Oil & Gas sector is a key contributor to India’s economy. India is the third largest consumer of crude oil and petroleum products globally accounting for 4.5 % of world oil consumption in 2015, behind US and China. India’s refining capacity is 230 MMTPA (Million Metric Tonnes Per Annum). Refining capacity of India expanded by 15 MMTPA with the commissioning of Paradip Refinery in February 2016. The country has 635 Million Metric Tonnes (MMT) of proven oil reserves, 54 Trillion Cubic Feet (TCF) of proven natural gas reserves and 96 TCF of estimated shale gas reserves (estimated at the beginning of 2015). With 48% of the country’s sedimentary area yet to be explored, the oil & gas sector provides tremendous opportunities for investment.
In line with the Government’s vision for reducing oil imports by 10% by 2022, several measures have been taken including policy interventions, capacity expansion, fast tracking of projects etc. during 2014-16 to turn India into a refining hub.
Policy Initiatives & Investments
Hydrocarbon and Exploration Licensing Policy (HELP)
Notified on March 30, 2016, it unveiled a series of reforms that will revitalize the upstream sector.
– Uniform licensing system, which will cover all hydrocarbons, i.e. oil, gas, coal bed methane etc. under a single license and policy framework.
– Revenue Sharing Model: Contracts will be based on biddable revenue sharing and not the current cost recovery model
– Open Acreage Licensing Policy (OALP), oil and gas acreages will be available round the year instead of cyclic bidding rounds as in New Exploration Licensing Policy (NELP). A bidder may apply to the Government seeking
exploration of any block not already covered by exploration and if found suitable Government will call for competitive bidding.
– Concessional Royalty regime introduced whereby deep water and ultra-deep water areas shall not have any royalty for the first seven years, and thereafter shall have a concessional royalty of 5% (in deep water areas) and 2% (in ultra-deep water areas). In shallow water areas, the royalty rates has been reduced to 7.5% from 10%.
– Marketing and pricing freedom allows explorers to sell gas produced from geologically difficult, high risk / high cost areas with a ceiling price
– Extension granted for Production Sharing Contracts (PSCs) of 28 small, medium sized and discovered fields
Discovered Small Field (Marginal Field) Policy Announced in October 2015 to reduce dependency on import of hydrocarbons, the policy provides for a single uniform license for producing all kinds of hydrocarbons. Also, no cess on oil production, moderate royalty structure, customs duty exemptions on import of goods and services for petroleum operations, complete marketing and pricing freedom for the sale of produced crude oil and natural gas, upto 100% FDI participation by foreign companies, joint ventures, and no restriction on exploration activity during contract period are other elements of the policy.
Policy on Testing Requirements for discoveries in NELP blocks
Approved on April 29, 2015, this policy will help in the monetization of 10 discoveries in 5 NELP blocks by resolving long pending disputes associated with testing requirements. The policy provides option to the contractors with regards to discoveries which are stuck on account of testing requirement. The reserves associated with these discoveries are expected to get monetized to the tune of 3 trillion cubic feet (TCF) with an associated value of around INR 90,000 crore.
Policy framework for Relaxations, Extensions and Clarifications at the Development and Production stage under PSC regime
-Aimed at early monetization of hydrocarbon discoveries and approved by the Government on November 20, 2014, this policy addresses the rigidities in the timelines of the PSC allowing contractors to start production at the earliest.
Some of the salient features of the reform measures are:
Major Investments & FDI Inflows
FDI equity inflows during April 2014-March 2016 increased by 261% to USD 1.18 billion from USD 327 million during the same period in 2012-14.
Major investments during the two year period until September 2016 are provided in the table.
Basic Customs duty and Countervailing Duty exemption on specified goods imported for petroleum exploration under various types of licenses or mining leases, pre-NELP contracts, NELP contracts, Marginal Fields Policy and the
Coal Bed Methane Policy have been merged into a single exemption, with unified list of goods and conditions.
|Foreign Company||Country||Indian Company||FDI Equity Inflows (USD million)|
|Relay B.V.||Netherla nds||United Spirits Ltd||998.2|
|Praxair Pacific Limited||Mauritius||Praxair India Private Ltd||48.43|
|Jubilant Energy N.V||Netherla nds||Jubilant Offshore Drilling Pvt Ltd, Jubilant Oil & Gas Pvt Ltd(Ear Jubilant)||27.36|
|Jubilant Oil & Gas India Ltd.||Cyprus||Jubilant Offshore Drilling Pvt Ltd, Jubilant Oil & Gas Pvt Ltd||20.08|
|Various Investors As Per List||U.S.A||Gujarat Gas Ltd||18.7|
|Cvcigp Ii Employees Rosehill Ltd.||Mauritius||Shiv-Vani Oil & Gas Exploration Services||15.21|
|Samara Capital Partners Fund I Limited||Mauritius||Oilmax Energy Pvt Ltd||14.88|
|Gulf Petrochem FZC||UAE||Gulf Asphalt Private Limited (Ear:Aspam)||13.9|
|Superior Energy Services Pvt Ltd.||Netherla nds||Ses Energy Services India Pvt Ltd||10.33|
Exemption has been extended on imports of goods required for exploration & production of
hydrocarbon activities undertaken under Petroleum Exploration Licenses (PEL) or Mining Leases (ML) issued or renewed before 1st April 1999. (March 1, 2016).
Strategic Crude Oil Reserves: 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 has already been commissioned.
♦ Development of Pipeline Infrastructure:
Urja Ganga Gas Pipeline Project: In October 2016, the Government laid the foundation for the gas pipeline project, at Varanasi.
– The 2540 km long Jagdishpur – Haldia & Bokaro – Dhamra Natural Gas Pipeline Project (JHBDPL) under Urja Ganga when completed will supply natural gas to Uttar Pradesh, West Bengal, Bihar, Odisha and Jharkhand and will benefit around 20 lakh families.
– In September 2016, the Government approved viability gap funding / partial capital grant at 40% ( INR 5,176 crore) of the estimated capital cost of INR 12,940 crore to GAIL for development of JHBDPL project.
Initiatives in North-East
Innovation & Technology
Under Pradhan Mantri Ujjwala Yojana (PMUY) scheme launched on May 1, 2016, 5 crore LPG connections will be provided to BPL families with a support of Rs.1600 per connection in the next 3 years. INR 8000 crore has been allocated towards the implementation of the scheme.
As of December 2016, 656 districts have been covered and 1.6 crore BPL LPG connections have been released.
PAHAL, the world’s largest Direct Benefit Transfer scheme, launched on January 1, 2015, directly transfers LPG subsidy to consumers all over the country.
As of January, 2016, 17.20 crore LPG consumers have joined the scheme and an amount of INR 39711 crore has been transferred into the bank accounts of LPG consumers. The scheme has resulted in savings of INR 14,818 crore in FY 2014-15 and an estimated savings of INR 6443 crore in FY 2015-16.
Provision of clean fuel
– To Help Reduce Emission, in December, 2014, the Government has allowed procurement of ethanol at a fixed delivered price ranging between Rs.48.50 to Rs.49.50 per litre (including all taxes and transportation cost).
– Ethanol produced from other non-food feed stocks besides molasses have been allowed to be procured.
– Excise duty has been waived on ethanol supplies to OMCs for EBP by sugar mills during 2015-16.
Promotion of Start Ups
ONGC announced an INR 100 crore “ONGC Startup fund” on August 14, 2016. The ONGC – Startup portal was launched in December 2016
Ease of Doing Business Initiatives
♦ Facilitating Supply of Natural Gas to Fertilizer and Power Sector:
– The Government has approved supply of pooled Natural Gas at uniform delivered price to all grid connected gas based fertilizer plants for urea production w.e.f March 31, 2015.
– It has also approved the scheme for utilization of stranded gas based power generation capacity, which was a joint proposal from MoPNG and Ministry of Power and will help in revival of 16000 MW stranded gas based power plants
♦ Government has allowed the sale of Bio-diesel (B100) by private manufacturers to bulk consumers like Railways, State Transport Corporations and other bulk consumers w.e.f. August 10, 2015. As on September 30, 2016, 2.32 crore litres of biodiesel (B100) has been procured.
♦ Extraction of Coal Bed Methane (CBM): In November, 2015, Government permitted Coal India Limited & its subsidiaries to explore coal- bed methane gas from the coal mining lease areas held by them. This will help in augmenting CBM gas production in the country.
♦ With the participation of all the major companies in the oil industry, the Hydrocarbon Sector Skill Council (HSSC)
has identified 134 roles (QPs) pertaining to the Upstream, Midstream and Gas, Downstream as well as Construction and Services sub-sectors.
♦ The HSSC roadmap for Skill Development provides for 19.27 lakh persons to be trained and certified by empanelling 500 institutions and training 1250 trainers.
♦ Skill development institutes (SDIs) have been set up by PSUs at Nagaram, Bhubaneshwar and Vishakhapatnam. IOCL SDI in Bhubaneshwar was inaugurated on May 9, 2016 and the first batch of industrial welding and electrician courses kicked off on June 30, 2016 with 45 students per course.
♦ Indian Institute of Petroleum and Energy (IIPE) was set up in Visakhapatnam in October, 2016. 96 students have already joined in two undergraduate programmes, viz., Petroleum Engineering and Chemical Engineering.