Petroleum Industry in India

Indian Petroleum Industry started its journey during the fiscal year 1890 in the north-eastern provinces of India especially in the place called Digboi. The production of petroleum along with the exploration of new sites was primarily restricted to north-eastern India up to the 1970s. But the scenario changed drastically with the discovery of Bombay High. Indian Petroleum Industry was entirely state sponsored and was under the management control of all the industries involved in it were entirely with the government.

After the inception of the Liberalization-Privation-Globalization (L-P-G) policy in the month of July, 1991, the government had started allowing the Indian Petroleum Industry to go into private as well as government-private joint ventures. The deregulation process in the Indian Petroleum Industry got a boost in the year 1997 when it was decided that the process of liberalization and deregulation would be accelerated in this industry and all the regulations would go away from the month of April in the year 2002.

Along with globalisation, the rate of growth of the economy along with the rate of growth of energy consumption increased at the rate of six percent on an yearly basis especially between the period 1991 and 2001. The demand for petroleum products increased at an annual rate of 5.5% during 1990-91 and 2000-01 which is more than that of the production rate of crude oil processing (revolving around 5.1 %). But Indian Petroleum Industry stumbled a bit in the year 201 when the Indian economy observed a slow down in its economic rate along with the overall industrial output. Impediments related to infrastructure also came up as serious problems in the path of Indian Petroleum Industry.

Facts related to the Indian Petroleum Industry • Amount of petroleum used for generation of energy grew from 51.27 million tonne during 1990-91 to 128.8 million tonne during 2005-2006. • Indian Petroleum Industry grew at a tremendous pace between the period 2000 and 2006. During the mentioned period, the production of petroleum products increased from 95.61 million tonne during 2000-2001 to 119.75 million tonne during 2005-2006.

Petroleum Industry is considered to be the back bone of an economy because this is the main source of energy till date. Any economy around the world would fail to proceed a single step in the absence of Petroleum Industry.

Thus, before using this energy source, the crude petroleum is required to be refined in the petroleum refineries for extracting various fractions for energy generation namely, petrol, natural gas, kerosene, asphalt and many more.

Production of petroleum by the Petroleum Industry in USA has come up as a huge contributer to the total petroleum production in the world. It has been observed that its contribution amounts to almost 25 % of the total production of petroleum globally

The most important part of the Petroleum Industry is the Petroleum Refining Industry which refines the crude oil to convert it to the usable fuel. It also derives many derivative products out of the crude petroleum like natural gas, naphtha, etc which can be used in various ways.

Petroleum is basically a non-renewable form of fuel which is subject to extinction from the world after a certain point of time.

The price of petroleum is determined by the demand-supply mechanism around the globe. Petroleum is not a domestic product and any kind of shortage in the same has serious ramifications on all possible industries along with the economies all over the world.

Petroleum Industry always need to perform exploration research all over the world for finding more petroleum sites which also become instrumental in the setting up Petroleum Industry Trends around the world.

The India Petroleum Industry is a case in point for exhibiting the giant leapsIndia has taken after its independence towards its march to attain a self-reliant economy.

During the Independence era of 1947, theIndia Petroleum Industry was controlled by foreign companies andIndia's own expertise in this sector was limited. Now, after 60 years, theIndia Petroleum Industry has become an important public sector undertaking with numerous skilled personnel and updated technology that is comparable to the best in the world. The vim and the achievement during these years is the growth of productivity in petroleum and petroleum-based products. Even the consumption has multiplied itself nearly 30 times in the post-independence era.

An important advancement in the petroleum industry came with the Industrial Policy Resolution, 1956 which signified the promotion of growth of industries. The ONGC, originally set up as a Directorate in 1955, was transformed into a Commission in 1956. In 1958, theIndian Refineries Ltd., a government undertaking, came into existence.

TheIndian Oil Company (IOC), also a government undertaking, was set up in 1959 with the purpose of marketing petroleum-related products.Indian Oil Corporation Ltd. was formed in 1964 with the merger of theIndian Refineries Ltd. and theIndian Oil Company Ltd. Presently, 17 refineries operate under theIndia Petroleum Industry. Growth of the India Petroleum Industry:

In the post-independence era,India grew tremendously in terms of infrastructure in the petroleum industry, which in turn helped increase the production of petroleum and petroleum-related products. • During 1947-57, 3 refineries were set up in Mumbai and Visakhapatnam by transnational oil corporations doing business in Indian

• During 1957-67, another 3 refineries were established in Guwahati, Barauni, and Koyali byIndian Refineries Ltd. • During 1967-77. 2 more were set up in Chennai by Iranian companies and in Haldia byIndian Oil Ltd. • During 1977-87, 2 more refineries were commissioned. The one at Bongaigaon was the first to have an amalgamated petroleum refinery-cum-petrochemicals unit. The other was established at Mathura. • During 1987-97, 2 more were set up at Nagapattinam and Mangalore. • During 1998-2007, refineries at Panipat and Numaligarh were set up. •

• Bharat Petroleum Corporation Limited Bharat Petroleum Corporation Limited continues to meet the challenges of rapidly changing technology in the Indian Petroleum Industry.

• IBP IBP was established in the year 1909 in Rangoon. IBP is now part of the prestegious Indian Oil Corporation Group. Indian Oil is India's flagship Oil Company with nine refineries, over 6500 kms of cross country pipelines and 186 bulk storage depots and terminals. • Indian Oil Corporation Limited

Indian Oil Corporation Ltd. (IndianOil) was formed in 1964 through the merger of Indian Oil Company Ltd. (Estd. 1959) and Indian Refineries Ltd. (Estd. 1958). It is also the 19th largest petroleum company in the world. IndianOil has also been adjudged No.1 in petroleum trading among the national oil companies in the Asia-Pacific region. • Oil and Natural Gas Corporation Ltd.

ONGC ended the sectoral regime in the Indian hydrocarbon industry and benchmarked the globally- established integrated business model; it took up 71.6 per cent equity in the Mangalore Refinery & Petrochemicals Limited. • Shell in India Shell businesses exist to meet the energy needs of society in ways that are economically, socially and environmentally viable, now and in future. All of our businesses are united by common goals; to make the most of our existing business; to gain new business and to break new ground.

The oil and gas industry has been instrumental in fuelling the rapid growth of the Indian economy. The petroleum and natural gas sector which includes transportation, refining and marketing of petroleum products and gas constitutes over 15 per cent of the GDP. Petroleum exports have also emerged as the single largest foreign exchange earner, accounting for 17.24 per cent of the total exports in 2007-08. Growth continued in 2008-09 with the export of petroleum products touching US$ 23.63 billion during April-December 2008.

In November 2008, the Cabinet Committee on Economic Affairs awarded 44 oil and gas exploration blocks under the seventh round of auction of the New Exploration Licensing Policy (NELP-VII). With NELP VIII, the overall number of blocks brought under exploration exceeded 200. The allocation brought in investments worth US$ 1.5 billion. The eighth round of auction which ended on October 12, 2009 attracted over US$1.34 billion in minimum investment. Production

• Refinery production in terms of crude throughput increased to 160.77 MT in 2008-09 as compared to 156.10 MT in 2007-08. • The production of natural gas went up to 32.84 billion cubic metres tonnes (BCM) in 2008-09, from 32.40 BCM in 2007-08. • The projected production of crude oil during the 11th Five-Year Plan (2007-2012) is 206.76 MMT, while that of natural gas is 255.27 BCM.

• Cumulative production of crude oil between April-December 2009, was 25,152 MT, while cumulative production of refinery production during the same period was 119,283 MT. Natural gas production during the same period was 33,846 million cubic metres. • State-run Indian Oil Corporation Ltd will raise the capacity of its Haldia refinery by 25 per cent to 7.5 million tonnes by end February 2010. It will also expand its 12 million tonnes a year Panipat refinery to 15 million tonnes by August, 2010. Consumption

India's domestic demand for oil and gas is on the rise. As per the Ministry of Petroleum, demand for oil and gas is likely to increase from 186.54 million tonnes of oil equivalent (mmtoe) in 2009-10 to 233.58 mmtoe in 2011-12. India's domestic oil product sales in November 2009 grew 3.7 per cent from a year ago, driven by higher demand for auto fuels, according to government data. Oil product sales were 11.32 million tonnes in November, as per official data. Global Refining Hub

India is emerging as the global hub for oil refining with capital costs lower by 25 to 50 per cent over other Asian countries. Already, the fifth largest country in the world in terms of refining capacity, with a share of 3 per cent of the global capacity, India is likely to boost its refining capacity by 45 per cent or 65.3 mtpa (million tonne per annum) over the next five years, according to a Deutsche Bank report. Indian companies plan to increase their refining capacity to 242 mtpa by 2011-12 from about 149 mtpa in 2007. Retail Sector

Increase in automobile sales has led to significant investments being made to develop and expand the petroleum retail market. According to US-based consultancy Keystone, automobile sales are likely to grow to about 20 million a year by 2030 (from the present 1 million), making India the third largest automobile market in the world. Consequently, state-run fuel retailers Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation together are planning to open 2,263 new petrol pumps in the country during the fiscal year 2010, over an above the 35,068 pumps they Gas

Gas demand in India is dominated by the power and fertilizer sectors which account for 66 per cent of the current consumption. According to the Gas Authority of India Ltd (GAIL), gas availability in India is expected to grow at 23 per cent compounded annual growth rate (CAGR) to 312 million standard cubic metres per day (MSCMD) by FY14, buoyed by trebling of domestic production to 254 MSCMD and doubling of regasified liquefied natural gas imports to 58 MSCMD.

To capture the opportunity presented by the impending gas surge in India, GAIL is investing significantly in its pipeline network. Over the next three years, it will invest US$ 648.77 million- US$ 756.85 million, expanding its transmission capacity from the current 150 MSCMD to 300 MSCMD. ONGC has struck oil and gas in three new blocks a gas find at Krishna Godavari (K-G) basin off the Andhra coast, an oil find in Charada-3 offshore block in Cambay basin and an oil and gas find in Matar in Vadodara district, both in Gujarat.

Reliance Industries has announced the discovery of an oilfield in Gujarat, which is its second major find after the MA field in the Krishna Godavari basin. The BPCL, Videocon consortium has made a substantial discovery of oil in Brazil during drilling of the Wahoo-2 appraisal-cum-exploration well in the offshore Campos Basin. Moreover, ONGC Videsh Limited (OVL) has signed an agreement with Systema, the Russian telecom-finance-oil-gas behemoth, to jointly bid for oil and gas assets in Russia and the Commonwealth of Independent States. Investments and Acquisitions

• Public sector oil companies will spend US$ 11.33 billion in 2010 on expanding supplies and building new transportation networks for oil and gas. • IOC is setting up a coker plant in West Bengal at an investment of US$ 596.53 million. • ONGC will invest US$ 696 million for increasing facilities at its oilfields in Assam and Western Offshore to boost output. Moreover, it will spend US$ 5.62 billion on capital expenditure in the next financial year. • State-run gas utility GAIL will invest over US$ 1.54 billion in laying gas pipelines from Dabhol on the Maharashtra coast to Bengaluru, Kochi and Mangalore.

• Essar Exploration and Production Ltd, an arm of Essar Oil, will invest US$ 400 million in its coal bed methane gas project at Ranigunj in West Bengal by 2012. • GAIL (India) Limited will pick up a 4 per cent stake, while OVL, the overseas arm of oil and gas major ONGC, will pick up another 8-8.5 per cent in the US$ 2-billion Myanmar-China gas pipeline project, The total investment of GAIL and OVL is expected to be around US$ 250 million. • Reliance Industries has proposed to invest an additional US$ 1.5 billion in bringing to production four gas discoveries adjoining its prolific gas fields in Krishna-Godavari basin in the country's east coast. Government Initiatives

The government has been taking many progressive measures to create a conducive policy and regulatory framework for attracting investments. • Allowing 100 per cent foreign direct investment (FDI) in private refineries through automatic route and 26 per cent in government-owned refineries. • Implementation of the NELP in 1997.

• Abolition of the administered pricing policy. • 100 per cent FDI is also allowed in petroleum products, exploration, gas pipelines and marketing/retail through the automatic route.

•Vision-2015 for the oil sector which will focus on providing better services to customers covering four broad areas of LPG (liquefied petroleum gas), kerosene, auto fuels and compressed natural gas/piped natural gas. Road Ahead

According to a recent CII-KPMG report India's energy sector will provide investment avenues worth US$ 120 billion-US$ 150 billion over the next five years. According to the Investment Commission of India, the total opportunity in the oil and gas sector is expected to reach US$ 35 billion to US$ 40 billion by 2012. PERFORMANCE OF INDIAN PETROLEUM INDUSTRY:

The petroleum industry in India stands out as an example of the strides made by the country in its march towards economic self-reliance. At the time of Independence in 1947, the industry was controlled by international companies. Indigenous expertise was scarce, if not non-existent. Today, a little over 50 years later, the industry is largely in the public domain with skills and technical know-how comparable to the highest international standards.

The testimony of its vigour and success during the past five decades is the significant increase in crude oil production from 0.25 to 33 million tonnes per annum and refining capacity from 0.3 to 103 million metric tonnes per annum (MMTpa). The consumption of petroleum products has grown 30 times in the last 50 years from 3 million tonnes during 1948-49 to about 91 million tonnes in 1998-99.

A vast network of over 29,000 dealerships and distributorships has been developed backed by over 400 storage points over the years to serve the people even in the remote and once-inaccessible areas. A major boost to the oil industry came in pursuance of the Industrial Policy Resolution, 1956 that intended to promote growth of the vital sectors such as petroleum under the state control. ONGC, which was formed as a Directorate in 1955, became a Commission in 1956. Indian Refineries Ltd., a Government company, was set up in 1958. In 1959, the Indian Oil Company (IOC), again a wholly-owned Government company, was formed for marketing of petroleum products. Indian Refineries Ltd. was merged with Indian Oil Company Ltd. to form Indian Oil Corporation Ltd. in September, 1964.

Unlike at the time of Independence when there were no specialised petroleum bodies or institutions worth mentioning to provide developmental support to the petroleum industry in the country, there are today several such institutions such as the Indian Institute of Petroleum, Oil Coordination Committee, Petroleum Conservation Research Association, Oil Industry Safety Directorate, Centre for High Technology and Directorate General of Hydrocarbons.

In addition, oil companies have set up research and development centres such as the one established by the Indian Oil Corporation in Faridabad which have done pioneering work in formulation of lubricants and greases. The real growth in exploration and production sector began after the discoveries by Burmah Oil Company in the fifties prompting the Government to establish Oil & Natural Gas Commission in 1956 and Oil India Ltd. in 1959. During the second decade of Independence (1957-67) a number of oil and gas-bearing structures were discovered by ONGC in Gujarat and Assam.

Discovery of oil in large quantities in Bombay High in February, 1974 opened up a new vista of oil exploration in offshore areas. During the period 1977-87, exploratory efforts by ONGC and OIL India yielded discoveries of oil and gas in a number of structures in Bassein, Tapti, Krishna-Godavari-Cauvery basins, Cachar (Assam), Nagaland, and Tripura. The indigenous production reached 30 million tonnes by 1984-85, a self-sufficiency level of 70% of the country's requirements. Natural Gas

The Government set up the Gas Authority of India Ltd. (GAIL) in August, 1984 to deal in transportation, processing and marketing of natural gas and natural gas liquids. One of the major achievements of GAIL has been the laying of a 1700 km-long gas pipeline (HBJ pipeline) from Hazira in Gujarat to Jagdishpur in Uttar Pradesh, passing through Rajasthan and Madhya Pradesh. To minimise the gap between demand and availibility, in general, and to encourage domestic production, in particular, the Government has taken several measures.

It has signed contracts for 23 blocks for exploration, awarded 30 small or medium-sized discovered fields to private companies for development and increased recovery factor to obtain more oil from the existing oil fields. It has also permitted downstream oil companies to invest in exploration and production in India and abroad, announced details of the New Exploration Licensing Policy (NELP) and offered for the first time some blocks in deep-water areas. Growth

In the 50 years since Independence India has witnessed a significant growth in the refining facilities and increase in the number of refineries from one to seventeen now . There has been an increase in the refining capacity from 0.25 tonnes MMTpa to about 103 MMTpa. The first decade of Independence (1947-57) saw the establishment of three coastal refineries by multinational oil companies operating in India at that time, viz. Burmah Shell, Esso Stanvac and Caltex; the first two at Mumbai and the third at Visakhapatnam.

The second decade (1957-67) witnessed the setting up of Indian Refineries Ltd. in 1958, a wholly-owned public sector Government company. Under its banner three refineries were set up at Guwahati (Assam), Barauni (Bihar) and Koyali (Gujarat) essentially to process the indigenous crude discovered in Assam and Gujarat. In addition, one joint sector refinery was set up with the participation of an American company at Cochin, based on imported crude. The next ten year period (1967-77) witnessed the establishment of two refineries, one with equity participation from American and Iranian companies at Chennai and another in the public sector at Haldia by Indian Oil.

The period 1977-87 saw the commissioning of two more refineries in the public sector. The refinery at Bongaigaon was the first experiment in having an integrated petroleum refinery-cum-petrochemicals unit. The other refinery was set up at Mathura in 1982. Major expansions of the coastal refineries at Mumbai, Cochin, Chennai and Visakhapatanam were also completed during this period. The notable feature of the capacity additions during this decade have been the extensive utilisation of the process design capabilities of M/s Engineers India Ltd. and installation of Secondary Processing Facilities to increase the production of much required kerosene, diesel and LPG.

During the fifth decade (1987-97), a small refinery of 0.5 MMTpa at Nagapatinnam was built in Tamil Nadu. It is based on crude from adjoining fields. In 1996, a 3 MMTpa refinery was built in the joint sector at Mangalore between HPCL and Indian Rayon. This decade also saw significant expansions to the capacities of the existing refineries, thereby raising the refining capacity to about 62 MMTpa. Today, with the setting up of Panipat refinery during 1998-99 and Reliance and Numaligarh Refineries in 1999-2000, there are 17 refineries operating in the country, 15 in the public sector, one in the joint sector and one in the private sector, with an installed capacity of 103 MMTpa. This decade also witnessed major policy initiatives in the refining sector.

In 1987, the Government decided to set up refineries in the joint sector in which the equity participation of public sector undertaking was envisaged to be 26%. Another 26% equity was meant for the private sector partner and the balance 48% was to be raised from the public. The Government has also announced that investments in the refining sector will be encouraged by providing reasonable tariff protection and making marketing rights for transportation fuels viz. MS, HSD & ATF conditional on owning and operating refineries with an investment of at least Rs.2,000 crore or oil exploration and production companies producing at least 3 million tonnes of crude oil annually. As per the current outlook, India's refining capacity is estimated to reach a level of 129 MMTpa by the end of the IX Plan (2001-02)