India’s Oil & Gas sector has acquired good foundations, but difficult challenges lie ahead
India’s growth story has been and will remain energy hungry. This is despite the substantial energy efficiency gains that the country has witnessed. Trends in the energy sector on commodity availability and prices are of enormous consequence from energy security and national security standpoints. Sustainable development is the top order of business for countries and organisations worldwide. India, on its part, has been making concerted efforts towards energy transition and natural resources conservation by steadily adopting cleaner and greener energy choices. Seen from the contexts of growth and sustainability, the energy transition holds great implications for India. Much has been written on India’s continued need for burning coal for power, even as the renewable energy capacity gets built up. That remains a clear reality irrespective of the global climate dynamics and associated politics. The picture on oil and gas is less clear and considerably trickier, given the global dynamics of the sector and India’s import dependence. India’s oil and gas demand has been growing steadily over the years, and the trend is likely to continue. According to the BP Energy Outlook 2020, even in “Rapid Transition scenario” India’s oil demand is expected to remain around 5.2 million barrels per day, while gas demand could grow ~6X to 332 billion cubic meters by 2050. That makes India vulnerable to energy shocks more than other major countries given the large imports: ~85 per cent of oil and ~ 50 per cent of natural gas. There are good reasons to worry. Global energy commodity prices have been hardening in recent months. With the fall in global oil and gas investments due to environmental concerns (and related activism) there is a strong possibility of further increase in prices. If this happens, then it will push up fuel prices and affect the economy at large. Even the present petrol prices having crossed Rs. 100 per litre in several parts of India is causing significant angst and political challenges. If global investments in new exploration and production remain muted and that indeed leads to price shocks, India really needs to get its act right to secure her own growing needs and security interests. Securing new investments in domestic Upstream Oil and Gas In India, the upstream oil and gas sector is largely dominated by two public sector entities and two private sector majors. In the past, the country has not been providing a welcoming environment for Exploration and Production (E&P) majors, which resulted in the exit of several key multinationals operating in this space. However, in the past six years, through sustained efforts of the Union Petroleum Ministry, India’s image on business friendliness has improved substantially. That said, it has not led to new overseas majors investing in India, especially in the present investment environment in the E&P sector globally. Given India’s realities on increasing consumption and import dependence, it is essential to think radically for securing new investments in domestic upstream. The following need to be explored on priority: – Free up oil and gas pricing totally including in the residual parts that remain price controlled on natural gas. – Liberalise the fiscal regime by removing royalties on production from new finds. The focus must be on increasing production rather than enhancing the Government’s direct fiscal stake. The indirect benefits to the government and to the economy will far outweigh the fall in the direct gains. – Bring the sector fully in GST ambit (in particular natural gas needs to be brought on priority) to prevent break in the GST chain and the corresponding inefficiencies that this causes. – Improve the data regime for exploration including through additional surveys commissioned by the Government and also attracting risk capital and skills into the exploration segment. – Bring a suitable Production Linked Incentive (PLI) scheme for the oil and gas sector. The current PLI scheme of the Central government, while suited for manufacturing, it is not so for E&P. – Aggressively market offerings to target new capital for new finds, production enhancement from mature fields and monetisation of unmonetised discoveries (with a full package on offer on above lines). – Bring institutional financing support (like reserve-based lending) for E&P companies especially the new / small entrants and also making processes simpler (e.g., digitally enabled single window clearance with defined timelines) – Ensure easy extension of tenure of E&P contracts without onerous terms (instead incentivising them for additional production during the extended life). – Revisit the PSU operating structures to make them nimble and efficient as asset managers and induct private sector partners to enhance production. This would be to mutual benefit. Indeed, there is a need to throw open the sector totally to new capital, new ideas and indeed the new India. Simultaneously, the E&P companies need to be mandated to decarbonise their production methods as much as possible. This will partially deflect the concerns on environmental impacts of oil and gas production. Downstream Oil & Gas: Decarbonising and digitalising for a sustainable future The anticipated growth in oil and gas consumption in India provides a long runway to its downstream companies to prepare for the eventual decarbonisation. However, through this period, given the heightened sensitivities on environment and climate, these companies could face sustained pressure from stakeholders. Making a simultaneous move towards decarbonisation and building in circular economy principles at the core of their approach is well advised. The refining slate should be designed or modified for maximum flexibility to make inter fuel choices without significant challenges or disruptions. The strategy should provide for integrated flexible facilities to move seamlessly towards oil to chemicals and petrochemicals. Fuel retailers should have a process in place, with decarbonisation and circular economy as core design principles. The R&D division of a major Indian PSU has done some excellent work on producing ethanol from refinery fuels, converting used plastics to bitumen, etc. Besides mandating this practice, refineries should also start moving to green fuels including renewable energy and green hydrogen over the next decade, while further scaling the blending
Gas pipelines: Cheaper energy basket in offing
With the country aiming to increase the share of gas in its energy basket to 15% by 2030 from the current level of 6%, 15,369 km of pipelines are under various stages of construction at present. Taken together with the 17,126 km of existing pipelines, these would help create a basic national gas grid in the country. India’s annual gas consumption is expected to increase by 25 billion cubic metres (bcm) in the 2020-2024 period, which translates into a 9% annual average growth rate, the International Energy Agency (IEA) said in a recent report. Though gas is cheaper than other fossil fuels, gas pipelines require high capex and longer gestation periods. The order of magnitude cost of a trunk gas pipeline can be placed in the range of Rs 60-70 million/km, says Gaurav Moda, energy leader at EY India. “Gas pipeline projects take time to build up to their economic operation capacities and this period could be five years or even more,” he adds. The 3,546-km-long Jagdishpur-Haldia-Bokaro-Dhamra natural gas pipeline, being built by GAIL Ltd as part of the Pradhan Mantri Urja Ganga project, is the largest pipeline project being executed. Aimed at supplying gas to eastern India, it is estimated to cost Rs 129.40 billion. The project has been facing delays, mainly due to issues relating to handing over of land for right of use (Rout) acquisition, farmer agitations, and clearances from forest and revenue departments, besides fixation of compensation rates by state governments. Debases Mishap, leader of energy, resources and industrial products at Deloitte India tells FE a “centralised team to coordinate with the states on Rout issues will go a long way” in expediting the pace of pipeline construction. “Further, the petroleum ministry and NHAI can join hands to create gas pipeline corridors, which would expedite implementation,” he adds. The Urea Gang network would be connected with a spur line to the Dhamra-Haldia and the Barauni-Guwahati line. Subsequently, this network would be connected to the 1,656-km north east gas grid pipeline project being implemented by Indradhanush Gas Grid Ltd. The estimated cost of the north east grid project is Rs 92.65 billion. Pipeline laying work for the Guwahati-Numaligarh-Gohpur-Itanagar section of this project commenced in December, 2020 and it is scheduled to be ready by March, 2024. Other major gas pipelines being built include the 1,755-km Mumbai-Nagpur-Jharsuguda pipeline across Maharashtra, Madhya Pradesh, Chhattisgarh and Odisha, the 391-km Kakinada-Vizag-Srikakulam line and the 525-km Kakinada-Vijayawada-Nellore line in Andhra Pradesh, the 741-km Jaigarh-Mangalore line across Maharashtra, Goa and Karnataka, the 317-km Kanai Chhata-Shrirampur line in West Bengal and the 690-km Srikakulam-Angul line across Andhra Pradesh and Odisha. At the same time, experts point out that gas demand in the country has been weaker than expected. “We don’t have significant gas being consumed in the power sector and it was only in 2018-2019 that multiple city gas distribution bids were conducted, creating the need to connect different cities with gas pipelines,” Mishra says. Natural gas is seen as a ‘bridge’ or ‘transition’ fuel as it is cleaner than traditional fuel sources. However, owing to its carbon-intensive nature, natural gas would come under the scanner if nations want to pursue ‘deep decarbonisation’ goals, rendering gas pipeline assets stranded. If the country wants to stay on the two-degrees-Celsius pathway — which would limit global warming to 2 degrees Celsius by 2100 — the optimal share of natural gas in the Indian energy basket by 2050 is estimated at 18%. “This (18% share) would ensure that India can reap the benefits of low natural gas prices without locking itself down with potentially stranded assets and staying on low carbon pathway,” the Council on Energy, Environment and Water said recently.
FM Sitharaman announces Rs 6000 billion asset monetisation pipeline
Finance Minister Nirmala Sitharaman on Monday announced a Rs 6000 billion National Monetisation Pipeline (NMP) that will look to unlock value in infrastructure assets across sectors ranging from power to road and railways. She also said the asset monetisation does not involve selling of land and it is about monetising brownfield assets. Projects have been identified across sectors, with roads, railways and power being the top segments. “NMP estimates aggregate monetisation potential of Rs 6000 billion through core assets of central government over the four-year period from FY 2022 to FY 2025,” she said. “Ownership of assets will remain with the government and there will be a mandatory hand-back.” Asset monetisation will unlock resources and lead to value unlocking, she said. Union Budget 2021-22 had identified monetisation of operating public infrastructure assets as a key means for sustainable infrastructure financing. Towards this, the Budget provided for preparation of a ‘National Monetisation Pipeline’ of potential brownfield infrastructure assets. NITI Aayog in consultation with infra line ministries has prepared the report on NMP. The aggregate asset pipeline under NMP over the four-year period is indicatively valued at Rs 6000 billion. The estimated value corresponds to 14 per cent of the proposed outlay for Centre under the National Infrastructure Pipeline (Rs 43000 billion). The end objective of this initiative is to enable “infrastructure creation through monetisation” wherein the public and private sector collaborate, each excelling in their core areas of competence, so as to deliver socio-economic growth and quality of life to the country’s citizens, she added.
Why are oil & gas companies exploring green energy options?
State-owned Oil and Natural Gas Corporation is considering inorganic investments to reach a target of 10 GW of installed renewable energy capacity by 2040. Other oil and gas PSUs are also investing in renewable energy. Why are oil and gas companies investing in renewable energy? Global moves to reduce carbon emissions to slow down climate change have led to oil and gas companies around the world investing in renewable energy to reduce their carbon footprint and diversify offerings. State-owned upstream and downstream oil and gas companies are also taking part in energy investments to help achieve the government’s ambitious renewable energy targets. India is targeting 450 GW of installed renewable energy capacity by 2030 up from about 100 GW currently. What are some of the renewable energy investments by Indian companies? India’s largest upstream oil and gas company, ONGC, is targeting 10 GW of renewable energy capacity by 2040, up from 178MW of renewable energy capacity at the end of FY20. ONGC Chairman Subhash Kumar recently said the company was looking at acquisitions to help achieve its renewable energy targets. India’s top natural gas company, GAIL, is also looking at acquisitions to augment its 130 MW renewable energy portfolio. The company is aiming at reaching 1 GW of renewable capacity within 3-4 years. Downstream players have also started investing in renewable energy and electric charging infrastructure, with an eye on a potential shift towards electric mobility. Indian Oil Corporation Ltd, India’s largest refiner, had a total installed renewable energy capacity of about 233 MW at the end of FY21. It has also set up 257 electric charging and battery swapping stations at 29 retail fuel outlets. Sources at IOCL said the results of its battery swapping stations were positive and that the company was looking at a potential joint venture (JV) with Sun Mobility to provide battery swapping on a larger scale in the future. IOC is also setting up the first green hydrogen plant in India in Mathura. IndianOil also has a JV with Israel-based battery technology startup Phinergy to develop aluminium-air technology based battery systems for electric vehicles and stationary storage. Hindustan Petroleum Corporation Ltd has tied up with Tata Power to set up electric vehicle charging at various retail points around the country. It has also set up about 133 MW of renewable energy capacity, including about 100 MW of wind energy capacity. Bharat Petroleum Corporation Ltd had installed renewable energy capacity of 43 MW at the end of FY20.
Oil India can’t be judge in its own cause, will reconstitute panel: SC on Baghjan oil well tragedy
The Supreme Court on Monday said that it will re-constitute a committee set up to suggest remedial actions after assessing the environmental damage caused by the PSU following a major fire in Assam’s Baghjan oil well saying “Oil India cannot be a judge in its own cause”. A bench of Justices DY Chandrachud and M R Shah asked law officers — K M Nataraj and Aman Lekhi — to go through the suggestions given by petitioners on the names of experts and it will re-constitute a committee. “We will re-constitute the committee and it will be headed by Justice B P Katakey. Oil India cannot be judge in its own cause. We will delete the names of representatives of Oil India and instead incorporate some experts, who will be associated with the work of assessing the damage and providing remedial compensation on account of the loss which has been caused to the environment, including the loss of biodiversity as a result of the blowout which took place at the oil field of OIL,” the bench said. Well number 5 at Baghjan in Tinsukia district, had been spewing gas uncontrollably and it caught fire on June 9 last year, killing two of OIL’s fire fighters on the site. The top court said that on August 26, the court will take up the matter as first item and pass the orders with regard to the same. Senior advocate Siddharth Mitra, appearing for petitioner activist Bonani Kakkar, said that four out of six experts who have been suggested are well conversant with the subject matter, having been associated with the work of the Committee constituted by the National Green Tribunal (NGT). The committee is headed by Justice B P Katakey. During the hearing, the bench told Additional Solicitor General Aman Lekhi that how can a representative from Oil India be in a panel to assess the damage, when the damage is alleged to have been caused by the Public Sector Undertaking (PSU). “Suppose there is a chemical industry responsible for a gas leak or any other incident. Now, when one has to assess the damage caused to the environment or to biodiversity, can that company be part of the committee. Of course it can be heard by the committee but cannot be part of that committee,” the bench told Lekhi. Mitra said that no funds have been given for the restoration of the environment ever since the incident took place. “It is undisputed that people have been given compensation to those who got displaced but as far as environment and biodiversity damage is concerned, not a single penny has been given,” he said.
Vedanta makes gas discovery in Gujarat
Billionaire Anil Agarwal’s Vedanta on Monday said it has made a natural gas discovery in a block in Gujarat that it had won in the open acreage licensing policy (OALP) round. In a regulatory filing, the firm said it has “notified the DGH and Ministry of Petroleum and Natural Gas on August 23, 2021, of a gas and condensate discovery (named ‘Jaya’) in its exploratory well Jaya1 (earlier Jambusar-Updip-1), drilled in OALP Block CB-ONHP/2017/2 in Bharuch District of Gujarat.” The approval of the management committee has also been sought. The block was awarded to the company in October 2018 and is one of the 41 areas awarded to it in OALP-I round of bidding. The company holds 100 per cent participating interest in the block. Jaya-1 (earlier Jambusar-Updip-1) is the third well drilled in Gujarat and the second hydrocarbon discovery notified by the company under the OALP regime. “Further evaluation will be carried out to assess potential commerciality of the discovery,” it said.
Will Afghanistan situation have bearing on global oil prices?
Will the political turmoil in strategically-located Afghanistan impact global crude oil prices? No one has the answer yet. For the uninitiated, it may seem far-fetched that the political brawl in Afghanistan, which neither features as a prominent oil producing country nor a major consumer country, would have a bearing on global crude prices. But the impact of such utter confusion and uncertainty could easily spill over in the region including Iran and other countries such as the Saudi Arabia and UAE which are major oil producers in the world. Saudi Arabia is the second largest oil producer in the world, exporting about 59 per cent of its crude. “What happens in Afghanistan in near future will impact oil prices, especially if the Talibans go back to their old ways and allow sanctuaries to Islamic fundamentalists from hydrocarbon-rich Middle East, North Africa and Central Asia,” energy expert Narendra Taneja in a tweet said. “If they changed, they will not be Talibans,” he added. Taneja told India Narrative that if the turmoil is restricted within Afghan boundaries, the impact would be limited. But if Afghanistan continues to be on boil, and boil violently, the oil producing regions of Middle East and Central Asia could get affected and, consequently, oil prices,” he said. Barrons, a Dow Jones & Company publication, said that tensions in the “Middle East have the potential to lift prices.” It noted that earlier JP Morgan had predicted that oil prices could touch $80 a barrel with rising demand and constraint supply. Matt Gertken, head of geopolitical strategy, BCA Research, a provider of global investment strategy, in an interview with Barrons, however said that the OPEC (Organization of the Petroleum Exporting Countries) 2.0 “has regained discipline after last year’s market-share wars.” “The group won’t want prices to rise too high, which would accelerate global green efforts. The most likely outcome is increased volatility in oil prices,” Barrons quoted him as saying. Brent crude price on Tuesday touched $66.74 a barrel. Global oil prices have been rising throughout 2021 driven by hopes of economic recovery. The major oil producing countries had also cut supplies. Increase in global crude prices has a direct bearing on India’s economy. This could be even harsher at this point, especially as the country, which imports over 80 per cent of its total crude requirements, is still grappling with the after-effects of the Covid 19 pandemic. Domestic prices of petrol and diesel are already at an all time high. Meanwhile, India has already started to diversify its oil importing markets to reduce dependence on particular exporting countries. Countries like the US, Nigeria have come up as important suppliers of crude for India.
GAIL to foray into hydrogen generation, scale up its renewable portfolio
Gail will foray into hydrogen generation and take the acquisition route to scale up its renewable energy portfolio as it pivots business beyond natural gas to align with energy transition being witnessed across the globe. As part of a push to embrace cleaner forms of energy, GAIL will be laying pipeline infrastructure to connect consumption centres to gas sources while also augmenting its renewable energy portfolio, GAIL Chairman and Managing Director Manoj Jain said. “The global energy sector is witnessing a paradigm shift in recent years as the world is transitioning to a sustainable energy future,” he said in the company’s latest annual report. To accomplish a cleaner primary energy mix for India, the government is emphasizing the expansion of the natural gas sector so as to achieve a gas-based economy along with growth in renewables. GAIL as a leading integrated energy major has aligned with this vision, he said. The firm is laying around 6,000-kilometres of pipeline, including a west coast to east coast pipeline from Mumbai to Jharsuduga in Odisha via Nagpur, he said. It currently has around 13,700-km of natural gas pipeline network. GAIL “will be selectively investing in the renewable energy domain given the future growth potential,” he said. The company “has been scouting for opportunities to scale up the RE portfolio from the current 130 MW through bidding and other inorganic routes such as mergers and acquisitions.” “In addition, the company is also foraying into ethanol and hydrogen generation,” he said without giving details. Hydrogen is a clean fuel that, when consumed in a fuel cell, produces only water. Many countries are venturing into hydrogen production from a variety of domestic resources, such as natural gas, nuclear power, biomass, and renewable power like solar and wind. In India, companies ranging from Reliance Industries to Indian Oil Corporation and NTPC have announced ambitious plans for generating hydrogen. GAIL too joins that list now. GAIL, Jain said, has the largest and most diverse LNG portfolio in India that can offer both stable prices and reliable supply to consumers. The company “shall be pushing for higher gas usage in the industrial segment, transport segment using CNG and LNG, Trigeneration, cold storage, etc,” he said, adding the firm was looking for avenues to supply gas in the new segments like LNG trucking (LNG for long-haul transportation). He said GAIL is also looking to expand its presence in petrochemicals and also diversifying into high-margin downstream businesses. “The focus is on having polypropylene (PP) production capacity through setting up two polypropylene units (Propane Dehydrogenation Polypropylene Plant – PDHPP in Usar, Maharashtra and PP plant at Pata, Uttar Pradesh) and assessing opportunities in certain speciality chemicals in India,” he said. GAIL presently has a 1.6 million tonnes per annum polyethylene and PP production capacity. It is also setting up at least two compressed biogas plants and an ethanol factory. India, which imports 85 per cent of its crude oil needs, is stepping up efforts to explore new forms of energy to clean up the skies and reduce dependence on imported fuels. “We have 120 MW of renewable energy capacity which we want to scale up to 1GW in next 3-4 years,” Jain had told PTI last month. GAIL will bid for a 400 MW solar power capacity being auctioned by SECI (formerly Solar Energy Corporation of India) in Rewa, Madhya Pradesh. The company had in 2019 won a bid for 874 MW operational wind power projects of IL&FS for Rs 48 billion. But IL&FS’ other partners used the first right of refusal to block GAIL’s bid, he had said. GAIL has signed up with state-run power gear maker BHEL for its renewable energy foray. The tie-up looks to leverage the competitive strengths of both companies. GAIL will be the project developer and BHEL will be a project manager and EPC (engineering, procurement and construction) contractor. The move by GAIL, which commands a 75 per cent market share in gas transmission and more than 50 per cent share in gas trading in India, is seen as part of the government’s vision to prepare for the energy transition process, under which the share of gas in the energy mix is sought to be raised to 15 per cent by 2030, from the current 6.2 per cent.
Papua New Guinea resumes talks with Exxon on gas field agreement
The Papua New Guinea government and U.S. oil major Exxon Mobil Corp plan to resume talks on the P’nyang natural gas project, nearly two years after their negotiations halted, Oil Search Ltd, a partner in the project, said on Monday. In November 2019 https://www.reuters.com/article/us-papua-exxon-mobil-lng-idUSKBN1XW0AS, talks tied to a $13 billion expansion of the country’s liquefied natural gas (LNG) exports fell apart with the government saying Exxon was unwilling to negotiate on the country’s terms. The government has been pressing for better returns for the impoverished country than it obtained in the original PNG LNG agreement in 2008.
Adani Total Gas acquires gas meter manufacturing co
Adani Total Gas Ltd – the city gas joint venture of Adani Group and TotalEnergies of France – has acquired 50 per cent stake in a company that manufactures gas meters to aid its gas retailing business. The firm bought 50 per cent in Smartmeters Technologies Pvt Ltd(SMTPL) for INR 1 crore, according to a company’s filing to stock exchanges. Smartmeters, which had a turnover of INR 4.83 crore in the year up to March 31, 2021, manufactures gas meters which are used to measure consumption of gas piped into household kitchens. The objective of the acquisition is “to manufacture gas meters with a focus on prepaid smart meters,” Adani Total Gas said. The acquisition, it said, is expected to be completed by September. Adani Total Gas retails CNG to automobiles and piped natural gas to household kitchens and industries. “The cost to acquire 50 per cent stake in SMTPL will be INR 1.00 crore i.e. ten lakhs equity shares of INR 10 each by way of further issuance of equity shares by SMTPL,” it added.