........................................................................................................................ FOREWORD The oil and gas sector consists of three segments—upstream, midstream and downstream. The upstream segment primarily comprises companies that are engaged in exploration and production activities, while the midstream segment comprises of players in storage and transportation, and the downstream segment comprises of players that are engaged in refining, processing and marketing of petroleum products. A country’s economic growth is closely correlated to the energy demand. Consequently, the demand for oil and gas, which is one of the main sources of meeting energy requirements, is expected to increase further. The value of the Indian oil and gas sector is forecasted to grow from US$ 117,562.9 million in 2012 (estimated) to US$ 139,814.7 million by 20151. The Indian government is looking forward to promoting a plan for the sustainable development of the oil and gas sector, and investments in research and development (R&D) activities in alternative fuels segment so as to prevent the depletion of the country’s natural reserves. This report therefore analyses the sector’s development over past years, its current state and future prospects while keeping in mind key metrics such as regulatory frameworks, foreign direct investments and the participation of private players in all segments of the Indian oil and gas industry. It also analyses key points from the 11th Five Year Plan that have had a positive impact on the industry, the measures suggested in the 2012–13 Union Budget to safeguard the sector, and steps to be taken in the coming years to ensure a sustainable and a high rate of development. This report also assesses some actionable measures from the 12th Five Year Plan that affect the industry. 1 Datamonitor Report – Oil and Gas in India, August 2011 …………………………………………………………………………………………………………………………......... 1. KEY DEVELOPMENTS AND CURRENT STATE OF THE INDIAN OIL AND GAS SECTOR The oil and gas sector in India is a critical component of the country’s economy, accounting for 15 per cent of the country’s gross domestic product (GDP).2 Economic growth is directly linked with energy demand, and a conservative estimate of 7 per cent growth is expected to double India’s per capita energy consumption from 560 kilograms of oil equivalent (kgoe)3 in FY10 to 1,124 kilograms of oil equivalent (kgoe) by FY32.4 As oil and gas is one of the main sources to meet the required demand for energy in India, its demand is forecast to rise further. In 2011, natural gas accounted for 10 per cent of the country’s total energy requirements5, whereas estimates suggest that this figure will reach 20 per cent by 2025, with oil and gas together accounting for approximately 45 per cent of the total demand.6 Market reports estimate that this growth is expected to take the size of the Indian gas market to that of the gas market in Japan, the largest consumer of liquefied natural gas (LNG) in Asia, by the end of 20156. As shown in Figure 1.1 and Figure 1.2, despite having significant reserves in India, the increase in demand is expected to be primarily met through imports. Figure 1.1 India’s total Oil and Gas reserves 5,800 5,682 5 5,625 5,625 5,654 5,600 5,484 5,319 4 5,400 5,213 5,200 5,109 5,032 3 4,957 5,000 4,882 4,809 4,737 4,800 2 Million Barrels (Oil) Barrels Million 4,600 1 (Gas) Meters Cubic Trillion 4,400 1 1 1 1 1 1 1 1 1 1 1 1 1 4,200 0 2009 2010 2011 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F Oil Reserves Gas Reserves Source: Business Monitor International: India Oil and Gas Report, 2012 2 Invest in India – Oil and Gas Sector 3 Google Public Data 4 ASSOCHAM-Deliotte Paper – Indian Oil and Gas Sector 5 Planning Commission 6 Indian Energy Congress 7 Energy Information Administration The Indian Oil and Gas Sector: Recent Developments, Growth and Prospects 4 …………………………………………………………………………………………………………………………......... Figure 1.2 India’s total Oil and Gas market dynamics Oil imports, production and consumption* 4,500 4,089 3,906 4,000 3,734 3,564 3,500 3,401 3,280 3,008 3,157 3,000 2,500 2,000 '000 Barrels/Day '000 1,500 1,000 500 0 2009 2010 2011 2012F 2013F 2014F 2015F 2016F Imports Dosmetic Production Gas imports, production and consumption* 100 91 90 85 80 80 75 71 70 68 64 60 54 50 40 30 Billion Meters Cubic Billion 20 10 0 2009 2010 2011 2012F 2013F 2014F 2015F 2016F Imports Dosmetic Production *Total consumption = Imports + Production Source: Business Monitor International: India Oil and Gas Report, 2012 In 2010, an approximately 63 per cent of the total oil and gas imports came from the Middle East, followed by Africa with 22 per cent and the Western Hemisphere with 10 per cent.7 7 Energy Information Administration The Indian Oil and Gas Sector: Recent Developments, Growth and Prospects 5 …………………………………………………………………………………………………………………………......... To cope up with the high demand, the Indian government has adopted policies such as allowing 100 per cent foreign direct investment (FDI) in many segments of the oil and gas sector such as refineries, pipelines, petroleum products, natural gas and infrastructure related to the marketing of petroleum products.2 In 2011, the oil and gas sector experienced one of the biggest FDI deals in the country, with British Petroleum (BP) entering a US$ 7.2 billion deal with Reliance Industries for the exploration of offshore oil and gas. Subsequently, BP formed a joint venture with Reliance for the marketing of gas and took a 30 per cent stake in 23 oil and gas blocks.8 Owing to many large scale investments, the oil and gas sector in India attracted FDI worth US$ 3,152 million over 2000–11.2 Some other policy initiatives to promote investments included the New Exploration Licensing Policy (NELP), to aid both public and private sector companies in bidding for exploration rights. Over 246 blocks were given out over eight bidding rounds through this initiative during the last decade alone, resulting in the discovery of 68 oil and gas fields. The NELP allows 100 per cent FDI in small to medium sized oil fields.2 However, the NELP may soon be replaced by the Open Acreage Licensing Policy (OALP), which invites bids all year round unlike NELP that invites bids yearly.6 The following section highlights the regulatory environment and the competitive scenario in the Indian oil and gas industry. 1.1. Regulatory landscape and competitive scenario The Indian oil and gas sector is highly regulated and largely state controlled.9 Figure 2 shows key regulatory authorities in India and the main legislations that govern the sector. Figure 2 Regulatory environment for Oil and Gas sector in India Planning Commission Policy Ministry of Finance Ministry of Petroleum and Natural Gas Regulation Directorate General for Hydrocarbons Petroleum and Natural Gas Regulatory Board Petroleum Act (rules for import, transport, storage) Legislation Oilfields Act (development of oilfields) New Exploration and Licensing Policy (competitive bidding) Integrated Energy Policy (addressing key challenges) Open Acreage Licensing Policy (bidding for exploration rights) Source:PricewaterhouseCoopers Analysis – Indian Energy Congress, IEA, Indian Energy Congress 8 Indian Express – FDI in India 9 Business Monitor International: India Oil and Gas Report, 2012 The Indian Oil and Gas Sector: Recent Developments, Growth and Prospects 6 …………………………………………………………………………………………………………………………......... Among other initiatives, the Petroleum and Natural Gas Regulatory Board was formulated to ensure the smooth supply of petroleum and petroleum products throughout the country at regulated prices. This body was also tasked with enabling pipeline development, and regulating the midstream and downstream segments of the oil and gas sector.6 The oil and gas sector is dominated by PSUs and a few large private sector companies. Figure 3 highlights the credentials of leading players in each segment (upstream, midstream and downstream) of the oil and gas industry. Figure 3 Competitive landscape for Oil and Gas sector in India (top players) Oil and Natural Gas Corporation Oil India Limited Cairn Energy Oil Production: Oil Production: Oil Production: Upstream 531,000 b/d 73,000 b/d 25,000 b/d Exploration & Gas Production: Gas Production: 2.4 Gas Production: 0.4 25.6 bcm bcm bcm Production Turnover: Turnover: Turnover: US$ 340 US$ 13,782 mn. US$ 1,730 mn. mn. 74% state owned 98.1% state owned Private sector Gas Authority of Indian Oil India Midstream Pipelines: 10,329 Pipelines: 12,000 km km Storage & Turnover: Turnover: Transportation US$ 68,488 mn. US$ 6,762 mn. 89% state owned 57% state owned Industry Segments Hindustan Indian Oil Bharat Petroleum Petroleum Downstream Refining: 880,000 Refining : 450,000 Refining : 260,000 b/d b/d b/d Refining, Retail Outlets: Retail Outlets: Retail Outlets: Processing & 18,643 6,553 8,539 Turnover: Turnover: Turnover: Marketing US$ 68,488 mn. US$ 34,591 mn. US$ 27,812 mn. 89% state owned 66% state owned 51% state owned Source: Business Monitor International: India Oil and Gas Report, 2012, IBEF In India, Oil and Natural Gas Corporation (ONGC) accounts for approximately 67 per cent of the total oil and gas production, whereas the Indian Oil Corporation (IOC) and its subsidiary, the Chennai Petroleum Corporation Limited (CPCL), command the largest market share (approximately 48 per cent) in petroleum products. The country’s refining segment is primarily dominated by domestic players such as Hindustan petroleum Corporation Limited (HPCL), Bharat The Indian Oil and Gas Sector: Recent Developments, Growth and Prospects 7 …………………………………………………………………………………………………………………………......... Petroleum Corporation Limited (BPCL), IOC and Reliance Industries.9 1.2.