Hydrocarbon Vision 2025

1. Infrastructure Facilities For Future Import and Domestic ConsumptionCII Conference on Energy Security in IndiaR SridharReliance Industries Ltd.October 31, 2003

2. Hydrocarbon Vision 2025 • To assure energy security by achieving self-reliance through increased indigenous production and investment in equity oil abroad • To enhance quality of life by progressively improving product standards to ensure a cleaner and greener India • To develop hydrocarbon sector as a globally competitive industry which could be benchmarked against the best in the world through technology upgradation and capacity building in all facets of the industry • To have a free market and promote healthy competition among players and improve the customer service • To ensure oil security for the country keeping in views strategic and defense considerations

3. Focus Areas Group set up by Prime Minister had deliberated among other things on – • E&P for indigenous oil & gas • External policy and oil security • Natural gas • Refining and Marketing - and submitted their recommendations which has been accepted by the Govt.

4. Govt. initiative - Hydrocarbons • Recognised availability of crude and gas is far below country’s demand • Govt. is aggressively pursuing the E&P activities to intensify exploration in existing blocks and discovery of new reserves • Policies are being put in place for the domestic companies to compete with the international companies in E&P area • Increased focus on • usage of natural gas • policy initiatives for import of LNG • transportation policy for the indigenously available natural gas • Formulation of long term policy to facilitate investment in refining, pipelines and marketing infrastructure

5. Hydrocarbon Vision 2025 Emphasis Greater participation by private companies and increased joint working with PSU companies for asset utilisation Present score Greater participation of private companies already achieved in -- • E&P • Refining Private companies have begun investing in -- • Terminals and Tankages • Pipelines • Marketing infrastructure

6. Energy Oil Gas Electricity This presentation will focus on infrastructure requirements of refining crude oil and distribution of petroleum products

7. Refining • Current refining capacity of 115 MMTPA is in excess iof demand • Forecasted Demand v/s Refining Capacity Without price elasticity, demand number would be even higher • Therefore, refinery expansions a must • Increase in refining capacities planned in Xth Plan

8. Refining • Additions and expansions in various capacities to meet growing demand • Liberalised policies to permit free import / export of products • Process upgrades needed for - • increased efficiencies to survive in international markets • plant automation • overall optimisation • reduced energy and other inputs • changed product specifications to meet international environment norms • additives for better / differentiated products

9. Oil Logistics Security through participation by all players in each of the box and arrow

10. … in India & USA Mode wise Transportation of Petro Products ??? Will India move this way ? India USA

11. Ports & Shipping • Imp[ort of crude as well as coastal movement of products • Domestic crude production of 32 MMTPA v/s 210 MMTPA projected demand by Year 2025 • large import of crude • development of receipt and storage facilities • jetties to handle large size vessels, support SBMs • larger storage tanks • pipelines to carry crude to inland refineries • Pot capacities build up required to match refinery expansions • To facilitate free import / export of products • Larger vessel bringing in freight economics calls for matching jetty facilities

12. Ports & Shipping • Desired Port up-gradation and operations • Composite port facilities (for liquid and dry cargo) • Capital and revenue dredging • Operations through third party operators e.g. P&O • State Port Authorities provide very friendly and conducive business environment • High need of private investment in this time of fund crunch • BOT and BOOT opportunities • Govt.’s initiative of SEZ Port authorities to become proactive to facilitate all these

13. Pipelines Why pipelines ? • for movements of crude from ports to inland refineries as well as oil fields to nearby refineries • for movement of products from refineries to marketing terminals and depots • economical (least loss, no pilferage / adulteration), safe and environmental friendly • bulk movements of products • minimal storage terminal / depot requirement • Least energy consuming mode of transportation Contd…..

14. Product Pipelines Why pipelines now ? • To match projected demand growth and proposed refinery expansions • Make products available in all parts of the country at least cost • Reduce load on Railways, free rail infrastructure for movement of other goods • Common Carrier to allow all possible users access the pipeline • improved utilisation • reduced transportation cost • Joint initiative of Govt. and private oil companies in form of Petronet • Oil companies planning for number of pipelines to link markets not covered hitherto Contd…..

15. Product Pipelines How it can secure supplies ? • Multiple users make products available in all markets at all the times • Investment risk minimised with broader user base • Product evacuation from refineries ensure higher utilisation and lower costs • Pragmatic tax structure by individual states t enable pipelines to cross through different states Challenges • Cost efficient methods of interface disposal • Govt. support for statutory clearances and RoU acquisition

16. Railways • Expansion required in rail infrastructure to match demand growth • Freight equalisation to make rail transportation more competitive • Competing road and pipeline transportation requires Railways to operate more efficiently

17. Rail • Rail transportation • Pros • Very well established network • traditionally used for inland movement of crude and products • presently adequate track and rolling stock capacity • Cons • necessitates depot arrangements for distribution of products • capital intensive infrastructure required at both ends of the chain • has resulted into more days coverage (storage) due to delivery uncertainties • higher tariff as other goods and passenger traffic subsidised by POL products

18. Terminals & Tankage • With new pipelines and Railway increasing its reach, new terminals and tankages are natural consequences • Additional capacities required to meet projected demands • 2.6 million KL additional tankage planned by oil industry during Xth Plan, yet to materialise • Strategic Storage initiative - for crude and products • Tankage-2000 Plan to have • 45 days cover for crude, 13 MM tonnes • 15 days cover for POL products, 5 MM tonnes • Industry Committee recommendations (draft) has identified 16 locations for locating strategic storage • Estimated investment of Rs. 3000 Cr. Shared facilities can increase tank turn around resulting into “virtual” increase in tankage

19. Roads • Road infrastructure • “last mile” mode of movement • transportation cost independent of volumes / throughputs • private investment encouraged, greater and wider penetration • widening of roads a priority work for Govt.- Golden Quadrilateral • substantial quality improvement in road surfaces • this will result into faster movement of larger capacity vehicles • road transportation will be more competitive - a major threat to Railways • Road movement at a level of 35-38 KL against the current level of 12-20 KL will give major advantage in freight cost per KL of transportation • Improved roads to reduce travel time >>>> lead to clocking more mileage >>>> reducing road freights further Watch the road as a serious transportation means

20. Rail or Road ? Basis : Road tariff Rs. 1.50 per MT-Km Terminal charges Rs. 160 / KL With current rly freights, road transportation is cheaper for leads up to 2200 Km.

21. HiCap Vehicles • An essential last mile transportation mode • Internationally, 45-70 KL tankers extensively used for long hauls and deliveries • Economic compulsion to upgrade capacity • With Golden Quadrangle and expansion of National Highways, truck speed and capacity to increase • Oil Industry has already initiated pilot project and has approached various authorities for enhancement of capacity to 35 KL, potential freight reduction • Higher capacity engines readily available in Indian market • Direct deliveries to destination will remove intermediate movement by Railway

22. Freights • Till recent past, under APM, market prices of transportation fuels were regulated by Govt. • Freight under recoveries and over recoveries were met through oil pool account • marketers insulated from the vagaries of fluctuation of freight costs by different modes • With deregulation of oil sector, logistics efficiencies would come in • Freight, for POL products varies between 12% to 30% of basic cost • Rail freight component is around 14% to 18% • Thus, rail freight is an essential component to be watched to compete effectively in the market • Pipeline freights in direct competition with Rail • Even road freights competing with Rail Choice of economics will ensure security of supplies

23. Present Situation • Adequate capacities available in sea, rail and road modes • pipelines have limited capacities available • dominated by captive use • absence of facility sharing mechanism • Rail and Pipeline modes heavily controlled by Govt. / PSU companies • Road and Sea modes have very active participation (vessels and storage tanks) of private companies • port facilities still under Govt. control • can handle only smaller parcel sizes (for coastal movements)

24. Future Scenario • Crude procurement costs need to be optimised through lower transportation costs • Ports would handle more crude than products in future • cost optimisation through larger parcel size and inland transportation by pipelines • additional investments in SPM and onshore storage tanks • with adequate refining capacities built up, further emphasis on reducing cost of transportation of crude from port to refinery - pipelines are the best mode • Pipelines offer greater growth opportunities with natural cost advantages • Rail traffic would get affected in the areas where new pipelines come up • to re-align its operations as well as pricing in light of competition offered by pipelines • rationalisation of fares resulting in reduction of POL tariff

25. Future Scenario • Road transportation will continue to be the “last mile” solution for product distribution • will shift to tankers with higher capacities (say 33 KL) with improvement (new roads, private participation, 4 laning etc.) in roads • Regulatory mechanism to control access to and tariff of pipelines • open access to all users • regulated return on investment • Financing • shift from Balance Sheet finance to Project finance • private participation and bankable cash flows • TOP contracts between owner and shipper Economics of competition would ensure security

26. Take away • India is already recognised as a major growing global power • Increased competition and threat form developed and developing country • Oil & gas would continue to be the major energy sources • Substantial increase in per capita energy consumption expected • Life would hinge on energy – recent black out of New York • Ascertaining energy security is need of the hour – even for within country supplies • Increased participation and competition would drive towards security • Equal and shared access to existing and new infrastructure would minimise exploitation by any one player – local or international • Government’s participation as an equal player, shared responsibility of all players Security through competition