Jun 15 2016 | Focus

SLIDING DOWN

The Oil & Gas sector in India is one of the critical segments of the economy which needs constant monitoring and development. The international crude oil price of Indian Basket as computed/published by Petroleum Planning and Analysis Cell (PPAC) under the Ministry of Petroleum and Natural Gas was US$ 48.41 per barrel (bbl) on 10.06.2016 compared to US$ 64.00 per barrel (bbl) on 10.06.2015, US$ 101.48/bbl per barrel (bbl) on 10.06.2013. The downward slide in the oil prices worldwide has provided lot of relief to India as far as the import bill is concerned. It helps to manage the Current Account Deficit (CAD), inflation and fiscal deficit to a great extent. The country is the fourth-largest oil consumer and imports more than 2/3rd of its requirement, which constitutes around 30 percent of total imports. The flip side of the falling crude oil prices will also have a negative impact on the refining margins of the companies’ active in India. With the fall in prices, the international oil companies may not be willing to take up oil exploration projects due to issues. Many of the companies in India are active in the business of polymers, chemicals and other crude oil derivatives like synthetic yarn. The erosion of margins can affect the business viability.

The oil and gas industry in India faces a wide range of challenges and opportunities across the upstream, midstream, downstream and oilfield services sectors. The depending on the imported oil & gas is not desirable in the long term. The Government of India is trying its best to improve the hydrocarbon exploration in the country but it’s a long way to go and become self reliance as far as oil & gas is concerned.

PRODUCTION BOOSTER
In a bid to boost domestic oil and gas production, Ministry of Petroleum and Natural Gas (MoPNG), Government of India has announced in May, 2016 the commencement of the ‘Discovered Small Fields Bid Round-2016’ in New Delhi. Dharmendra Pradhan, Minister of State (I/C) for Petroleum and Natural Gas launched the new bidding round. Discovered Small Fields are oil and gas blocks which have so far remained commercially undeveloped, but are now in focus as the central government seeks to boost domestic hydrocarbon production. Under the announced ‘Discovered Small Fields Bid Round-2016’, 46 Contract Areas consisting of 67 different small fields are being offered to investors the world over, for exploration and production. Bids are being invited for developing and monetizing these contract areas having 625 Million Barrels of Oil and Oil Equivalent Gas (O+OEG) in-place volumes spread over 1500 square kilometer in Onland, Shallow water and Deepwater areas. Directorate General of Hydrocarbons (DGH), the technical arm of the Ministry, shall anchor the entire bidding process.

NELP TO HYDROCARBON EXPLORATION LICENSING POLICY (HELP)
Due to the operational issues faced with New Exploration Licensing Policy (NELP) which had been operational since 1997, the Government has shifted to new policy named as Hydrocarbon Exploration Licensing Policy (HELP). The new Policy is formulated keeping in view the principles of ‘ease of doing business’ and ‘minimum government, maximum governance’.

Observations were made by the Chawla Committee on “Allocation of Natural Resources” and Rangarajan Committee on “Production Sharing Contract Mechanism in Petroleum Industry” bringing out various deficiencies in the existing Production Sharing Contract under NELP. The issues that came to the fore during the NELP regime inter-alia include - cost recovery limit, micromanagement by the Management Committee, procurement issues, methodology adopted for calculation of investment multiple, no incentive for the operator to keep costs low adversely affecting profit petroleum.

Petroleum and Natural Gas Rules (PNG Rules) 1959, define Petroleum as “naturally occurring hydrocarbons in a free state, whether in the form of natural gas or in a liquid, viscous or solid form”. There is no differentiation between conventional oil & gas and unconventional oil & gas such as CBM, shale oil & gas, tight gas and gas hydrates as all these are hydrocarbons in Free State obtained from different geological formations. Therefore, single license for exploration of all types of hydrocarbon is considered under HELP.

The investment and subsequent increase in Government revenue will depend on the response of the investors to the bidding to be undertaken under HELP.

Under HELP, contractor will have freedom for pricing and marketing of oil & gas produced from these blocks. However, under NELP, pricing of oil and gas was subject to the relevant provisions of production sharing contract.

REFORMS IN OIL AND GAS EXPLORATION
Some of the policy decisions taken by the Government in recent years to enhance hydrocarbon exploration and production activities are as under:

  • Government has approved Hydrocarbon and Exploration Licensing Policy (HELP) and same has been notified on 30th March 2016. This policy provides for 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 Policy also provides many incentives such as reduced royalty rates for offshore blocks, marketing & pricing freedom and easy to administer revenue sharing model.
  • Marketing and Pricing freedom for new gas production from Deepwater, Ultra Deepwater and High Pressure-High Temperature areas subject to certain conditions.
  • Discovered Small Fields Policy- 67 oil & gas fields which have been held by ONGC and OIL for many years, but have not been exploited, has been approved for bidding under this policy.
  • Policy for grant of extension to the Production Sharing Contracts of 28 Small and medium sized discovered blocks.
  • Policy Framework for relaxation, extensions and clarifications at the development and production stage under PSC regime for early monetization of hydrocarbon discoveries: Government approved this policy on 10.11.2014, and the same is being implemented. Under this policy, about 40 pending cases have been resolved.
  • New Domestic Natural Gas price Guidelines, 2014: Under these guidelines, gas price has been linked to the market/ important hub prices.

EXPLORING OPPORTUNITIES WITH IRAN
The Minister of State (I/C) for Petroleum & Natural Gas Dharmendra Pradhan has recently informed the Lok Sabha that during his visit to Iran on 9th April, 2016, it was conveyed to the Iranian side that Indian Companies plans to invest up to $20 billion in Iran. The investment would be in the form of setting up petrochemical and fertilizers plants, including in the Chahabar SEZ, either in joint venture between Indian and Iranian public sector companies or with private sector partners. India also expressed interest in importing LPG from Iran, setting up an LNG plant and gas cracker in Chahabar port. Both sides agreed to continue examining various means of evacuation of gas such as LNG, including through the proposed Iran-India-Pakistan Pipeline.

PRODUCTION PERFORMANCE OF OIL & NATURAL GAS SECTOR FOR APRIL, 2016
Crude Oil

Crude oil production during April 2016 was 2956.81 TMT which is 0.14% lower than monthly target and 2.27% lower than the production achieved in April 2015.

Natural Gas
Natural gas production during April 2016 was 2488.07 MMSCM which is 1.33% lower than the target for the month and 6.83% lower than the production during corresponding period of last year.

Refinery Production (in terms of crude oil processed)
Refinery production during April, 2016 was 20155.67 TMT which is 5.16% higher than the target for the month and 17.95% higher than the production during corresponding period of last year.


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