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Introduction • The petroleum industry includes the global processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines), and marketing petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum (oil) is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. • Petroleum is vital to many industries, and is of importance to the maintenance of industrial civilization in its current configuration, and thus is a critical concern for many nations. Oil accounts for a large percentage of the world’s energy consumption, ranging from a low of 32% for Europe and Asia, to a high of 53% for the Middle East.
Contd. • The world consumes 30 billion barrels (4.8 km³) of oil per year, with developed nations being the largest consumers. The United States consumed 25% of the oil produced in 2007. The production, distribution, refining, and retailing of petroleum taken as a whole represents the world's largest industry in terms of dollar value. • The earliest known oil wells were drilled in China in 347 AD or earlier. • In India, The first well was completed in 1890 and the Assam Oil Company was established in 1899 to oversee production. At its peak during the Second World War the Digboi oil fields were producing 7,000 barrels per day.
Industry structure The American Petroleum Institute divides the petroleum industry into five sectors: • Upstream - (exploration, development and production of crude oil or natural gas • Downstream - (oil tankers, refiners, retailers and consumers) • pipeline • marine • service and supply • MidstreamMidstream operations are sometimes classified within the downstream sector, but these operations compose a separate and discrete sector of the petroleum industry. Midstream operations and processes include the following: gathering processing transportation storage technological application
Oil and gas industry-POST INDEPENDENCE ERA • After India won independence in 1947, the new government naturally wanted to move away from the colonial experience which was regarded as exploitative. This resulted in a focus on domestic industrial and agricultural production and consumption, a large public sector, economic protectionism, and central economic planning. • The foreign companies continued to play a key role in the oil industry. Oil India Limited was still a joint venture involving the Indian government and the British owned Burmah Oil Company (presently, BP) whilst the Indo-Stanvac Petroleum project in West Bengal was between the Indian government and the American company SOCONY-Vacuum (presently, ExxonMobil). • This changed in 1956 when the government adopted industrial policy that placed oil as a “schedule A industry” and put its future development in the hands of the state. In October 1959 an Act of Parliament was passed which gave the state owned Oil and Natural Gas Commission (ONGC) the powers to plan, organize, and implement programmes for the development of oil resources and the sale of petroleum products and also to perform plans sent down from central government.
Contd. • In order to find the expertise necessary to reach these goals foreign experts from West Germany, Romania, the US, and the Soviet Union were brought in. • The increased focus on exploration resulted in the discovery of several new oil fields most notably the off-shore Bombay High field which remains by a long margin India’s most productive well. POST LIBERLISATION ERA- • The process of economic liberalization in India began in 1991 when India defaulted on her loans and asked for a $1.8 billion bailout from the IMF. • This was a trickle-down effect of the culmination of the cold war era; marked by the 1991 collapse of the Soviet Union, India’s main trading partner. The bailout was done on the condition that the government initiate further reforms, thus paving the way for India’s emergence as a free market economy. • For the ONGC this meant being reorganized into a public limited company (it is now called for Oil and Natural Gas Corporation) and around 2% of government held stocks were sold off. Despite this however the government still plays a pivotal role and ONGC is still responsible for 77% of oil and 81% of gas production while the Indian Oil Corporation (IOC) owns most of the refineries putting it within the top 20 oil companies in the world.
CONTD. • The government also maintains subsidized prices. As a net importer of oil however India faces the problem of meeting the energy demands for its rapidly expanding population and economy and to this the ONGC has pursued drilling rights in Iran and Kazakhstan and has acquired shares in exploration ventures in Indonesia, Libya, Nigeria, and Sudan. • India’s choice of energy partners however, most notably Iran led to concerns radiating from the US. A key issue today is the proposed gas pipeline that will run from Turkmenistan to India through politically unstable Afghanistan and also through Pakistan. However despite India’s strong economic links with Iran, India voted with the US when Iran’s nuclear program was discussed by the International Atomic Energy Agency although there are still very real differences between the two countries when it comes to dealing with Iran.
INDIAN ENERGY SECTOR • India's per capita consumption of energy is really small as compared to other countries and the world average. There is a huge potential in India for the escalation of energy consumption, should the supply grow to meet the demand as it fosters. • The start of production of natural gas from Reliance Industries Ltd's (RIL) Krishna Godavari (KG) fields and the planned initiation of production of crude oil from Cairn India Ltd's fields later this year have provided a main expansion to the Indian oil and gas sector and company intends upstream activities to receive greater consideration over the past years. India's fuel requirements are likely to increase at a considerable pace. • India already imports over 70 percent of its crude oil needs, with its oil import bill being close to US$ 90 billion in 2009-10. In addition, some of the existing oil and gas fields are facing a drop in production. Which have already been in production for several years, and reached their peak. The issue of energy security was brought to the forefront of strategic decision making and an urgent need was felt to enhance the internal supplies of oil and gas. In addition to NELP, other endeavours were made to look into the requirement for attaining energy security, such as:
Contd. • Procurement of Oil and Gas assets abroad, the latest being ONGC Videsh's acquisition of Imperial Energy • Establishing strategic storage facilities at known locations • Exploring alternate sources of Energy, including Coal Bed Methane, gas hydrates, etc • Enhancing the recovery of oil and gas from existing fields through methods such as Enhanced Oil Recovery (EOR) and Increased Oil Recovery (IOR).
Share of oil and gas in total demand of energy • In 2011, coal accounted for 41 % of total primary energy demand. • India’s energy demand is expected to double by 2035.
Contd. • Over the next few years, the dependence on gas, hydro and nuclear power is expected to increase relative to oil and coal. • The govt. aims to quadruple India's nuclear power generation capacity to 20 GW by 2020. currently seven nuclear power reactors of 4,890 MW capacity is under construction.
IN India OIL & GAS sector is dominated by STATE – OWNED ENTITIES
Oil supply and demand in India Owing to a strong expected growth in demand, India's dependency on oil imports is expected to increase further. In FY 12, imports accounted for approximately 81 % of the country’s total oil demand. Backed by new oil fields, domestic oil output is anticipated to grow to 1.0 mbpd by FY 16.
Contd. Declining crude-oil production and fast economic growth have assisted to increase the demand-supply disparity for crude oil and gas in India. oil consumption is estimated to expand at a CAGR of 3.4 % during FY 2008 – 16 (F) to 4.0 mbpd by 2016.
GROWTH DRIVERS Robust domestic market expected to expand • India is world fourth largest energy consumer • Oil consumption is expected to rise by 42 % during 2010-2020 • The country accounted for around 11% of total gas consumption in asia- pacific region Increasing demand for natural gas • Several industries such as pulp and paper, food processing, metals, chemicals, glass and plastic etc. are using natural gas for their operation, thus boosting the demand Abundant raw material • The nation has large coal reserve, and unexplored oil and gas reserves • Oil reserves amounted to 5.6 billion barrels in FY 2012 • Natural gas reserves stood around 1.3 trillion cubic meters in FY12 Favorable policies • 100% FDI allowed in E & P companies & 49% in refineries • Polices to increase investments in the industry such as NELP ( 9- ROUNDS) & CBM.
Contd. High investments • Investments worth USD 75 billion is expected across the oil and gas value chain in 12th five year plan (2012-2017) • Since April 2000, FDI worth USD 5.4 billion has been invested in Indian oil and gas sector Skilled labour • The nation offers abundant skills labour at much competitive wages compared to other countries • The university of petroleum and energy (Dehradun) is asia’s first and only energy university. Natural gas discoveries • Several domestic companies (such as ONGC, Reliance and Gujrat State Petroleum ) have reportedly found natural gas in deep water. • This offers significant expansion in next decade.
Environmental impact and future shortages • Some petroleum industry operations have been responsible for water pollution through by-products of refining and oil spills. • The industry is the largest industrial source of emissions of volatile organic compounds (VOCs), a group of chemicals that contribute to the formation of ground-level ozone (smog). • The combustion of fossil fuels produces greenhouse gases and other air pollutants as by-products. Pollutants include nitrogen oxides, sulphur dioxide, volatile organic compounds and heavy metals. • As petroleum is a non-renewable natural resource the industry is faced with an inevitable eventual depletion of the world's oil supply. So emphasis on renewable alternatives like solar energy, wind power are too much in need. • The use of shale gas can be the first step towards ‘economic freedom’, according to Oil Minister M VeerappaMoily. The minister feels that India could follow a similar path to the US, which turned from a net importer of energy to a net exporter of energy with the use of shale gas and oil.
Scope in oil and gas industry • The efforts for exploring and developing oil and gas, thereby ensuring energy self-sufficiency for. Since liberalizing its economy in the ‘90s, India has witnessed unprecedented levels of growth prospects in oil and gas space. • Economic expansion Driven primarily by demographic changes, rapid industrialization and a strong export-oriented services framework, the Indian gross domestic product grew more than 3.3 times from 2002 to 2012, second only to China’s. • As its economy flourished, India’s demand for energy has risen by more than 70 percent. And this trend is expected to continue in the next decade making India the third largest energy consumer globally by 2020. With the growth in automobiles, power and fertilizers, oil and gas as an energy source now represents more than 45 percent of the country’s total energy consumption. • However, this rapid surge in demand for hydrocarbons has not translated proportionately toward the growth of domestic exploration and production (E&P) in the oil and gas industry. A case-in-point is that of the 11th five-year plan period, for which India committed to produce 206.8 million tonnes (MT) of crude oil but the actual production was 176.9 MT, equating to an incremental import burden of over $20 billion for the period at today’s prices.
Contd. • In the last decade, India has taken important steps toward ensuring energy security. For instance, the New Exploration Licensing Policy (NELP) was designed to attract new activity in oil and gas exploration, and the country agreed to allow 100 percent foreign direct investment (FDI) in the upstream sector. Despite this, an FDI investment of just over $2.5 billion was recorded in the E&P sector since 2005. • Ensuring long-term energy self-sufficiency appears to be a formidable task for India, given the magnitude of the country's energy needs, the complexity of technologies involved, the large investments required, and the obstacles in the political landscape to overcome. • Meeting India’s energy requirements is cornerstone in ensuring that the nation’s economic growth continues. It is imperative the government works toward energy self-sufficiency. In this regard there have been some positive moves in the form of NELPs, but the immediate need is an actionable operating philosophy and favorable framework of policies that can help accelerate nation.
