Oil & Gas, Petrochemicals

SUMMARY

· 635 million Metric Tonnes (MMT) of proven oil reserves (2P).

· 54 trillion cubic feet of proven natural gas reserves and 96 trillion cubic feet of estimated Shale gas reserves.

· Third largest consumer of crude oil and petroleum products in the world and second-largest refiner in Asia.

· 60% of the prognosticated reserves of 28,000 MMT are yet to be harnessed

· Regasified Liquified Natural Gas (RLNG) regasification facility is likely to increase from 47.5 MMTPA* by 2022 from a current level of 22 MMTPA. *million metric tonnes per annum

REASONS TO INVEST

· Growing economy and population growth are the main drivers for oil & gas demand, increasing every year.

· Import content in the oil & gas sector is in the range of 15% for the refinery to 67% for upstream.

· The oil and gas sector is highly liberalized to attract private investment and to increase domestic production.

· A number of policy reforms have been taken by the Government to remove obstacles to investment and incentivize the oil and gas sector on the lines of ease of doing business, minimum government maximum governance and promote Make in India initiative.

· Completion of the national gas grid by the construction of another 15,000 km of gas pipeline network, which is currently under various stages of implementation. Several industries are increasing the consumption of natural gas in operations.

· Several private companies have emerged as important players in the past decade. Cairn India produces more than 23% of India's crude oil production through its operation of major stakes in the Rajasthan and Gujarat regions and Krishna-Godavari basin. Reliance Industries Limited and Essar Oil have become major refiners.

· It is a transparent and level playing field for Indian private/foreign investors and national oil companies — both enjoy the same fiscal and contract terms.

· Supportive Government Regime — ease of doing business moved to sector-specific policy HELP (Hydrocarbon Exploration & Licensing Policy). Also to encourage private players and global oil companies, Income generated from the storage and selling of Crude Oil in Strategic crude oil reserves has been exempted from Income Tax.

· Gas Initial is in place for Coalbed Methane (CBM) established at 9.8 Trillion cubic feet (Tcf) with the possibility of an upside.

· 96 TCF of technically recoverable shale gas resources available in India.

· Despite being a net importer of crude oil, India has become a net exporter of petroleum products by investing in refineries designed for export, particularly in Gujarat.

· Investment opportunities are in the upstream, gas pipeline, City Gas Distribution (CGD) network, LNG Terminal, Petrochemical, and Refinery.

· Plans afloat to set up India's largest grass-root refinery of 60 MMTPA capacity at the west coast to be set-up by oil & gas CPSEs (Central Public Sector Enterprise).

· Thrust on developing gas-based economy by connecting major cities with green highways, which will have vehicles running on CNG and LNG with adequate refuelling stations.

· Two world-class gas hydrate reservoirs have been discovered in ultra-deep waters of the KG basin under national gas hydrate program-2, which has opened up new avenues for alternative resources.

· Ample opportunities for the development of underground coal gasification, coal to liquids, etc.

Statistics

· The oil and gas industry ranks amongst India's eight core industries.

· India was the third-largest consumer of oil in the world in 2015, after the United States & China.

· Oil imports constitute about 81% of India's total domestic oil consumption in 2015-16.

· Oil and gas contribute about 34.4% of primary energy consumption in India.

· India had 54 Trillion cubic feet of proven natural gas reserves at the beginning of 2015. Approximately 34% of total reserves are located onshore, while 66% are offshore.

· India has 230.066 MMTPA of refining capacity with a surplus refining capacity of about 15%, making it the second-largest refiner in Asia after China. Private & joint venture companies own about 41% of total capacity.

· India is the fourth-largest LNG (Liquified Natural Gas) importer in 2015 and accounted for 6.4% of global imports.

· India held nearly 635 MMT of proven oil reserves at the beginning of 2015, mostly in the western part of the country. About 49% of reserves are onshore resources, while 51% are offshore

Growth Drivers

As part of International Energy Outlook 2016, EIA projects that India and China will account for about half of global energy demand growth through 2040, with India's energy demand growing at 3.2% per year. As per BP Energy Outlook 2016, India's energy consumption is projected to grow at 4.2% per annum up to 2035, faster than all major economies in the world.
The oil and gas sector plays a predominant role as over one-third of the energy required is met by the hydrocarbons.
India has 16,240 km of operating Natural Gas Pipelines (June 2016). The Government further intends to enhance India’s pipeline network by 15,000 km, to complete the national gas grid, the plan for which is already underway.
In order to promote the use of natural gas, priority for allocation of domestic gas was accorded to PNG (Piped Natural Gas) / CNG (Compressed Natural Gas) segments for meeting 100% demand and faster rollout of PNG connections and CNG stations. There are plans to connect 326 cities with a city gas distribution network (CGD) by 2022.
In a bid to enhance oil security and protect supply disruptions, crude oil strategic storage of 5.33 MMT capacity was built at three locations viz. Visakhapatnam (1.33 MMT), Mangalore (1.5 MMT), and Padur (2.5 MMT). The project at Visakhapatnam is already commissioned and Mangalore and Padur are under the advanced stage of commissioning. A detailed project report has been prepared for additional strategic storage of crude oil for 12.5 MMT at 4 locations viz. Chandikol (3.75MMT) in Odisha, Padur (2.5 MMT) in Karnataka, Rajkot (2.5 MMT) in Gujarat & Bikaner (3.75MMT) in Rajasthan, which would be completed in Phase II.
New Domestic Gas Pricing guidelines, reforms in existing contracts, calibrated marketing freedom for difficult areas, clarity on testing requirements, and addressing other concerns in the existing areas under exploration and production have resulted in unlocking of reserves valued at USD 53.84 Billion.
India's Refining capacity is estimated to reach 256.55 MMTPA by 2019-20 after the completion of projects undertaken by a number of refineries which are currently under various stages of implementation.
E&P sector has undergone complete re-engineering to reinvigorate exploration and production of India's hydrocarbon reserves. A number of path-breaking policies have been formulated to revolutionalize Exploration & Production (E&P) sector including Hydrocarbon Exploration and Licensing Policy, Discovered Small Field Policy, and Gas Pricing Reforms.
The price of diesel has been made market determined effective October 19, 2014, resulting in better service delivery due to increased competition in the auto fuel sector. The saving in subsidy is available for funding anti-poverty and social sector schemes.
The Government is focused on providing access to affordable, reliable, sustainable, and modern energy to every citizen. In a bid to promote clean cooking fuel, the Government has planned to increase LPG coverage by providing 100 million new LPG connections in the next 3 years till 2019.
The government has planned to roll out BS-IV auto-fuels throughout the country progressively by April 1, 2017, and leapfrog into BS-VI auto-fuels all over the country w.e.f. April 1, 2020, which would facilitate major investment in refinery up-gradation, auto industry, related manufacturing, and services sector.
There is a renewed focus on biofuels by promoting ethanol blending program and bio-diesel program.

FDI POLICY

· Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum products' pipelines, natural gas pipelines, LNG regasification infrastructure, market study, formulation and petroleum refining in the private sector, subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the government or private participation in the exploration of oil and the discovered fields of natural oil companies - 100% FDI, automatic route.

· Petroleum refining by PSU, without disinvestment of dilution of domestic equity in existing PSUs - 49% automatic route.

SECTOR POLICY

The government has approved Hydrocarbon Exploration & Licensing Policy (HELP) and the same has been notified on March 30, 2016. This policy provides a uniform licensing system to explore and produce all hydrocarbons such as oil, gas, coal bed methane, shale oil/gas, etc. under a single licensing framework, option to select the exploration blocks without waiting for formal bid round and also provides many incentives such as reduced royalty rates for offshore blocks, marketing & pricing freedom and easy to administer revenue sharing model.
Discovered Small Fields Policy announced in March 2016 for monetization of 67 discoveries through international competitive bidding.
Under the New Domestic Gas Pricing Policy, a transparent new gas pricing formula linked to the global market made effective w.e.f. November 1, 2014.
Marketing and pricing freedom for gas produced from geologically difficult, high risk / high-cost areas with a provision of ceiling price based on the landed cost of alternate fuels announced on March 10, 2016.
Policy Framework for relaxation, extensions, and clarifications at the development and production stage under PSC (Production haring Contract) regime for early monetization of hydrocarbon discoveries was approved on November 10, 2014.
Policy for grant of extension to the Production Sharing Contracts of 28 Small and medium-sized discovered blocks was approved on March 10, 2016.
Policy on Testing Requirements for discoveries in New Exploration Licensing Policy (NELP) blocks was approved on April 29, 2015.
Hydrocarbon vision 2030 for North East India has been released in February 2016
Pooling of gas in the Fertilizer (Urea) sector was approved on March 31, 2015, for the supply of gas at a uniform delivered price to all fertilizer plants on the gas grid for production of urea through a pooling mechanism of domestic gas with R-LNG
The Petroleum and Natural Gas Regulatory Board Act, 2006 regulates refining, processing, storage, transportation, distribution, marketing, and the sale of petroleum, petroleum products, and natural gas.
The National Biofuel Policy, 2009 promotes bio-fuel usage, the Government of India has provided a 12.36% concession on excise duty on bio-ethanol and exempted bio-diesel from excise duty.
The government is implementing an Ethanol Blending Petrol program under which Oil marketing companies are mandated to sell Ethanol blended petrol with up to 10 % Ethanol. The mechanism for procurement of ethanol by Oil Marketing Companies (OMCs) to carry out the Ethanol Blended Petrol program was approved on December 10, 2014. In order to give a stimulus to the above program, the Government has enhanced the Ethanol Procurement Price and opened an alternate routes like cellulosic and lignocellulosic materials, including the Petrochemical route.
Direct sale of bio-diesel by private manufacturers/suppliers to bulk consumers like Railways and State Transport Corporations was allowed on August 10th, 2015.
The milestones set in Auto Fuel Policy 2003 have already been achieved. Ministry of Petroleum and Natural Gas has issued a communication to all the concerned stakeholders including Oil Marketing Companies for implementation and expansion of Supply of BS-IV auto fuels in phases covering the entire country by April 1, 2017, as per the road map given in Auto Fuel Vision & Policy -2025
The Government has decided to leapfrog from BS-VI to BS-VI fuels w.e.f. April 1, 2020.
The Policy on Shale Gas & Oil, 2013 allows companies to apply for shale gas and oil rights in their petroleum exploration licenses and petroleum mining leases.

FINANCIAL SUPPORT

Fiscal Incentives:

· The rate of cess on crude oil production has been revised to 20% ad Valorem basis from USD 69.23 per metric tonne

· Various exemptions from customs duty on goods imported for petroleum exploration licenses and movement of goods from one block to another under various types of licenses/mining leases etc. have been merged into a single exemption, with a unified list of goods and conditions

· To facilitate smooth trade of natural gas across India thereby helping to build a gas-based economy, the central sales tax rules regarding inter-state transport of natural gas through common carrier pipeline have been amended.

· Keeping in view the bulky nature of oil & gas investments, an enhanced window has been made available to avail the benefit of additional depreciation of 15% on installation of capital equipment acquired in the previous year to be made before 31.03.17.

· To increase investment in the exploration sector, No Basic Customs Duty & Countervailing Duty (CVD) on imports of goods required for exploration & production of hydrocarbon activities are also extended to operations undertaken to Exploration Licenses & Mining Leases issued or renewed before 1st April 1999.

State Incentives:

· Apart from the above, each state in India offers additional incentives for industrial projects. Incentives are provided in areas such as subsidized land cost, the relaxation of stamp duty on sale/lease of land, power tariff incentives, concessional rates of interest on loans, investment subsidies and/or tax incentives, backward areas subsidies, special incentive packages for mega projects.

Area Based Incentives:

· Hydrocarbon Vision 2030 for North East India has been released. It envisages an investment of USD 20 Billion in upstream, downstream, and midstream sector in the Hydrocarbon Sector in North East India till 2030. To incentivize E&P (Exploration & Production) in the North East, a 40 % subsidy on gas operation has been extended to private companies operating in the region.

INVESTMENT OPPORTUNITIES

· Monetization of 67 discovered small fields through international competitive bidding.

· Additional strategic storage of crude oil for 12.5 MMT at 4 locations viz. Chandikol (3.75MMT) in Odisha, Padur (2.5 MMT) in Karnataka, Rajkot (2.5 MMT) in Gujarat & Bikaner (3.75MMT) in Rajasthan.

· Plan to connect 326 cities with the city gas distribution network (CGD) by 2022. In order to promote the use of natural gas, priority for allocation of domestic gas was accorded to PNG/CNG segments for meeting 100% demand, and faster rollout of PNG connections and CNG stations.

· Construction of another 15,000 km of gas pipeline network for completion of a national gas grid, which is currently under various stages of implementation.

· Providing 10 crore new LPG connections in the next 3 years till 2019, of which 5 crores are for BPL households The Government is focused on providing access to affordable, reliable, sustainable, and modern energy to every citizen.

· Increase in India's refining capacity to reach 256.55 MMTPA by 2019-20 after completion of projects undertaken by a number of refineries which are currently under various stages of implementation.

Shale:

· India has technically recoverable shale gas resources of nearly 96 Trillion cubic feet.

Underground Coal Gasification:

· Coal gasification has been identified as one of the ends uses under the government’s captive mining policy.

Opportunities for Pipeline Transportations:

· Compared to advanced economies like the US, where more than 60% of petroleum product movement happens by pipeline, in India, currently, only 35% of product movement happens over pipelines. The city gas and distribution sector offers opportunities for both incumbents and new companies. The Petroleum and Natural Gas Regulatory Board allows the following incentives to authorized entities: the infrastructure exclusivity is available to the authorized entity for a period of 25 years. Exclusivity for the activity of marketing of natural gas is allowed to the authorized entity for a period of five years. For incumbents, the marketing exclusivity extends to a period of three years. The government has ensured City Gas Distribution (CGD) companies for availability of domestic gas for CNG (Transport) and PNG (Domestic) consumption.

The Refining Sector:

· India is already a refining hub with 23 refineries and expansions planned for tapping foreign investment in export-oriented infrastructure, including product pipelines and export terminals.

Opportunities for E&P Services and Equipment Companies:

· 48% of the country's sedimentary area is yet to be explored.

· Appraisal of 1.5 million sq. km. of un-appraised areas by capturing 2D seismic survey data for 48243 Line Kilometre (LKM) for inland areas of 22 sedimentary basins, to be acquired by ONGC (40835 LKM) and OIL (7408 LKM).

· Appraisal of un-appraised areas by encouraging survey agencies to acquire data through Multi-Client Geo-Scientific survey, which would facilitate E&P companies to participate in bidding blocks/areas of their choice.

· Re-assessment of hydrocarbon reserves in all 26 sedimentary basins in India to be carried out by ONGC in 2017-18.

The offering of Exploration Blocks

· Offering of un-monetized discoveries through international competitive bidding under Small Discovered Field Policy for early monetization of reserves worth USD 10.76 billion. In accordance with Minimum Government — Maximum Governance, a policy is packed with all possible reforms like uniform licensing, pricing and marketing freedom, easy to administer revenue sharing mechanism. Bids were launched on May 25, 2016, with a bid closing date of October 31, 2016. Roadshows are being organized in various parts of the country and across the globe to attract investors. These fields are likely to be awarded by the end of this year.

· Marketing and pricing freedom would incentivize gas production from difficult areas, such as deep/ ultra deepwater and high pressure/ high temperature thereby facilitating in the monetization of 6.75 Trillion Cubic Feet of gas reserves valued at USD 23.07 billion.

· National Data Repository (NDR) would be operational in 2016 which would pave the way for the implementation of Open Acreage Licensing Policy to give contractors flexibility of identifying acreages of interest round the year, without waiting for the bidding round.

· To ease out rigidities in the functioning of the Production Sharing Contract (PSC) regime, the Government approved policy framework for relaxation, extension, and clarifications for early monetization of hydrocarbon discoveries, which has helped in the resolution of around 40 pending issues and move ahead with discoveries valued at USD 4.6 billion.

· Policy on Grant of extension to the production sharing contracts for small and medium-sized discovered fields would help in the monetization of resources of the order of USD 7.69 billion in the extended period.

Policy on a testing requirement in NELP blocks would resolve existing disputes; facilitate monetization of resources of the order of USD 11.53 billion

Opportunities for Foreign Investments And Technology Partnerships In The Upstream Sector:

· Securing supplies are expected to remain on top of India's energy agenda for the foreseeable future. While exploration activity has taken place on land and in shallow basins across the country, it is believed by many that deep water and ultra-deepwater oil and gas resources hold the key to substantially increasing domestic production. This creates a plethora of opportunities for strategic investors having relevant technical expertise and financial muscle.

KEY ACHIEVEMENTS

· Crude oil strategic storage of 5.33 Million Metric Tonne (MMT) commissioned at Visakhapatnam, Mangalore, and Padur

· IOCL refinery with a capacity of 15 Million Metric Tonnes per annum (MMTPA) commissioned at Paradip, Odisha

· 726 MW gas-based thermal power project of ONGC Tripura Power Company (OTPC) commissioned at Palatana, Tripura

· Hydrocarbon and Exploration Licensing Policy (HELP) notified

· INDMAX (lindane Maximisation) technology developed to maximize light distillates from refinery residue

· INR 100 crore “ONGC Startup fund” announced