Oil and Gas

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OVERVIEW

Oil and Gas are one of the most important building blocks of human development. India has 0.5 percent of the oil and gas resources of the world. It is also the second largest refiner in Asia and third largest oil consumer in the world after China and the US.

In an effort to meet the demand of developing nation, the sector has witnessed significant growth in the last decade. The oil and gas sector of India can be divided into three sections: Upstream segment which includes exploration and production activities, midstream segment which includes storage and transportation activities and downstream segment which includes refining, processing and marketing. The upstream segment is dominated by state-owned Oil and Natural Gas Corporation(ONGC). The midstream and downstream segments are majorly operated by Indian Oil Corporation Limited(IOCL) and Reliance India Ltd(RIL).

Capacity and Production

India has proven oil reserves of 600 million metric tonnes (MMT), and gas reserves of 1.2 trillion cubic meters. Production of crude oil reached 0.68 mbpd in 2018-19. Natural gas production during the same period stood at 32.06 billion cubic meters (bcm).

The coal deposits in India are mainly confined to eastern and south central parts of the country. The states of Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Telangana and Maharashtra account for 98.26 percent of the total coal reserves out of which Jharkhand had the maximum share (26.06 percent) in the overall reserves of coal in 2017-18 followed by Odisha (24.86 percent).

Onshore production accounted for 50.68 percent of total production, while offshore contributed the remaining 49.32 percent. India’s Oil consumption has expanded at a CAGR of 4.78 percent during 2007–17 to reach 4.69 mbpd in 2017. India’s gas consumption has also registered a CAGR of 3.40 percent between 2007 and 2017 to reach 54.2 bcm in 2017. In terms of actual capacity, ONCG leads the crude pipeline network with a share of 41.6 percent, followed by IOCL at 33.4 percent out of the 145.6 MMTPA as on 1st April 2019.

Exports

Oil exports in India include diesel, gasoline (petrol), aviation turbine fuel, fuel oil, and naptha. The Indian government subsidizes refineries that are specialized for exports. It also channels investments towards export-oriented infrastructure such as pipelines and export terminals.

India is one the largest exporters of refinery products due to the presence of various refineries. The country had the fourth largest oil refining capacity in the world in 2017. The total value of petroleum and petroleum products exported from the country increased to US$ 47.8 billion in 2018-19 from US$ 31.2 billion in 2015-16. High Speed Diesel was the major export item among petroleum products, followed by motor spirit, aviation turbine fuel and Naptha.

Export of Petroleum Products (US$ million)
HS Code Description 2014-15 Value 2015-16 Value 2016-17 Value 2017-18 Value 2018-19 Value
2701 Coal briquettes ovoids and similar solid fuels manufactured from coal 117.37 143.71 145.64 138.27 134.57
2702 Lignite, whether or not agglomerated, excluding jet 0.23 0.04 3.76 4.10 3.63
2703 Peat(including peat litter) w/n agglomerated 0.09 0.12 0.01 0.00 0.00
2704 Coke and semi-coke of coal, of lignite or of peat, whether or not agglomerated 18.82 16.58 15.17 25.46 17.22
2705 Coal gas, water gas, producer gas and similar gases, other gases 0.13 0.00 0.00 0.02 0.00
2706 Tar distilled from coal lignite from peat and other mineral tars 1.95 1.65 1.20 1.92 2.09
2707 Oils and other products of the distillation of high temperature 413.82 126.69 262.57 314.55 635.30
2708 Pitch and pitch coke, obtained from coal tar or from other mineral tars 12.56 13.11 13.66 7.02 21.49
2710 Petroleum oils and oils obtained from bituminous mineral other than crude 55930.92 30058.91 31137.38 36812.93 45928.26
2711 Petroleum gases and other gaseous hydrocarbons 311.70 175.89 189.43 270.70 306.72
2712 Petroleum jelly,praffin wax, micro-crystalline petroleum wax, slack wax, ozokerite 65.43 61.37 63.27 80.83 82.30
2713 Petroleum coke petroleum bitumen and other residues of petroleum oils 486.10 286.46 155.17 300.62 227.16
2714 Bitumen and asphalt, natural; bituminous or oil shale and tar sands 7.47 5.87 8.25 3.68 0.68
2715 Bitumen mixtures based on natural asphalt on natural bitumen on petroleum 1.01 0.83 1.50 2.74 3.22
2716 Electrical energy 265.97 340.22 438.64 506.53 532.32
  Total 57633.57 31231.46 32435.65 38469.36 47894.97
Source: DGCIS

Foreign Direct Investments

The government allows 100 percent Foreign Direct Investment (FDI) in upstream and private sector refining projects. The FDI limit for public sector refining projects has been raised to 49 percent without any disinvestment or dilution of domestic equity in the existing PSUs.

During April 2000 to March 2019, the FDI inflow in Petroleum and natural gas sector was US$ 7018.8 million which accounted for 1.67 percent of total FDI inflows in the country.

Outlook

Energy demand of India is anticipated to grow faster than energy demand of all major economies, on the back of continuous robust economic growth. Consequently, India’s energy demand as a percentage of global energy demand is expected to rise to 11 percent in 2040 from 5.58 percent in 2017. Crude oil consumption is expected to grow at a CAGR of 3.60 percent to 500 million tonnes by 2040 from 221.76 million tonnes in 2017. Natural Gas consumption is forecasted to increase at a CAGR of 4.31 per cent to 143.08 million tonnes by 2040 from 54.20 million tonnes in 2017.

LNG imports of India have significantly increased, providing opportunity to boost production capacity of midstream segment. In light of mounting LNG production, huge opportunity lies for LNG terminal operation, engineering, procurement and construction services. The gas consumption is projected to reach 143.08 bcm by 2040. On the other hand, government is planning to invest US$ 2.86 billion in the upstream oil and gas production to double the natural gas production to 60 bcm and drill more than 120 exploration wells by 2022.

Overall, the outlook for the industry is positive in the medium term.

 

SELECT GOVERNMENT INCENTIVES

  • Hydrocarbon Exploration & Licensing Policy (HELP)- provides 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. It is a replacement of New Exploration Licensing Policy (NELP) policy for exploration and production.
  • In order to bring market driven pricing in energy market of India, the government is planning to set up Gas exchange in India. The Oil Ministry also plans to set up bio-CNG (compressed natural gas) plants and allied infrastructure with cost of Rs 7,000 crore (US$ 1.10 billion) to promote the use of clean fuel.
  • India targets US$ 100 billion worth investments in gas infrastructure by 2022, including an addition of another 228 cities to city gas distribution (CGD) network. This would include setting up of Re-gasified Liquefied Natural Gas(RLNG) terminals, pipeline projects, completion of the gas grid and setting up of CGD network in more cities.
  • National Biofuel Policy 2018 promotes advanced biofuels through a viability gap funding scheme of US$ 745.8 million is 6 years for 2g ethanol Bio refineries, along with additional tax incentives.
  • The Open Acreage Licensing Policy allows companies to carve out area for petroleum exploration and production.
 

SELECT EXPORT MARKET REGULATIONS

Europe

EU energy policy aims to establish well-functioning energy markets that ensure secure energy supplies at competitive prices. To achieve this, EU legislation has sought to open up the European gas markets to competition and to create a single European gas market. Key to realizing this aim is the breaking-up of national monopolies, removal of barriers to cross-border gas supply, ensuring third-party access to transport infrastructure and the establishment of uniform conditions throughout the EU.

For more information-https://gettingthedealthrough.com/area/15/jurisdiction/10/gas-regulation-2019-european-union/#link-1

UK

The Oil and Gas regulations in UK covers common issues in oil and gas law and regulations including development of oil and natural gas, import/export of natural gas, LNG, import/export of oil, transportation, transmission and distribution and foreign investment in 29 jurisdictions.

For more information- https://iclg.com/practice-areas/oil-and-gas-laws-and-regulations/united-kingdom

USA

The import and export of natural gas, including LNG, requires authorization from Department of Energy. The Department of Energy authorizes two types of natural gas imports and exports: blanket authorizations and long term authorizations.

For more information- https://iclg.com/practice-areas/oil-and-gas-laws-and-regulations/usa