglobal, Focus, Petrogas, Prize Petroleum, and GSPC–GAIL (Gas Authority of India Ltd) were awarded one block each. A summary of the blocks offered under various NELP rounds is given in Table IX.

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To supplement exploration and development efforts by the NOCs, the Government of India took various policy measures. However, the outcome of these measures was not encouraging. In all, nine rounds were organized from 1979 to 1995, resulting in a total investment of $2 billion. In the ninth round, the concept of JV blocks was mooted, which met with moderate success. With this background, NELP was announced by the government in 1997/98. It was operationalized in January 1999 to provide a level playing field in which all parties could compete on equal terms for the award of exploration acreage. So far, six rounds of bidding under NELP have taken place, and the seventh round of bidding is expected to be announced in January 2008.11 In the first six rounds of NELP, a total of 162 blocks have been awarded (Map 1). The area of Indian sedimentary basins, including deep water is 3.14 million km2 (square kilometres), of which 1.09 million km2 area is under exploration, which is about 35% of the area. The break-up of blocks (by rounds) awarded is summarized in Table VIII. It is projected that by the end of the Eleventh Five-year Plan period, up to 65% of Indian sedimentary basins will come up under exploration

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New Exploration Licensing Policy

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strategic storage of crude oil by 2012 at three locations in the country, namely, Mangalore (1.5 MT), Visakhapatnam (1.0 MT), and Padur near Udipi (2.5 MT). The government also plans to raise the reserves to 15 MT in next phase. These reserves would be in addition to the operating stocks in existing crude oil and petroleum products maintained by the oil companies. The reserve will be used essentially as a hedge against the short-term supply disruptions. The estimated capital cost of the project is about Rs 24 billion. In addition, the cost of crude oil would be about Rs 90 billion at $55/bbl crude price. The ISPRL (Indian Strategic Petroleum Reserves Ltd), a subsidiary of the OIDB (Oil Industry Development Board), will carry out the implementation and management of strategic storage of crude oil (MoPNG 2007). Several MoUs have been signed with China, Japan, and Korea to tap their experiences in the creation of strategic storage of crude oil and exchange information, technologies, and knowledge.

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TERI Energy Data Directory and Yearbook 2007

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http://www.indianexpress.com/story/238878.html ,last accessed on November 26,2007 Details available at , last accessed on 17 September 2007. ○

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TERI Energy Data Directory and Yearbook 2007

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Table IX

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Summary of the NELP rounds

Private companies/private JVs ○

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NOC/NOCs JV

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JVs (domestic private + foreign)

Foreign companies

Total private/ private-JV

1

12

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Domestic private

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NOC– private JV

Operational blocks

Blocks relinquished

9

2

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1

14

0

2

2

NELP-III

13

1

0

9

NELP-IV

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5

0

2

NELP-V

3

9

3

3

NELP-VI

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4

0

4

18

5

0

9

23

0

0

2

20

0

2

8

20

0

3

17

52

0

1

3

12

7

55

162

7

7

0

1

1

Total blocks + blocks relinquished

74

33

22

26

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6

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18

Blocks relinquished

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NELP-II

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7

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NELP-I

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Rounds

NOCs/ NOC JV

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Open Acreage Licensing Policy The Government of India is examining the possibility of introducing OALP, which would allow foreign companies to bid round the year for blocks they would like to have rather than the government offering the blocks for exploration from time to time. Under this policy, blocks will be available throughout the year. The companies can visit data room anytime, and if they find any block attractive, they can bid for it. Once a bid is received for a block, it would be notified and other bids from interested parties would be invited for that block within the

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The government proposes to commence seventh round of bidding for about 60 oil and gas blocks covering an area of 0.4 million km2.13 The significance of this round lies in the initiative of the government to bring in, for the first time, the blocks located in Punjab, and Jammu and Kashmir. The Government of India expects that seventh round would display greater competitive environment in terms of participation of foreign oil companies that had not participated earlier. This could be as a result of the proposed changes in the BEC (bid evaluation criteria) in NELP-VII (Box 1) compared to those in NELP-VI.

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NOCs – national oil companies; JV – joint venture; NELP – New Exploration Licensing Policy Source DGH (2007)

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vided Indian and foreign companies have to bid together for two categories of deep-water blocks, subject to the condition that foreign/Indian companies must hold a minimum of 10% participating interest. „ Work programme For any type of block in NELP-VII, only the number of wells, and not their depths, would be the bidding parameter in work programme. „ Introduction of Type-s block Among small size onland blocks, a new type (Type-S) has been introduced within the well-explored basins. Successful bidders/consortium will not be allowed to transfer their blocks/their participating interest till the completion of Phase-I work programme, and technical capability has been assigned zero weights for Type-S blocks. Source DGH (2007a)

Details available at , last accessed on 16 August 2007. ○

13

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As per NELP (New Exploration Licensing Policy)-VI, onland, shallow water, and deep water were categorized on the basis of prospectivity into Type-A and Type-B. NELP-VII proposed changes in the bid evaluation parameters for each of these categories of blocks, which are as follows. „ Technical capability For onland and shallow water blocks, ‘zero’ weightage/point has been assigned to this criterion, as it is converted to a pre-qualification criterion. It was 15 points in earlier round, which were transferred to the biddable work programme criterion. For deep-water blocks, weightage has been increased by 10 points (from 20 to 30), which is given new parameter ‘consortium/partnership’. • This has been introduced into BEC (bid evaluation criteria) to encourage consortium/partnership initiative, pro-

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Box 1 Proposed changes in the New Exploration Licensing Policy-VII

Oil and gas

83

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in India and Congo Brazzaville. The ENI acquired a 34% participating interest in the deep-water block MNDWN-2002/1, and the OVL acquired from the ENI a 20% participating interest in the MTPN (Mer Très Profonde Nord) exploration block, located in the deepwater offshore of Congo Brazzaville.22 The OVL and a subsidiary of SINOPEC (China Petroleum and Chemical Corporation) in a 50:50 JV has acquired Omimex (Omimex de Colombia Ltd) from Texas-based Omimex Resources, Inc. Omimex has gross proved reserves of more than 300 million barrels of oil and current production of approximately 20 000 barrels of oil per day.23 The OVL and its partner IPR Red Sea Inc. made a significant discovery in their first exploration well, North Ramadan-1A, in the North Ramadan Concession, Gulf of Suez, Egypt. It is expected to produce 2979 BOPD (barrels of oil per day) and 1.5 MSCF (million standard cubic feet)/day of gas.24 The OVL has bagged 20% participating interest in Iran’s Yadavaran Field, which is estimated to yield 60 000 bpd (barrels per day) of crude.25 The OVL has won three offshore exploration blocks in Colombia—two blocks in collaboration with Ecopetrol (the National Oil Company of Colombia) and one block in collaboration with Ecopetrol and Petrobras.26 ONGC Mittal Energy Ltd bagged an offshore block, NCMA-2, in Trinidad and Tobago. The block is estimated to have gas reserves of 2 TCF (trillion cubic feet).27 Essar Energy Holdings, a part of the Essar group, acquired an offshore exploration block, Block 226, in Nigeria through an open bidding process. The block is estimated to have oil reserves of more than 80 million barrels. 28

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The OVL plays a leading role in acquiring equity oil assets from overseas. Several MoUs were signed by the OVL with foreign companies during 2006/07 and first quarter of 2007/08. The OVL signed MoUs with PetroEucador, Ecuador’s state oil company, to bid jointly for oil and gas blocks in Ecuador and other countries in July 2006.14 Two MoUs were signed by the OVL in September 2006—one with Petrobras for exploration and production of hydrocarbon resources onland as well as in shallow and deep-water areas in India, Brazil, and third-world countries,15 and another with INTEVEP, a subsidiary of NOC of Venezuela, PDVSA for skill development in various aspects of exploration and production. 16 The OVL has also agreed to extend its MoU with Gazprom (Russia’s gas company) for another two years. It deals with the mutual cooperation in the hydrocarbon and power sector in India, Russia, and third countries.17 The OVL has signed a PSC with CUPET for two offshore exploration blocks, N-34 and N-35, 18 and with the National Oil Corporation of Libya for Contract Area 43.19 Another PSC was signed between the OVL and Vietnam Oil and Gas Corporation (PetroVietnam) for blocks 127 and 128, offshore Vietnam in the Phu Khanh Basin.20 The OVL acquired 30% interest in six exploration blocks 25, 26, 27, 28, 29, and 30 in Cuba.21 The OVL and ENI (Ente Nazionale Idrocarburi), Italy, have signed two parallel agreements for the swap of participating interests in exploration blocks located

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Equity oil

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stipulated period to make it a transparent and competitive process. Based on the bids received and their evaluation, blocks would be awarded.

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TERI Energy Data Directory and Yearbook 2007

14

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Details available at , last accessed on 29 August 2007. 15 Details available at , last accessed on 29 August 2007. 16 Details available at , last accessed on 29 August 2007. 17 Details available at , last accessed on 29 August 2007. 18 Details available at ,last accessed on 29 August 2007. 19 Details available at , last accessed on 29 August 2007. 20 Details available at , last accessed on 29 October 2007. 21 Details available at , last accessed on 29 October 2007. 22 Details available at , last accessed on 29 August 2007. 23 Details available at , last accessed on 29 August 2007. 24 Details available at , last accessed on 29 August 2007. 25 Details available at , last accessed on 30 August 2007. 26 Details available at , last accessed on 29 October 2007. 27 Details available at , last accessed on 30 August 2007. 28 Details available at , last accessed on 30 August 2007.

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GAIL (India) Ltd signed a PSA (production sharing agreement) with Myanmar Oil and Gas Enterprise, acquiring 30% stake in Block A-7 located in Rakhine offshore area in Myanmar, with Silver Wave Energy as consortium partner.29

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TERI Energy Data Directory and Yearbook 2007

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Petronet LNG (liquefied natural gas) has entered into long-term sales and purchase agreement with Rasgas in Doha for supply of approximately 1.25 MT (million tonnes) LNG, which was received at PLL Dahej Terminal from July 2007.30

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Gas contract

Refining As on 1 April 2007, the total installed refinery capacity of the country stood at 149 MTPA (million tonnes per annum), of which 105.5 MTPA was in public sector and the rest in private sector. The increase in the capacity from 132 MTPA, as on 1 April 2006, accompanied capacity expansion of existing refineries and commissioning of new refinery. The EOL commissioned a new refinery at Vadinar with a refining capacity of 10.5 MTPA in November 200631 and the IOCL expanded its refinery at Panipat by 6 MTPA in January 2007. As on April 2007, there are 19 refineries operating in India, of which 17 are in public sector and two in private sector (Table X and Map 2).

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Table X

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Refining capacity and capacity utilization of refineries in India, as on 1 April 2007 Capacity (MTPA) ○

State

Throughput (MT)

Utilization (%)

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Refinery

29

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Public sector IOCL, Guwahati Assam 1.00 0.84 0.84 IOCL, Barauni Bihar 6.00 5.47 0.91 IOCL, Koyali Gujarat 13.70 12.95 0.95 IOCL, Haldia West Bengal 6.00 5.84 0.97 IOCL, Mathura Uttar Pradesh 8.00 8.88 1.11 IOCL, Digboi Assam 0.65 0.58 0.89 IOCL, Panipat Haryana 12.00 9.43 0.79 Total (IOCL) 47.35 43.99 0.93 HPCL, Mumbai Maharashtra 5.50 7.42 1.35 HPCL, Visakhapatnam Andhra Pradesh 7.50 9.23 1.23 Total (HPCL) 13.00 16.65 1.28 CPCL, Manali Tamil Nadu 9.50 9.78 1.03 CPCL, Narimanam Tamil Nadu 1.00 0.62 0.62 Total (CPCL)a 10.50 10.40 0.99 ONGC, Tatipaka Tamil Nadu 0.08 0.09 1.13 MRPL, Mangalore Karnataka 9.69 12.53 1.29 Total (ONGC) 9.77 12.62 1.29 BPCL, Mumbai Maharashtra 12.00 12.04 1.00 KRL, Kochib Kerala 7.50 7.74 1.03 BRPL, Bongaigaon Assam 2.35 2.50 1.06 NRL, Numaligarh Assam 3.00 2.13 0.71 Total (public sector) 105.47 108.07 1.02 Private sector RIL, Jamnagar Gujarat 33.00 31.67 0.96 Essar Oil, Vadinar Gujarat 10.50 1.76 0.17 Total (private sector) 43.50 33.43 0.77 Grand total All India 148.97 141.50 0.95 IOCL – Indian Oil Corporation Ltd; HPCL – Hindustan Petroleum Corporation Ltd; BPCL – Bharat Petroleum Corporation Ltd; ONGC – Oil and Natural Gas Corporation; CPCL – Chennai Petroleum Corporation Ltd; KRL – Kochi Refineries Ltd; BRPL– Bongaigaon Refinery and Petrochemicals Ltd; NRL – Numaligarh Refinery Ltd; MRPL – Mangalore Refinery and Petrochemicals Ltd; RIL – Reliance Industries Ltd; MT – million tonnes; MTPA – million tonnes per annum a A group company of the Indian Oil Corporation Ltd. b The Ministry of Company Affairs approved the merger of the KRL with the BPCL on 18 August 2006. Source PPAC (2007) ○

Details available at , last accessed on 30 August 2007. Details available at , last accessed on 30 August 2007. 31 Details available at , last accessed on 6 October 2007. ○

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Refining margin

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Another aspect for the refining segment has been the GRM (gross refinery margin) earned by the oil companies. The IOCL earned an average GRM of $4.19/ bbl in 2006/07 as against $4.60/bbl during 2005/ 06.33 For the HPCL, the GRM was $4.07/bbl in 2006/07.34 The BPCL registered a lower refining margin of $3.64/bbl for Mumbai Refinery and $0.46/bbl for Kochi Refinery.35 As against the GRM of public sector refineries, for Reliance, the GRM was much higher at $11.7 for 2006/07.36 The higher GRM enjoyed by Reliance as against the public sector refineries is mainly explained by configuration of the RIL having capability to process less expensive high-sulphur crude. The RIL refinery has the catalytic cracking and the delayed coking as the main secondary processing units, with Nelson Complexity Index of 9.93, which implies high flexibility to process variety of crude oil to achieve high value products. This technological advantage is also supported by the fact that worldwide availability of low-sulphur crude is expected to decline, and according to an estimate, high-priced low-sulphur crude will be replaced by cheaper high-sulphur crude by 2012. In view of the above, the government took some steps including appointment of Shell Global

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After having achieved the capacity addition target of 34 MTPA during the Tenth Plan (2002/03 to 2006/07), capacity addition target for the Eleventh Plan (2007/08 to 2011/12) has been set much higher than the Tenth Plan target. As per the targets mentioned in the working group report, at the end of the Eleventh Five-year Plan, the total installed capacity of the Indian refineries is expected to be about 241 MTPA, with capacity addition of about 92 MTPA during the plan period. Details of the capacity addition during the Eleventh Plan are summarized in Table XI. Among the refineries expected to come up in the next five years, the most significant is the exportoriented RPL (Reliance Petroleum Ltd) refinery with a capacity of 29 MTPA. The refinery is planned to come up at the Jamnagar SEZ (special economic zone) in 2008/09 at an investment of about Rs 270 000 million.32 Among the public sector refineries, the IOCL is expected to come up with a 15-MTPA capacity refinery at Paradip, HPCL with a 9MTPA capacity refinery at Bhatinda, and BPCL with a 6-MTPA capacity refinery at Bina.

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Future capacity addition

Table XII indicates plans for capacity addition during the Twelfth Five-year Plan period (2012/13 to 2016/17) (Planning commission 2006). A rough assessment indicates that a refinery capacity of 61.31 MTPA (43.29 MTPA under public sector and 18.02 MTPA under private sector) is expected to be added during the Twelfth Plan. With this capacity addition, the total refining capacity in the country is likely to reach a level of 302 MTPA by 2017 (Table XII).

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In 2006/07, aggregate refinery throughput achieved was 141.5 MT, registering an increase of 14.5% over the previous year. Capacity utilization decreased marginally to 94.99% in 2006/07 from 95.86% in 2005/06. This was partly due to the fact that the capacity of Essar refinery and expanded capacity of Panipat were available only for a part of this year for processing crude oil. However, capacity utilization at refineries such as the HPCL (Hindustan Petroleum Corporation Ltd) refineries, IOCL, Koyali, and BPCL (Bharat Petroleum Corporation Ltd), Mumbai, increased substantially.

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TERI Energy Data Directory and Yearbook 2007

2010

2011

2012

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Refining capacity (in MTPA) of public and private sectors at the end of Twelfth Plan 1 April

2007

2012

2017

Public sector

105.47

158.96

202.25

Private sector

43.50

82.00

100.02

148.97

240.96

302.27

36.00

15.51

15.67

15.08

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Source Planning Commission (2006)

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Source Planning Commission (2006)

Total refining capacity

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9.73

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Capacity addition

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Refining 148.97 158.70 194.70 210.21 225.88 240.96 capacity

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2007

Table XII

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1 April

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Cumulative refining capacity and capacity additions during Eleventh Plan (by year) (MT)

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Table XI

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Details available at , last accessed on 14 August 2007. Details available at , last accessed on 17 September 2007. 34 Details available at , last accessed on 17 September 2007. 35 Details available at , last accessed on 17 September 2007. 36 Annual financial results of the various companies. 33

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It is recognized all over the world that rise in gross refining margins will result in the creation of more refining capacity in future. Global investment in the refining sector, projected at about $770 billion ($30 billion per year) in real terms till 2030, supports the need to have more refining capacity in the future (IEA 2006). But, due to environmental concerns and high compliance costs, North American and European refineries are finding it uneconomical to invest in cleaner fuels in the future. This could give rise to supply deficit in North America, Western Europe, and Asia-Pacific. This offers great opportunity to India to export petroleum products to these regions, particularly to Asia-Pacific region, and emerge as a refining hub. India is also looking into the feasibility of setting up refineries abroad, as indicated in Box 2.

Foreign direct investment policy Before February 2000, the refining sector was not eligible for automatic route for FDI (foreign direct investment), and NRI (non-resident Indian) and OCB (Overseas Corporate Body) investments. Whenever any investor chose to invest, he had to make an application to the FIPD (Foreign Investment Promotion Division), where the RBI (Reserve Bank of India) acts as the concerned agency for monitoring/reporting. After February 2000, FDI/ NRI/OCB investment under the automatic route has been allowed in private refining, where FDI up to 100% is permissible. However, FDI up to only 26% is permitted in case of public sector undertaking, a JV partner, through FIPD. In the context of this policy background, public sector undertaking refinery HPCL’s plan of joining the LN Mittal group as its equal partner with 50%

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and the Middle East, as it seeks to expand its overseas assets.2 The Essar Group plans to set up 300 000-barrels-per-day refinery at Bandar Abbas, Iran.3 The IOC is also planning to set up a Greenfield refinery in Nigeria.4

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Indian companies like Reliance, Essar, and IOC (Indian Oil Corporation) are planning to set up refineries abroad, that is, near the source of crude oil, for better availability of crude. Reliance Industries plans to set up 50 000-barrels-per-day refinery in Yemen,1 and is also eyeing acquisition of oil refineries in the US

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Box 2 Foray of Indian refineries abroad

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In keeping with the worldwide trend and in line with the directives issued from time to time by the MoEF (Ministry of Environment and Forests), MoRTH (Ministry of Road Transport and Highways), and MoPNG (Ministry of Petroleum and Natural Gas), the refineries have embarked upon major time-bound quality improvement programme for supply of desired quality of petrol and diesel throughout the country in a phased manner. In connection with this, The National Auto Fuel Policy, 2003, provided the time lines for introduction of Bharat Stage II, Euro-III, and Euro-IV grade fuels across the entire country. According to these time lines, fuels complying with Euro-III were introduced in 13 cities, including metros, in April 2005. The policy recommends marketing of Euro-III-equivalent quality MS (motor spirit)/HSD (high-speed diesel) in the entire country and Euro-IV- equivalent quality MS/HSD in the metros and other cities (total 13 cities) by April 2010. The refineries, in line with the Auto Fuel Policy, 2003, have installed/installing various facilities. Though some of the projects, concerned with the upgrading of fuel quality, of public sector refineries have already been commissioned, some are scheduled for completion by 2009 and 2010. To meet these targets, substantial investments are being made by the Indian refineries. According to the estimates of the MoPNG, Indian refineries would be making an investment of about Rs 300 billion to improve the fuel quality in line with Auto Fuel Policy, 2003.

India: emerging as a refining hub

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Fuel quality

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Solutions International, an internationally reputed consultancy organization based in the Netherlands, to find out ways to improve refining margins of public sector refineries, in December 2006.

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3

Details available at , last accessed on 17 September 2007. Details available at , last accessed on 17 September 2007. Details available at , last accessed on 17 September 2007. Details available at , last accessed on 17 September 2007. ○

2

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1

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4

88

Oil and gas

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Table XIII

3.82

8.65

9.30

7.51

12.91

13.78

6.74

ATF

3.30

4.01

21.52

SKO

9.54

9.47

–0.73

HSD

40.19

42.88

6.69

LDO

0.88

0.72

–18.18

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10.86

Source PPAC (2007)

With excess refining capacity and surplus production, India has turned from net importer of petroleum products into net exporter of petroleum products in 2001/02 (Figure 4). During 2006/07, India’s net export of petroleum products was 15.77 MT, with imports being 16.96 MT and exports being 32.74 MT. It resulted in net export earnings of about Rs 405 billion for the same year, which was 84% higher than the previous year.

2.08

1.79

–13.94

FO/LSHS

12.83

12.58

–1.95

Bitumen

3.51

3.85

9.69

Others

9.59

10.61

10.64

113.94

119.85

5.19

Source MoPNG (2005/06); PPAC (2006)

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Figure 3 Demand–supply position of petroleum products for the past six years in India (in MT) Source PPAC (2007); MoPNG (2006)

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LPG – liquefied petroleum gas; MS – motor spirit; NGL – natural gas liquid; ATF – aviation turbine fuel; SKO – superior kerosene oil; HSD – high-speed diesel; LDO – light diesel oil; FO – fuel oil; LSHS – low sulphur heavy stock; P – provisional estimate

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MS

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LPG

2005/06 2006/07(P) (MT) (MT)

Figure 2 Percentage share of different petroleum products in total sales (2006/07)

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Consumption of petroleum products

LPG – liquefied petroleum gas; MS – motor spirit; NGL – natural gas liquid; ATF – aviation turbine fuel; SKO – superior kerosene oil; HSD – high-speed diesel; LDO – light diesel oil; FO – fuel oil; LSHS – low sulphur heavy stock

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The total production of petroleum products was 139.97 MT in 2006/07, up from 124.082 MT in 2005/06. In comparison, domestic consumption of petroleum products was less than the production (Table XIII), implying surplus production in 2005/ 06 and 2006/07. India witnessed surplus production from 2001/02 onwards (Figure 3).

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Import and export of petroleum products

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The consumption of petroleum products registered a growth of about 5% in 2006/07 compared to the previous year (Table XIII). Due to rapid growth in the aviation sector, consumption of ATF (aviation turbine fuel) showed an increase of 21.49% over the previous year. Lubes, which had the highest growth rate during 2005/06 of 57.4%, recorded a negative growth of –13.79% in 2006/07. In 2006/07, HSD accounted for about 36% of the total petroleum product sales, followed by naphtha/ NGL (natural gas liquid) with a share of about 12% (Figure 2).

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Petroleum products Demand and supply of petroleum products

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stake in the Bhatinda Refinery was not permitted in February 2007. But, later, the government cleared the proposal allowing LN Mittal’s group to pick up 49% stake in this project on its own merit.

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verted from product service to crude service with some changes. With regard to the existing pipelines, the IOCL owns and operates 1870 km long Salaya– Mathura–Panipat pipeline that traverses from Salaya (near Vadinar) in Jamnagar district on the coast of Gujarat to supply crude oil to the Indian Oil’s refineries at Koyali (Gujarat), Mathura (Uttar Pradesh), and Panipat (Haryana), and 943-km long Haldia–Barauni pipeline. India is also planning to further extend pipeline network. For example, the IOCL plans to commission a crude oil pipeline from Paradip (Orissa) to Haldia in West Bengal at a cost of Rs 11.54 billion by December 2007.38

Product pipelines

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Bulk transportation of petroleum products is undertaken by various means, namely, pipelines, rail wagons, tank lorries, and so on. Transportation by pipelines offers several advantages over other means of transportation. Pipelines cause no environmental damage, and these are safer and more reliable means of transportation. In 2006/07, the length of total product pipelines (including LPG pipelines) was 9577 km, with a capacity of 50.9 MT (PPAC 2007) (Table XIV and Map 4). The capacity utilization of product pipelines has increased from 62.9% in 2005/ 06 to 73.4% in 2006/07.

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Unlike crude oil and petroleum product pipeline network, a limited domestic natural gas pipeline network exists in India for the development of domestic natural gas markets. With the expected increase in gas supply, India has been planning to extend present gas pipeline network.

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Natural gas pipelines

Domestic gas network GAIL (India) Ltd is the main player in transporting natural gas. However, with the discovery of natural gas at different places, private companies are also setting up pipelines. GAIL owns and operates over 5300 km of natural gas pipelines, covering 11 Indian states.39 The most important pipeline of the country is HBJ (Hajira– Bijaipur–Jagdishpur) pipeline (Map 5)—a 2800-km long pipeline with a capacity of 60 MSCMD (million standard cubic metres per day). The plan of commissioning India’s first major inland cross-country

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Each day, India uses large quantity of crude oil to support petroleum demand of the country. While many forms of transportation are used to move crude oil to refineries, pipelines remain the safest, most efficient, and economical means. As on 31 March 2007, the total length of crude oil pipelines in India was about 4218 km, which increased from 3971 km (as on April 2006). The increase in the length by 247 km took place due to the extension of Dhuliajan–Digboi–Bongaigaon–Barauni pipeline of OIL from 1158 km to 1405 km. Capacity of pipeline transporting crude from various supply centres to demand centres (Map 3) has also increased by about 6.7 MT between April 2006 and April 2007 since Mundra–Panipat crude pipeline of the IOCL started operating in 2007. This pipeline was con-

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Pipelines Crude oil pipelines

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The exports of petroleum products in 2006/07 are dominated by diesel (about 11.6 MT), followed by naphtha (8.6 MT), petrol (3.7 MT), and jet fuel (3.7 MT). Naphtha37 and LPG (liquefied petroleum gas) form a major chunk in the imported petroleum products. Despite India’s impressive growth in export of petroleum products, net export earnings from petroleum products were only about 19% of the crude import bill in 2006/07.

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Source PPAC (2007); MoPNG (2006)

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Figure 4 Net export of petroleum products in India

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Naphtha produced in India cannot be extensively consumed by the domestic market because of the presence of high aromatic content. Therefore, high aromatic naphtha has to be exported. To meet the domestic naphtha demand, LAN (low aromatic naphtha) is imported (Mandal 2001 ). 38 Details available at , last accessed on 24 August 2007. 39 Gujarat, Rajasthan, Madhya Pradesh, Delhi, Haryana, Uttar Pradesh, Maharashtra, Tamil Nadu, Andhra Pradesh, Assam, and Tripura.

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Oil/gas company

Capacity in 2006/07 (MT)

2005/06 throughput (MT)

2005/06 throughput (MT)

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Existing pipelines

Length (km) (as on 1 April 2007)

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Status of existing product pipelines in India

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Table XIV

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Product pipelines

IOCL

5.30

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745

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4.18

4.05

435

IOCL

0.82

1.26

1.23

Haldia–Barauni

525

IOCL

1.25

0.87

0.96

Haldia–Mourigram–Rajbandh

277

IOCL

Koyali–Ahmedabad

116

IOCL

1.35

1.76

1.90

1.10

0.52

0.54

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78

IOCL

1056

IOCL

Mathura–Jalandhar

763

IOCL

Panipat–Bhatinda

219

IOCL

Digboi–Tinsukia

75

IOCL

Mathura–Tundla

56

IOCL

Panipat–Rewari

155

IOCL

Chennai–Madurai

683

IOCL

Koyali–Dahe

103

IOCL

Mumbai–Manmad–Mangliya

610

BPCL

Mumbai–Pune

506

HPCL

Visakhapatnam–Vijayawada–Secunderabad

572

HPCL

1.80

0.23

0.07

4.10

2.06

3.01

3.70

4.63

4.99

1.50

2.51

1.29

1.00

0.52

0.47

1.20

0.25

0.25

1.50

0.91

1.24

1.73

0.13

0.82

3.79

4.30

3.67

2.78

3.24

5.38

2.88

3.50

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Koyali–Viramgam–Sidhpur–Sanganer

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Koyali–Navgam

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Guwahati–Siliguri

0.18

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0.66 4.33

100

PIL

Kochi–Coimbatore

292

PIL

361

PIL

1.25

1.12

0.19

3.30

1.10

1.22

7727

2.14

1.01

1.44

47.08

32.51

34.89

2.5

1.91

2.03

1.33

0.32

0.46

3.83

2.23

2.49

50.91

34.74

37.38

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LPG pipelines

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Subtotal

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Vadinar–Kandla

GAIL

600

GAIL

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1250

9577

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1850

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Subtotal

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Visakhapatnam–Vijaywada–Secunderabad

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Jamnagar–Loni

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Basin (8.6 km), Mumbai Ex-Uran Terminal (124.70 km), Rajasthan (Jaisalmer Basin), Cauvery Basin (163 km), and Tripura–Arakan Basin (59.71 km). These regional pipelines were constructed and operated by the ONGC and others (like OIL, Ravva, and so on), but GAIL took over these regional gas pipelines as per the government directive in June 199240 (Map 6). However, with the growing demand for gas and series of gas discoveries in the last five years in all parts of the country (KG Basin, Mahanadi Basin,

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HBJ gas pipeline, passing through Gujarat, Madhya Pradesh, Rajasthan, Uttar Pradesh, Haryana, and Delhi, was initiated in 1986, while it finally got commissioned in March 1997. This pipeline supplies gas mainly to the power and fertilizer sector in the western and northern India. In addition to the HBJ pipeline, there are regional gas pipelines of varying sizes in the North Gujarat region (142 km), South Gujarat region (257.2 km), Andhra Pradesh KG Basin (728 km), Assam–Arakan

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IOCL – Indian Oil Corporation Ltd; BPCL – Bharat Petroleum Corporation Ltd; HPCL – Hindustan Petroleum Corporation Ltd; PIL – Petronet India Ltd; GAIL – Gas Authority of India Ltd; MT – million tonnes Source PPAC (2007)

Details available at , last accessed on 4 September 2007. ○

40

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Reliance is the private player involved in the laying of gas pipelines through its wholly owned subsidiary, RGTIL (Reliance Gas Transportation and Infrastructure Company Ltd). The RGTIL is constructing Kakinada–Hyderabad–Uran–Ahmedabad pipeline (1385-km long) for transporting gas from the KG Basin to the consumers in Maharashtra and Gujarat. The RGTIL has also been granted authorization for the Vijaywada–Nellore–Chennai pipeline and its extension to Tuticorin and Bangalore–Mangalore.These pipelines would connect parts of Andhra Pradesh, Tamil Nadu, and Karnataka to the Krishna–Godavari field.46

Import pipelines India has been facing natural gas supply deficit over the years. In 2005/06, natural gas deficit was 61 MSCMD, with demand being 148 MSCMD of natural gas and supply being 87 MSCMD. In view of this deficit, India has been planning to import natural gas through transnational pipelines and/or LNG terminals. Much talked about gas transnational pipelines are discussed below.

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3 876-km long Jagdishpur–Haldia pipeline passing through West Bengal, Jharkhand, Bihar, and Uttar Pradesh 4 730-km long Dabhol–Bangalore pipeline passing through Maharashtra and Karnataka 5 840-km long Kochi–Kanjirkkod–Bangalore and Mangalore pipeline passing through Kerala, Tamil Nadu, and Karnataka

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Iran–Pakistan–India pipeline Iran–Pakistan–India pipeline has been proposed for importing natural gas from Iran into India and Pakistan. The proposed pipeline is 2300-km long, with an estimated cost of $7.5 billion.The first deliveries from gasrich Iran are expected in 2011.47 For a long time, the political tension between India and Pakistan prevented India to accept the Iran–Pakistan–India pipeline project. Once India agreed to be part of the project, the deal received another setback on pricing issue when Iran demanded a price of $7.2/mBtu of gas against India’s offer of $4.2/mBtu. India and Pakistan finally agreed to pay Iran $4.93/mBtu for

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Future plans GAIL plans to raise the carrying capacity of its pipelines to 300 MSCMD by the end of 2012.44 For achieving this target, GAIL has already sought approval for the following five new natural gas pipelines.45 1 610-km long Dadri–Bawana–Nangal pipeline passing through Uttar Pradesh, Delhi, Haryana, and Punjab, 2 310-km long Chainsa–Gurgaon–Jhajjhar–Hissar pipeline passing through Haryana and Rajasthan

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Rajasthan, and so on), building up of nationwide gas pipeline network is considered necessary. In addition, LNG terminals on western coasts have been commissioned to bridge the increasing demand–supply gap. In view of this, GAIL commissioned five major pipeline projects,41 involving total actual cost of Rs 41.42 billion against the approved cost of Rs 51.13 billion between 2001 and 2006. The first quarter of 2007/08 has been very significant as GAIL commissioned four pipelines, described as follows. „ 95-km long Kelaras–Malanpur pipeline, with a capacity to carry 2 MSCMD of gas in July 2006 for supplying gas to customers in Gwalior and Malanpur in Madhya Pradesh. The gas supplied through this pipeline will also support the city gas distribution projects in Gwalior.The Kelaras–Malanpur pipeline is linked to the HBJ pipeline system.42 „ 192-km long Bijaipur–Kota pipeline, with a capacity of 3.47 MSCMD gas (as of December 2006) to fulfil the demand of Chambal Fertilizers, Sriram Fertilizers, Chambal Power, and other consumers. „ Jagoti–Pithambur pipeline (91 km), with a capacity of 3 MSCMD to cater to the demand of Ujjain (0.5 MSCMD), Dewas (0.5 MSCMD), Indore city gas (0.5 MSCMD), and Pithampur (1.5 MSCMD). The project was completed in March 2007. „ Dahej–Panvel–Dabhol pipeline (581 km), with a capacity of 12 MSCMD (as of July 2007) to carry R-LNG from Petronet LNG Ltd’s terminal at Dahej to Dabhol. The pipeline will supply natural gas to the Dabhol Power Plant of RGPPL (Ratnagiri Gas and Power Pvt Ltd), and thus help in the revival of the power plant. 43

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Jamnagar–Loni LPG (liquefied petroleum gas) pipeline, Lanco–Kondapalli pipeline, Vizag–Secunderabad LPG pipeline, Dahej–Bijaipur pipeline, and Thulendu–Phulpur pipeline. 42 Details available at , last accessed on 5 September. 43 Details available at , last accessed on 10 October 2007. 44 Details available at , last accessed on 29 August 2007. 45 Details available at , last accessed on 29 August 2007. 46 Details available at , last accessed on 29 august 2007. 47 Details available at , last accessed on 29 August 2007.

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its gas.48 However, still few issues remain to be fully resolved such as transit fee to Pakistan.

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Turkmenistan–Afghanistan–Pakistan The governments of TAP (Turkmenistan–Afghanistan–Pakistan) proposed the transnational gas pipeline to exploit the available gas reserves in Turkmenistan. The Pakistan government has awarded the contract for laying the TAP gas pipeline project to the US-based IOC (International Oil Company), which is estimated to cost $10 billion. The ADB (Asian Development Bank)-funded pipeline is supposed to carry 30 BCM of gas per year from Turkmenistan to Afghanistan and Pakistan.49 In order to meet its growing demand for gas, India has also agreed to participate in the ADB-assisted TAP project.50 The pipeline would stretch from the Turkmenistan/Afghanistan border in south-eastern Turkmenistan to Multan, Pakistan (1271 km), with an extension of 640 km to India.51

Liquefied natural gas terminals In order to bridge the gap between demand and supply, one of the options considered has been to import natural gas in liquefied form, commonly refer to as LNG. Further, to encourage the import of LNG, it has been placed under OGL (open general licence) list, and 100% FDI has been permitted in setting up LNG terminals. At present, there are two operational LNG terminals, namely, Dahej LNG Terminal of 6.5–MTPA capacity and Hazira terminal of 2.5–MTPA capacity. Commissioning of Dabhol Terminal at Maharashtra got delayed due to discontinuation of construction activities due to collapse of Enron (original promoter of LNG terminal). Details of the present and forthcoming LNG terminals are given in Table XV.

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Myanmar–India pipeline India has also been keen to import natural gas from Myanmar, and proposed a pipeline linking Myanmar, Bangladesh, and India. However, Bangladesh was putting bilateral preconditions in trilat-

eral MoU, which were not acceptable to India. As no agreement could be reached with Bangladesh on the pipeline project, India decided to examine to re-route the pipeline, bypassing Bangladesh to the detriment of both Bangladesh and India. In a major turn of events, in July 2007, the Government of Myanmar cancelled contract with GAIL to source natural gas from A1 and A3 blocks in Rakhine Offshore in Myanmar and gave it to China. The fields off the Rakhine coast have proven reserves of 5.7–10 TCF of natural gas.52

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Table XV

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Existing and proposed liquefied natural gas terminals in India Location (state)

Capacity (MTPA)

Dahej LNG terminal (Petronet)

Dahej (Gujarat)

6.5 (to be expanded to 10)

Hazira LNG (Shell)

Hazira (Gujarat)

2.5 (phase I)

Dabhol terminal (owned by Ratnagiri Gas and Power Company)

Dabhol (Maharashtra)

5.0

Kochi LNG (Petronet)

Kochi (Kerala)

2.5

Ennore LNG (IOCL, CPCL)

Ennore (Tamil Nadu)

2.5

Mangalore ONGC and MRPL

Mangalore (Karnataka)

2.5

Supplier

Status

Rasgas (Qatar-based LNG supply company) and spot cargoes

Commissioned in February 2004 and commercial sales began in April 2004

Spot cargoes

Commissioned in April 2005

Yet to be finalized

75% complete; commissioning delayed due to no firm supply contracts

Yet to be finalized

Project expected to be completed by 2011

Yet to be finalized

Planned

Yet to be finalized

Planned

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Project and developer

48

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LNG – liquefied natural gas; IOCL – Indian Oil Corporation Ltd; CPCL – Chennai Petroleum Corporation Ltd; MRPL – Mangalore Refinery and Petrochemicals Ltd; ONGC – Oil and Natural Gas Corporation; MTPA – million tonnes per annum Source TERI compilation

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Details available at , last accessed on 29 August 2007. 49 Details available at , last accessed on 29 August 2007. 50 Details available at , last accessed on 29 August 2007. 51 Details available at , accessed on 29 august 2007. 52 Details available at , last accessed on 8 October 2007.

Oil and gas

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Source

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Gross under-recoveries by oil-marketing companies To take care of mounting under-recoveries suffered by the OMCs, the government came out with the formula of sharing them amongst upstream PSU (public sector undertaking) oil companies, government, and OMCs. The manner of distribution of the financial burden of under-recoveries of OMCs, in 2006/07, is given in Table XVI. Table XVI

Distribution of under-recoveries over the years (Rs billion)

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price, and so on in the issue price to keep them whole but that was not permitted in actual practice. Thus, OMCs were experiencing increasingly large underrecoveries in the marketing of MS/HSD, domestic LPG, and PDS kerosene.

2006/07

27.23

20.27

Diesel

126.47

187.76

PDS kerosene

143.84

178.83

Domestic LPG

102.46

107.01

Total

400

493.87

Contribution by upstream companies

140

205.07

Oil bonds

115

241.21

Borne by OMCs

145

47.59

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2005/06 Petrol

PDS – public distribution system; LPG – liquefied petroleum gas; OMCs – oil-marketing companies Source PPAC (2007); compiled from various newspaper reports

In so far as the Indian gas market is concerned, traditionally, the gas produced by the NOCs (national oil companies) (Oil and Natural Gas Corporation and Oil India Ltd) has been sold at a controlled price linked to a basket of fuels oils. ○

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53

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Prices of all petroleum products were decontrolled, effective from 1 April 1998, except five commodities, namely, petrol, diesel, domestic LPG, PDS (public distribution system) kerosene, and ATF.While ATF prices were decontrolled in April 2001, APM (administered pricing mechanism) continued for the other four products till 31 March 2002. With the dismantling of APM from 1 April 2002, oil companies were allowed the freedom to sell their products, except domestic LPG and PDS kerosene, at market-determined prices. Accordingly, OMCs (oil-marketing companies) started announcing prices of MS/HSD every fortnight in line with import parity. The marketing oil companies were informally consulting the government before implementing changes in prices in the market place. This process continued till the later part of 2003 when international prices showed sharp increase. Hence, the government did not permit its oil companies to increase market prices in line with international prices. Further increases permitted by the government from time to time were far from adequate, resulting in huge underrecoveries to the OMCs. Even though decision had been taken to phase out subsidy for domestic LPG and PDS kerosene in a period of three years, it has continued at onethird level so far. In addition, subsidies being fixed amount, OMCs were to reflect increases in FOB

Figure 5 Price of Indian crude basket

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Petroleum pricing

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Petroleum prices and subsidies

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With effect from 1 April 2006, the composition of Indian basket is based on total industry processing of sweet and sour crude oil and represents FOB (Free on Board) prices of average Oman/Dubai crude for sour and Brent (dated) for sweet grade in the ratio of 59.8:40.2.53 During 2006/07, prices of crude oil showed high degree of volatility. The first quarter of this year witnessed a sharp rise in crude price, which went on increasing up to August 2006, starting from monthly average price of $65/bbl in April 2006 and peaking at monthly average price above $70/bbl in July 2006. However, crude oil prices decreased sharply from July 2006 till January 2007 and were about $50 in January 2007. Thereafter, they increased and hovered around $65–70/bbl in July 2007 (Figure 5). Further, it reached above $70/bbl again in July–August 2007.

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Pricing Crude pricing

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Taxation

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Natural gas market is still at a nascent and evolutionary stage in India, and hence, its market has not yet acquired a fully integrated character.54 In fact, multiple gas prices exist in India.

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Gas pricing

21.01

Custom duty

1.30

1.38

Excise duty

14.67a

4.70b

6.59

3.16

Total of customs duty, excise duty, and sales tax components

22.56

9.24

Retail selling price

42.85

30.25

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Gas pricing formula of Reliance Industries Ltd In June 2007, the RIL advised the government for approval of its pricing formula for valuing gas it had found in the KG Basin. Using the formula, the RIL

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MS – motor spirit. HSD – high-speed diesel a 6% + Rs 13.00/l plus 3% education cess b 6% + Rs 3.25/l plus 3% education cess Source MoPNG (2006a)

Gas from blocks awarded under NELP Pricing of natural gas from the NELP blocks is different from the other types of gas pricing mechanisms. Operators of the NELP blocks, after they start gas production, have the freedom to market the oil on international price parity basis and gas in the domestic market on arms length basis. This pricing mechanism encourages competition so as to enable the contractor to recover the investment and make a good return on investment they have incurred in gas discovery. Role of the government in the process is to approve the discovered price signed under the PSC.57

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Sales tax (including irrecoverable taxes)

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Price without customs duty, excise duty, and sales tax components

Natural gas is also being produced from the preNELP JV blocks. Once a market-determined price has been discovered between the parties through a transparent competitive bidding process with specific sets of terms and conditions, the government legally does not interfere with the gas pricing. In view of the continuous pricing process for private/ JVs in March 2005, PMT (Panna–Mukta–Tapti) consortium agreed to supply 6 MSCMD of gas to GAIL for one year at $3.86/mBtu and to other endusers at $4.08/mBtu.55 However, a year later, it agreed to supply gas, in excess of 4.8 MSCMD, to GAIL at $4.75/mBtu till 31 March 2008.56 GAIL was required to sell the gas obtained from the consortium at APM prices to the core sector consumers.

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20.29

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HSD (Rs/l)

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MS (Rs/l)

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Incidence of tax and duty on MS (motor spirit) and HSD (high-speed diesel) at Delhi, as on March 2007)

Gas from pre-New Exploration Licensing Policy joint venture blocks

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Table XVII

Administered pricing mechanism gas Gas produced by the ONGC and OIL from the nominated blocks, also known as APM gas, is supplied through GAIL at the government-controlled price of $1.97/mBtu to the power and fertilizer sectors and specific end-users, as committed under court orders/ small-scale consumers having allocations up to 0.05 MSCMD. The APM gas pricing is referred to the Tariff Commission for recommendation based on which the Government of India sets the price from time to time.

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On the one hand, the OMCs have been suffering underrecoveries on selling MS and HSD, on the other, the government earns huge amount of taxes and duties from these two products.Table XVII shows tax and duty burden on these products (as of March 2007). Table XVII indicates that excise duty component accounts for the largest share of the RSP (retail selling price) of these two products. For example, in case of MS, it was 34% and for HSD, it was 16% of the RSP. Apart from excise duty, the present share of sales tax is also quite high for MS (15%) and HSD (10%). Customs duty components for these two products are least among all taxes and duties. In line with the recommendations of the Rangarajan Committee, the customs duty on MS and HSD has been reduced to 7.5% from 10%, which comes to 3% for MS and 5% for HSD of the RSP of these two (as of March 2007).

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Taxes and duties on petrol and diesel

54

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Details available at , last accessed on 13 September 2007. Details available at , last accessed on 13 September 2007. 56 Article 21.6.3 of the PSC (production sharing contract) states: ‘… the formula or basis on which the prices shall be determined… shall be approved by the government prior to the sale of natural gas to the consumers/buyers. For granting this approval, government shall take into account the prevailing policy, if any, on pricing of natural gas including any linkages with traded fuels, and it may delegate or assign this function to a regulatory authority as and when such an authority is in existence.’ 57 http://164.100.24.208/lsq14/quest.asp?qref=28285, last accessed on 3 October 2006. ○

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55

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99

Gas marketing Sectoral offtake of natural gas

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marketing is small as compared to the marketing network of public sector OMCs. MoPNG asked OMCs to undertake automation of all their retail outlets selling more than 200 kl per month.58 Certain customer-friendly measures were also recommended to be taken by the OMCs to improve the quality of the products and services offered. These measures include OMCs to get third party certification of all ROs selling more than 100 kl product per month; availability of premium oil like Xtra-premium, Speed, Power, and so on, and diesel like Xtramile, Turbojet; acceptance of credit and debit cards for facilitating cashless transaction; installation of clean public convenience facilities, ATM, fast food kiosks, and convenience stores at select locations, and so on.

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Offtake of domestically produced natural gas (excluding imports of LNG) increased marginally from 30.774 BCM in 2004/05 to 31.025 BCM in 2005/ 06. More than 70% of domestic natural gas was used for energy purposes. The power sector accounts for maximum share of natural gas used for energy purposes (Figure 6). The natural gas is mainly used in fertilizer industries (87%) and petrochemical industries (12%) as feedstock. On an aggregate basis, the power sector with about 38% share of the total natural gas, followed by the fertilizer sector with 25% share are the major consumers of natural gas. Penetration of natural gas is expected to increase in the transport and household sectors. This is primarily due to the focus on adoption of cleaner fuels

LNG – liquefied natural gas Figure 6 Composition of domestic natural gas offtake for energy purposes Source MoPNG (2006)

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Marketing of petroleum products is dominated by public sector OMCs. The IOCL has the largest and well spread network of ROs (retail outlets) in the country. The BPCL and HPCL too have an all India presence through their extensive marketing network. The number of RO dealerships (petrol pumps) set up by the OMC during 2006/07 (April–December) was 1597. With this, the total number of ROs as on 1 April 2007 was 34 696. The government notified that any company investing or committing to invest Rs 20 billion in the Indian oil and gas sector in specified areas, over a period of 10 years, can undertake the marketing of transportation fuels. A bank guarantee of Rs 5 billion is mandated from the interested companies. In response to such notification, certain private companies like RIL, ESSAR, ONGC, NRL (Numaligarh Refinery Ltd), Shell India, and MRPL (Mangalore Refinery and Petrochemicals Ltd) got the marketing rights. Still the share of private sector in the retail

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Marketing Petroleum products

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In the world market, the LNG prices (both longterm and spot) have increased substantially consequent to the sharp increase in crude oil prices. Based on the GSPA (Gas Sales and Purchase Agreement) between Petronet LNG and Rasgas, the indicative CIF (cost, insurance, freight) price until 31 December 2007 is $2.8/mBtu (FOB price = $2.53/mBtu). However, the FOB price of this LNG from Rasgas, Qatar, is linked to crude oil price and will be subject to variation with effect from 1 January 2009 within a band, with floating floor and cap indexed to average crude price of previous five years. LNG pricing mechanism has witnessed modifications from time to time. To start with, suppliers contracted and arrived at the gas price based on specific contract for procurement, which varies from contract to contract. Later on, pooled price for all the contracts was adopted to bring down the price for the consumers.

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Liquefied natural gas price

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arrived at a supplier price of about $4.59/mBtu that was later revised to about $4.33/mBtu. Transportation charges and sales tax were to be added to give a delivered gas price of $5.5–6/mBtu. As the proposed gas price announced by the RIL is much higher than what most consumers have been paying, the proposal has generated considerable controversy.

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Details available at , last accessed on 31 August 2007. ○

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Ethanol

The existing EBP has been modified to cover the entire country under 5% EBP programme (except north-eastern states, Jammu and Kashmir, Andaman and Nicobar islands, and Lakshwadeep) with effect from 1 November 2006. The requirement of ethanol for implementation for 5% EBP in the whole of the country is about 0.56 million kl per annum.

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Ethanol is another potential alternative fuel for the transport sector. It is an oxygenate containing 35% oxygen, which reduces vehicular emissions of hydrocarbons and carbon monoxide, thus, reducing the emission of pollutants. Twenty per cent of ethanol can be blended with the gasoline. Ethanol is mainly produced from sugar cane juice/molasses in India. The Government of India issued a notification on the EBP (Ethanol Blending Programme) in 2002. It made 5% ethanol blending in petrol mandatory in nine sugarproducing states (Andhra Pradesh, Goa, Gujarat, Haryana, Karnataka, Maharashtra, Punjab, Tamil Nadu, and Uttar Pradesh) and three union territories (Daman and Diu, Dadra and Nagar Havelli, and Puducherry). However, oil companies experienced the problems of availability and increasing prices of ethanol. Subsequent to this, there was a notification in October 2004, which said that 5% ethanol-blended petrol should be supplied in identified areas only if „ the indigenous price of ethanol offered for ethanolblended petrol programme is comparable to that offered by the indigenous ethanol industry for alternative uses; „ the indigenous delivery price of ethanol offered for the ethanol-blended petrol programme at a particular location is comparable to the import parity price of petrol at that location; and „ there is adequate supply of ethanol.

Coal bed methane CBM (coal bed methane) is an unconventional source of natural gas. Endowed with the fourth

○

Bio-diesel Bio-diesel is an alternative fuel to mineral diesel due to its superior properties. It contains almost no sulphur or aromatics but possesses high lubricity and higher flashpoint, and has the ability to burn fully. The main sources for bio-diesel in India are non-edible oils obtained from plant species such as Jatropha curcas, Pongamia pinnata, and Calophyllum inophyllum. Amongst these plants, Jatropha curcas is considered to be the most suitable due to its wider adaptability. As per the report of the Committee on Biofuel, the estimated demand for HSD in 2006/07 was 52.3 MT, requiring 10.5 MT of bio-diesel and plantation of J. curcas over about 8.8 million ha (hectares) of land. By the end of Eleventh Plan (2011/12), the demand for HSD shall be 66.9 MT, requiring 13.38 MT of bio-diesel and plantation of J. curcas over about 11.2 million ha of land. Due to increasing importance of biofuels, the Government of India, through the Planning Commission, set up a Committee on Development of Biofuel in July 2002. Based on the recommendations of the committee, the National Mission on Biodiesel was launched in the country. To support large-scale utilization of J. curcas, the National Mission on Bio-diesel was proposed in two phases—Phase I from 2003 to 2007 and Phase II from 2007 to 2012. Phase I was a demonstration/test phase and is still under implementation. Phase I aims to cultivate jatropha and similar plants in a total area of 0.4 million ha in various states across the country.

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Biofuels are environment-friendly alternative fuel options. Given the volatile international oil markets and surging energy prices, shift to these alternative sources is an important option. According to the IEA (International Energy Agency), soaring crude oil prices would make biofuels more competitive. In India, bio-diesel and ethanol are the two primary alternative fuels that are being considered.

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Alternative fuels Biofuels

The Government of India will fund the project. As a follow-up of the demonstration project, Phase II will consist of a self-sustaining expansion of the programme, leading to the production of bio-diesel required during 2011/12. The MoPNG announced the Bio-diesel Purchase Policy in October 2005. The policy requires the purchase of bio-diesel by the OMCs at 20 specified purchase centres in 12 states at Rs 25/litre, inclusive of taxes/duties, from January 2006. The price was subject to review every six months.

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and efforts to decrease dependence on petroleum products. Total number of vehicles using CNG (compressed natural gas) in 2006/07 was 408 888 and there were 356 CNG stations all over India. IGL (Indraprastha Gas Ltd) in Delhi and MGL (Mahanagar Gas Ltd) in Mumbai are engaged in developing city gas distribution projects for the supply of CNG and PNG (piped natural gas) to these cities. Similarly, GAIL and other companies are taking various steps to expand city gas distribution.

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Till last year, upstream a segment was being regulated by the DGH, though not statutory, and downstream segment by the MoPNG directly. The Integrated Energy Policy (Planning Commission 2006) states that ‘the current upstream regulation provided by the DGH is neither independent nor

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Regulation

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Table XVIII

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Total

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NOCs

Private companies/ joint ventures

2

3

5

4

1

3

8

2

8

10

4

5

14

23

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With the issuance of notification by the MoPNG under Section 3(1) of the PNGRB Act, 2006, the setting up process of independent regulator was initiated ‘with a view to ensure that people on deputation from PSU/private sector are objective and fair... it may be ensured that any person on deputation from a particular organisation does not handle any issue which specially relates to the organisation to which he belongs.’ 60 Although there were doubts over advantage to the public sector in appointment to the board, but at last, the PNGRB had been formally established by the government in June 2007.61 The chairperson and other members of the Board have been appointed. Mr L Mansingh has taken over as the first chairperson of the Board, and Mr L K Singhvi, Mr B S Negi, and Ms Sudha Mahalingam have joined as members of the Board. As per the statute, the PNGRB will regulate the downstream activities in the petroleum and natural gas sector like refining, processing, storage, transportation, distribution, and marketing and sale of petroleum, petroleum products, and natural gas. This will protect the interests of consumers and entities engaged in specified activities relating to petroleum, petroleum products, and natural gas; ensure uninterrupted and adequate supply of petroleum, petroleum products, and natural gas to all parts of the country; and promote competitive markets. The functions of the Board include the following (MoPNG 2006b). „ Registration of entities to market-notified petroleum, petroleum products, and natural gas; establish and operate LNG terminals; and establish storage facilities beyond a certain capacity as may be specified by regulations. „ Declaring pipelines as contract or common carrier, for, the board shall provide the entity owning the pipeline or network an opportunity of being heard, and fix the terms and conditions subject to which the pipeline or network may be de-

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NOCs – national oil companies Source MoPNG (2006c)

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Total

Petroleum and Natural Gas Regulatory Board

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CBM III

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CBM II

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CBM I

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Rounds

NOCs and joint ventures

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Details of awardees for the CBM (coal bed methane) round

comprehensive in a technical sense with respect to optimal development of the hydrocarbon resources’. With the setting up of the PNGRB, notified on 1 October 2007, downstream segment of the sector is to be regulated by it. However, the upstream sector of Indian oil and gas is still without a statutory regulator.

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largest proven coal reserves in the world, India holds significant prospects for the commercial recovery of CBM. With an aim to harness this alternative source of energy, which has environmental, economic, and technical advantages, the Government of India formulated a CBM policy. Till now, three rounds of bidding for CBM blocks have been completed, under which 23 CBM blocks have been awarded, and additionally, three blocks have been given on nomination basis to different parties and consortiums. All the three rounds taken together, there has been a dominance of private sector/JVs in serving the CBM blocks (Table XVIII). Participation of private JVs has increased in CBM III while JV of REL (Reliance Energy Ltd)–RNRL (Reliance Natural Resources Ltd)–Geopetrol alone accounted for four blocks in CBM III. The CBM reserves in the awarded blocks are about 1400 BCM, with a production potential of about 38 MSCMD during peak production (MoPNG 2007). The DGH is in the process of identifying the prospective blocks for future round of bidding. It may open up new areas like Rajmahal in Bihar, Talcher and Ib Valley in Orissa, and Singrauli in Madhya Pradesh for CBM exploration in the forthcoming bidding round.59

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Details available at , last accessed on 14 September 2007. Details available at , last accessed on 6 October 2007. 61 Details available at , last accessed on 14 September 2007. ○

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60

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Association of infrastructure sub-sector regulators It has been recognized that to facilitate exchange of views and deliberate on and pursue issues common to all energy sub-sector (power, coal, oil and gas, telecom) regulators, association of energy sub-regulators could be effective for all the sectors. In view of this, the PNGRB and TRAI (Telecom Regulatory Authority of India) have been trying to form an association of energy sub-sector regulators. The association is likely to cover the regulatory aspects common to a significant extent for all sectors.62

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structure projects related to downstream petroleum and natural gas sector’. In view of this section, the PNGRB wanted OISD (Oil Industry Safety Directorate) to be its technical arm, as OISD has the relevant technical and professional manpower with necessary skills and background. However, the MoPNG disapproved the request of the PNGRB.

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Policy for Development of Natural Gas Transmission Pipelines and City or Local Natural Gas Distribution Networks The Government of India issued the Policy for Development of Natural Gas Transmission Pipelines and City or Local Natural Gas Distribution Networks. The objective of the policy is to promote investment from public as well as private sectors in natural gas transmission and city or local natural gas distribution networks, to facilitate open access for all players to the pipeline network on a non-discriminatory basis, promote competition among entities, thereby avoiding any abuse of the dominant position by any entity, and secure the consumer interest in terms of gas availability and reasonable tariff for natural gas transmission pipelines and city or local natural gas distribution networks. The policy has to be read in conjunction with the PNGRB Act, 2006, which provides the legal framework for the development of the natural gas transmission pipelines and city or local gas distribution networks. The policy envisages development of a nationwide gas grid in a competitive environment, involving both public and private sectors, under the supervision of a regulator. According to the policy, the PNGRB will grant authorization to lay, build, operate, or expand transmission pipelines and city gas distribution network to entities only if the pipeline capacity is at least 33% more than the capacity requirement of the concerned entity plus the firmed up contracted

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Under the provisions of Section 11(1) of the PNGRB, 2006, the Board shall ‘lay down, by regulations, the technical standards and specifications including safety standards in activities relating to petroleum, petroleum products, and natural gas, including the construction and operation of pipelines and infra-

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Oil Industry Safety Directorate as a technical arm

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Unbundling of operations Among the number of provisions in the PNGRB Act, Section 21(1) of the Act says about establishment of the Affiliate Code of Conduct, which states that the code of conduct is applicable to those entities that are involved in laying, building, operating, and expanding of pipelines and marketing of natural gas. The Act specifies that companies engaged in both business should have separate entities and may have separate ownership, and these separate entities would be required to comply with the Affiliate Code of Conduct, if under same ownership/control.

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The following section explains certain activities of the PNGRB Act.

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clared as a common carrier or contact carrier. It will also pass such orders as it deems fit with regard to the public interest, competitive transportation rates, and right of first use. Lay down, by regulations, the transportation tariffs for common carriers or contact carriers or city or local natural gas distribution network and the manner of determining such tariffs. With regard to notified petroleum, petroleum products, and natural gas, the Board shall ensure adequate availability and display of retail selling prices at the ROs, monitor prices and transportation rates for common carrier or contract carrier, and take corrective measures to prevent restrictive trade practices and enforce retail service obligations for ROs and marketing service obligations for entities. Lay down, by regulations, the technical standards and specifications including safety standards in activities relating to petroleum products and natural gas, including the construction and operation of pipelines and infrastructure projects. Maintain a data bank of information on downstream activities in the petroleum and natural gas sector and lay down the technical standards and specifications including safety standards.

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Details available at , last accessed on 6 October 2007. ○

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MoPNG (Ministry of Petroleum and Natural Gas). 2006c Policy for Development of Natural Gas Pipelines and City or Local Natural Gas Distribution Networks New Delhi: MoPNG, Government of India MoPNG (Ministry of Petroleum and Natural Gas). 2007 Annual Report 2006–07 New Delhi: MoPNG, Government of India Details available at , last accessed 21 June 2007

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Planning Commission. 2006 Report of the Working Group on Petroleum and Natural Gas Sector for the XI Plan (2007–2012) New Delhi: Planning Commission, Government of India

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Bibliography

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Planning Commission. 2006 Sub Group Report on Exploration and Production New Delhi: Planning Commission, Government of India

Website

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TERI (The Energy and Resources Institute). 2007 TEDDY (TERI Energy Data and Directory Yearbook), 2005/06 [Oil and Gas Chapter] New Delhi: TERI

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DGH (Directorate General of Hydrocarbons). 2007 Details available at <www.dghindia.org>, last accessed on 12 August 2007 PPAC (Petroleum Planning and Analysis Cell). 2006 Details available at <www.ppac.org>, last accessed on 21 August 2007

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MoPNG (Ministry of Petroleum and Natural Gas). 2006b The Petroleum and Natural gas Regulatory Board Act 2006 New Delhi: MoPNG, Government of India

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MoPNG (Ministry of Petroleum and Natural Gas). 2006a Standing Committee on Petroleum and Natural Gas (2006–07) [Fourteenth Lok Sabha] New Delhi: MoPNG, Government of India

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MoPNG (Ministry of Petroleum and Natural Gas). 2006 Basic Statistics 2005–06 New Delhi: Economics and Statistics Division, MoPNG, Government of India

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MoPNG (Ministry of Petroleum and Natural Gas). 2005/06 Annual Report New Delhi: MoPNG, Government of India

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Mandal A. 2001 Naphtha Marketing in India: domestic and export domestic demand till 2011/12 shifts to NTGG, ONGC, India

ONGC (Oil and Natural gas Corporation). 2007 Presentation at Investor and Analyst Meet, ONGC, India Details available at < http://www.ongcindia.com>, last accessed on 27 October 2007

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IEA (International Energy Agency). 2006 World Energy Outlook 2006 Paris: IEA

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DGH (Directorate General of Hydrocarbons). 2007a Interactive session of DGH and E&P companies Details available at , last accessed on 14 August 2007

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References

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capacity (termed as total capacity). This extra capacity would be used on common carrier basis by any third party on open access and non-discriminatory basis at transportation rates laid down by the Board. The pipeline policy emphasizes the need for building a national gas grid with open market access for all players on a non-discriminatory basis. The policy also suggests setting up of GAB (Gas Advisory Board) to promote and develop the gas pipeline network and city or local gas distribution network in the country.

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PPAC (Petroleum Planning and Analysis Cell). 2007 Details available at <www.ppac.org>, last accessed on 25 July 2007

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Chronology of events

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BP Exploration (Alpha) Ltd signs PSC for CBM block in the third round.

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India’s Burma pipeline will be routed through Mizoram, Assam, West Bengal, and Bihar, and will bypass Bangladesh. The oil ministry caps exclusivity for companies selling natural gas. The ONGC bags Golden Peacock Award for its excellent performance in the sphere of corporate governance. ○

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November 2006

Iran, India, and Pakistan officials agreed on gas pricing formula for the export of Iranian gas to India. The EGoM on the RGPPL decided to pool the price of gas for Dabhol. ○

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January 2007

India and Yemen signed a protocol of bilateral cooperation in the oil and gas industry. The Government of India amended MDGs (Marketing Discipline Guidelines) and control orders. The RIL got approval to set up a pipeline network to distribute natural gas across 60 towns in Karnataka. The RIL and British Gas took GAIL to arbitration panel over gas pricing issues on PMT (Panna–Mukta– Tapti) oil and gas fields. Petrol and diesel prices reduced by Rs 2 and Re 1, respectively. ○

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February 2007

The budget reduced excise duty on petrol and diesel from 8% to 6%. The RIL made two oil and gas discoveries on the East Coast in the Krishna–Godavari and Mahanadi basins. The OVL signed exploration and production sharing agreement with the National Oil Corporation of Libya for four hydrocarbon blocks. BPCL and TPL (Tata Petrodyne Ltd) signed an agreement to acquire a participating interest of 25% each in North Sea blocks – 48/1b and 48/2c – from Encore and Norwest. The RIL got approval to convert Jamnagar refinery into EOU (export oriented unit). The ONGC signs deal for five offshore vessels. Petronet tied up with the RGPPL for supplies for Ratnagiri Gas Project. Myanmar refused to export gas to India. Indian Oil launches loyalty card for cash customers. RIL signs an MoU with US-based Rohm and Haas Co for chemical plant.

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Bangladesh agreed to import 0.12 MT diesel per annum from India. The IOC lost its monopoly in Nepal for supply of petroleum products. The RIL strikes gas in a block off Saurashtra. The ONGC inks service contracts for development of 14 onshore fields. The ONGC Videsh drills a mega oil find in Egypt. The OVL announced a new oilfield discovery in their first exploration well North Ramadan-1A in Egypt. The ONGC and OIL renewed MoU for Assam crude movement. Essar starts LPG and kerosene supplies to PSUs. The IOC, GAIL sign agreement to sell piped gas in West Bengal. The GSPC ties up with the RIL on gas transport. ○

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April 2007

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March 2007

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The Reserve Bank of India allowed Navratna PSUs to invest in unincorporated entities in the oil sector abroad under the automatic route, without prior approval. Alkor Petro acquires seven oil and gas blocks—three in the Cambay Basin and two each in Yemen and Egypt. Essar Energy bags oil block in Nigeria. The ONGC strikes gas in Mahanadi Basin for the second time. The RIL announced gas discovery in two blocks: one in deep water of East Coast and another in shallow waters of West Coast of India. Continued ○ ○

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May 2007

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Chronology of events (Continued)

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TERI Energy Data Directory and Yearbook 2007

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The OVL finds gas in Iran’s Farsi Offshore block. Cairn announced oil and gas discovery in two new Rajasthan sites. The NTPC (National Thermal Power Corporation Ltd) signed MoU with Nigerian government for importing LNG. Karnataka clears Reliance’s city gas distribution projects. The NTPC signed swap deal with Nigeria to secure LNG for running plant. The Government of India launches the PCPIR (Petroleum, Chemicals and Petrochemical Investment Regions) Policy. ○ ○ ○

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The government approved Rajiv Gandhi Institute of Petroleum Technology at Rai Bareli. The union petroleum and natural gas ministry constituted the PNGRB with Mr L Mansingh as its first chairman. The MRPL signs agreement with State Trading Corporation of Mauritius to supply petroleum products to the island nation for three years. The GSPC strikes oil in Cambay Olpad block. The British Oil and Gas Exploration Firm strikes gas in Assam. The MRPL bags the Nehru Refinery Award for Energy Performance of Refineries for 2006/07. Cairn, ONGC to split cost of pipeline, evacuating crude oil from Cairns energy’s Rajasthan Block, in 70:30 ratio. Gujarat state firm reopens sale of its 30% equity in the blocks in KG Basin. GAIL signs integrity agreement to increase transparency in work. The RIL hikes fuel prices by Rs 1.5 a litre. ○

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July 2007

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The ONGC makes five oil and gas finds in eastern offshore and North-East India. The Essar Oil starts production from Mehsana wells. The ONGC strikes gas in Tripura region. The ONGC to invest Rs 12.85 billion in offshore near Bombay High. The Cabinet allows Mittal to pick up 49% stake in Bhatinda Refinery. The High Court ordered that no gas from the RIL’s KG Basin would be available to third party other than the NTPC and RNRL. Petrol and diesel prices rose by Rs 0.67 per litre in Delhi. ○

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June 2007

The Norsk Hydro takes 10% stake in the ONGC’s KG block. ONGC–Mittal wins gas block in Trinidad and Tobago. The Essar Oil strikes more oil in Mehsana oilfield in Gujarat. The Gujarat Gas and the GSPC join hands for marketing gas. The EGoM to discuss the RIL’s gas pricing. India and the US have signed MoU for cooperation in gas hydrates. ○

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August 2007

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ONGC installs VATMS (Vessel and Air Traffic Management System) for offshore vigil. Naftogaz bags two Bina refinery projects. The Indian Oil begins crude oil trading on MCX (multi commodity exchange). Reliance acquires majority stake in Tanzania’s Gapco. The government clears reliance gas pricing formula with some changes. ○

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September 2007

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Reliance signed a deal to explore for oil and gas in two exploration blocks in Iraq’s Kurdish region. OMEL, the joint venture between OVL and MIS (Mittal Investment Sarl), acquired 30% interest in an exploratory block in offshore Turkmenistan in Caspian Sea. The consortium of the GSPC, Jubilant Oil, and Gas and Geo Global Resources discovers oil blocks in Cambay. Continued ○ ○

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October 2007

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Chronology of events (Continued)

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TERI Energy Data Directory and Yearbook 2007

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Jubilant Energy announced its oil discovery in a block near Gujarat’s Mehsana district. The RIL has discovered a medium-sized oil reserve in a Cauvery Basin offshore exploration block. Cairn India Ltd announced oil find at one of its exploration wells in the Ravva field off the East Coast. The GSPC reported a new 6.3-TCF gas discovery in its eastern offshore Krishna–Godavari basin discovery block KG-OSN-2001/3. The LN Mittal group has signed an MoU with the HPCL, French oil major Total, GAIL, and Oil India for jointly developing a $6-billion refinery-cum-petrochemical complex in Visakhapatnam. ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

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