OIL & GAS SECTOR SUMMARY

A STUDY ON THE INFLUENCE OF MACROECONOMIC FACTORS ON THE INDIAN OIL AND GAS SECTOR
Shikhar Shrivastava, Varun Malhotra, Vishal Sarwara,Shubhayan Banerjee.

OIL & GAS SECTOR SUMMARY

Introduction
Oil and gas sector is one of the key catalysts in fuelling the growth of Indian economy. With a 1.2 billion population and a consistent growth rate, India's energy needs are increasing fast, warranting a robust demand for oil and natural gas in the country. India has emerged as the 5th largest refining country in the world, accounting for 4 % of the world's refining capacity. With our refining capacity increasing further, Indias refining capacity is likely to touch about 70 MT by 2014, making India one of the world's major exporters of petroleum products. In addition, India is also the world's fourth largest importer of oil. India is the sixth largest consumer of oil. There is a huge demand-supply gap in oil and gas in India. The country imports more than 70% of its crude oil requirement. For nearly fifty years after independence, the oil sector in India has seen the growth of giant national oil companies in a sheltered environment. A process of transition of the sector has begun since the mid nineties, from a state of complete protection to the phase of open competition. The move was inevitable if India had to attract funds and technology from abroad into our petroleum sector. The sector in recent years has been characterized by rising consumption of oil products, declining crude production and low reserve accretion. The growing demand for crude oil and gas in the country and policy initiative of Government of India towards increased E&P activity, have given a great impetus to the Indian E&P industry raising hopes of increased exploration. During the financial year 2008-09, imports of crude oil has been 128.16 MMT valued at US$ 73.97 billion. Imports of crude oil during 2007-08 was 121.67 MMT valued at US$ 58.98 billion. This marked an increase of 5.33% during 2008-09 in quantity terms and increased by 25.37% in value terms. During the financial year 2008-09, exports of petroleum products in quantity terms is 36.93 MMT valued at US$ 25.41 billion marking an increase of 6.02% in value terms compared to 2007-08.

OIL & GAS SECTOR SUMMARY 3 New Exploration Licensing Policy (NELP) provides an international class fiscal and contract framework for Exploration and Production of Hydrocarbons. In the first seven rounds of NELP spanning 2000-2009, Production Sharing Contracts (PSCs) for 203 exploration blocks have been signed. Under NELP, 70 oil and gas discoveries have been made by private/joint venture (JV) companies in 20 blocks. With a view to accelerate further the pace of exploration, the eighth round of NELP was launched in April 2009.In the eighth round of NELP,70 exploration blocks comprising of 24 deepwater blocks, 28 shallow water blocks and 18 on land blocks will be offered. According to the provisional production data released by the Ministry of Petroleum and Natural Gas in a press release:

Crude Oil production was recorded at 22.44 million metric tons (MMT) for AprilOctober 2011, as compared to the 21.54 MMT in April-October 2010

Natural Gas production was 28,431.4 million cubic meters (MCM) during April-October 2011

During April-October 2011, 96.95 MMT of crude oil was refined, compared to 93.58 MMT of oil refined during corresponding period in 2010

Oil and Natural Gas Corporation (ONGC) has the onus to maximize domestic oil production, which in 2010 stood at 909,000 b/d of estimated average. Due to incredible efforts made by ONGC and UK-based Cairn Energy, BMI predicts oil production at around 1.2 million b/d by 2013 in its report for the third quarter (Q3) of 2011. Oil consumption in India is projected to increase by 4-5% per annum by 2015, indicating a demand of 4.01 million barrels per day by 2015. Consequent to the various initiatives taken by the government, currently the area under exploration has increased fourfold. Prior to implementation of NELP, 11% of Indian sedimentary basins area was under exploration. With the conclusion of seven rounds of NELP, the area under exploration has increased to about 50%. One of the worlds largest gas discoveries was made by Reliance Industries Ltd in 2002, in Jamnagar (about 5 trillion cubic meters). Besides, the entry of

OIL & GAS SECTOR SUMMARY

international companies like Hardy Oil & Gas, Santo, GeoGlobal Resources Inc, Newbury, Petronas, Niko Resources and Cairn Energy into India has helped boost the growth of the industry.

The success of NELP rounds can be measured in the increased exploration activities in the country. The proportion of unexplored acreages has witnessed a significant drop, from 40 to 15%, according to the upstream regulator, the Directorate General of Hydrocarbons (DGH). Similarly, there are now 14 producing basins, as opposed to just three in 1990. Several new operators too have entered the fray as opposed to just the Government owned ONGC and OIL earlier.

Diesel & Petrol

India's fuel demand may rise 3.8% in 2012 led by diesel and petrol (gasoline), as per International Energy Agencys (IEA) forecast. Diesel comprises for about 40% of the total fuel consumption in India. Its demand is expected to increase to 1.37 million b/d in 2011 rising by 5.8% and further to 1.44 million b/d in 2012, increasing by 5.5%. India's petroleum refining capacity is expected to rise to 240 MTPA by March 2012 from the current 188 MTPA, attracting an estimated investment of US$ 13.5 billion - US$ 14.6 billion. This will boost the country's exports of petroleum products, according to Ministry of Petroleum and Natural Gas. Moreover, demand for petrol is expected to expand by 7.6% (363,000 b/d) in

OIL & GAS SECTOR SUMMARY 5 2011 and eventually by 6.7% (388,000 b/d) in 2012. The Ministry of Petroleum anticipates a growth of 4.6% in the sale of oil products in the FY12.

Refining
The total installed refining capacity of the 15 refineries in the country at the end of March 1998 was 69.140 million tons per annum and the total increased to 131 mtpa by the year 2001/02. The expected increase in refining capacity should be sufficient to meet the growth in petroleum product demand (112 mtpa by the end of the ninth plan) with minimum level of imports. The Sub-group on refining has suggested certain financial incentives for the efficient functioning of the refining sector and enhancing private sector participation during the Ninth five year plan period. In order to increase capacity utilization of the existing refineries, 11 new crude pipelines have been proposed by the Sub-group. In addition, there is an urgent need to reduce fuel loss in refineries, which reached a level of 7.1% in 1985/86 and declining marginally to 6.1% in 1996/97. To reduce energy consumption, projects amounting to Rs 7200 million have been identified, which on implementation, will achieve a saving of 186000 tons per annum (tpa).

Gas
The natural gas demand in India is expected to increase from current 166 million standard cubic meters per day to 320 million standard cubic meters per day by 2015, as per Global consultancy firm McKinsey's analysis. India's share (in the Asian pacific region) of gas consumption in 2010 was 10.9%, while its share of production was at 11.1%, according to BMI's Q3 2011 report. BMI expects that the India's share of gas consumption would reach to 11.7% by 2015 while that of supply would stand at 13.1%.

OIL & GAS SECTOR SUMMARY

Gas consumption is expected to increase from an estimated 55 billion cubic meters (BCM) in 2010 to 76 BCM in 2015, while domestic production is anticipated to increase from around 45 BCM in 2010 to at least 73 BCM in 2015.

Oil & Gas - Government Initiatives

The India Hydrocarbon Vision 2025 envisages a demand of about 391 million standard cubic feet per day (MMSCMD) of gas by the year 2020-25. The current production of natural gas in the country is about 150 MMSCMD and is expected to go up to about 192 MMSCMD by the year 2011-12.

New Exploration Licensing Policy (NELP) implemented by Government of India, permits 100% FDI for small and medium sized oil fields via competitive bidding. Most of the new gas discoveries have been made by private players who have bid for the exploration blocks under the GoIs New Exploration Licensing Policy (NELP)

Public-private partnerships (PPP) as well as only private investments can foray into the refining sector. In case of an Indian private company, 100% FDI is allowed

100% FDI is allowed for petroleum products and pipeline sector as well as natural gas/ LNG pipeline, for infrastructure related to marketing of petroleum products, market study of formulation and investment financing

The Government is determined to protect the interest of common man while providing quality petroleum products at reasonable prices, asserted Mr. S Jaipal Reddy, Minister of Petroleum and Natural Gas in a recent meeting. He further added that with a view to reduce burden on consumers as well as oil marketing companies (OMCs), the Government has eradicated the Customs Duty on Crude Oil and trimmed Customs Duty on petroleum products by 5%. Excise Duty on diesel was also reduced by US$ 0.056 per liter.

Oil & Gas - Road Ahead

India's demand for liquid petroleum products is projected to grow at a 4.7% compound annual growth rate (CAGR), during the next five years, while the demand for gas is expected to grow at

OIL & GAS SECTOR SUMMARY 7 a CAGR of 14%. Presently, natural gas accounts for around 10 % of India's primary energy basket. India is also increasing its current RLNG re-gasification capacity from the current 13 MTPA to well over 30 MTPA by 2015. To carry gas across the length and breadth of India, 8,000 kms of gas pipelines are being laid while another 5,000 kms are under the bidding process. All these are pointers to the attractiveness of India as a stable gas market with an assured demand. India's oil companies are present in around 24 countries including Egypt, Kenya, Uganda, Tanzania and Mauritius. The total overseas investment by our public sector oil undertakings is about US$ 13 billion, which includes two pipeline projects in Sudan and Myanmar. India being a US$ 1.8 trillion economy, aims to grow steadily at 8-9% per annum, it seeks to build a long term partnership with oil rich African countries to meet its growing energy needs.

Purpose of the Study

The purpose of this study is to find the influence of macroeconomic factors on the Oil and Gas Sector of India. Our study will focus on the following macroeconomic parameters i.e., supply side problem, oil subsidies and exchange rate fluctuation will compare their influence on the oil and gas sector. The basic objective of the study is to determine which out of the supply side problem, oil subsidies and exchange rate fluctuation play an important role in influencing in the sector. To identify the most important macroeconomic parameters influencing the sector.

OIL & GAS SECTOR SUMMARY

Research Process, Design & Methodology

Process/Methodology
A descriptive research has been used to gain an insight into perception of industry experts and investment fraternity. Primary data has been collected for the research by means of online questionnaire. This study began by establishing the objective of the research with secondary research and literature review of various research papers and articles signifying the importance oil and gas sector in the growth of the Indian economy. A quantitative study has been conducted that makes use data collection and analysis to answer survey questions and it trusts numerical measurement, counting and often the use of statistics to establish a populations behavior standards.

Research Design
A Likert five point scale has been used for collecting data. In the questionnaire the respondents chose the rating which ranged from Strongly Agree (5 points are given) to Strongly Disagree (1 Point is given). Test of difference between means and descriptive statistics has been carried out to test the hypothesis on the basis of perception scores.

Selection of Locale and Sample

The geographical scope of the study is: This study was not limited to geographical boundaries. Online questionnaire was filled by the respondents from all parts of the world. Sample of 50 (approximately) respondents has been used to carry out the study.

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Implications of the Study

This study will be of importance to anybody and everybody who wants to study about the factors affecting the oil and sector of India. It will also help the users of the study to understand that what factors will prove to be more effective in analyzing the performance of the oil and gas sector. It will help them to channelize their efforts in the right direction, so that they can maximize their profits and also serve the investors in a better and more effective manner. Data Collection is an important aspect of any type of research study. Inaccurate data collection can impact the results of a study and ultimately lead to invalid results. Data collection methods for impact evaluation vary along a continuum. At the one end of this continuum are quantitative methods and at the other end of the continuum are qualitative methods for data collection. We have used Online Questionnaires as a method of data collection for this research project. Online questionnaires were floated through mails and other online medium to a large number of people. It was assumed that people will be truthful while responding to the questionnaires regarding controversial issues which can be tested in particular due to the fact that their responses should be anonymous. But they also have drawbacks. Web based questionnaires; a growing methodology will be used through internet. This means receiving an e-mail on which respondent will click on an address that will take him to a secure web-site to fill in a questionnaire. This type of research is often quicker and less detailed. Some disadvantages of this method include the exclusion of people who do not have a computer or are unable to access a computer. Questionnaires were made using Checklist and rating scales. These devices help simplify and quantify people's behaviors and attitudes. A checklist is a list of macroeconomic factors that this research project is looking for. Either the researcher or survey participant will simply check whether each item on the list is observed, present or true or vice versa. A rating scale is more useful when behavior needs to be evaluated on a continuum. They are also known as Likert scales.

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OIL & GAS SECTOR SUMMARY

Process of Analysis of this research paper is composed of three major parts. The first part is the thesis statements and its subdirectories. When intend to gather information from an already established concept and dig for some more about it. Our thesis statement influence of macroeconomic factors on oil and gas sector gives a general overview with what research study we were interested. The last possible part of an analysis research paper is the concluding part. After such deliberate data processing on analysis, it is very important to provide a clear and concise conclusion for the research paper. Here, you can expound in a compact way in which you were able to arrive for such proposal. You may also be able to prove or disprove whatever claim you may have with your thesis statement. However, always remember that with an analysis research paper, it is always important to cite the results from the analysis. The overall project results will depend on the methods of analysis for credibility factors.

Statistical Framework and Analysis

For finding the influence of the macroeconomic factors on the oil and gas sector of India effectiveness; the Test of differences between Means has been used. The hypothesis for proving the above claim has been stated as under.

Hypothesis Statement
Test of differences between Means H0: No significant difference in influence of the macroeconomic factors (supply side problem, oil subsidies and exchange rate fluctuations) on the oil and gas sector. H1: Significant difference in influence of the macroeconomic factors (supply side problem, oil subsidies and exchange rate fluctuations) on the oil and gas sector.

OIL & GAS SECTOR SUMMARY 11 H0: ef there is no difference between influence of Supply Side Problems and Oil Subsidies H1: e f there is a difference between influence of Supply Side Problems and Oil Subsidies
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H0: ef there is no difference between influence of Oil Subsidies and Exchange Rate Fluctuations H1: e f there is a difference between influence of Oil Subsidies and Exchange Rate Fluctuations ---------------------------------------------------------------------------------------------------------------H0: ef there is no difference between influence of Exchange Rate Fluctuations and Supply Side Problems H1: e f there is a difference between influence of Exchange Rate Fluctuations and Supply Side Problems ----------------------------------------------------------------------------------------------------------------

Conclusion

Descriptive Statistics

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OIL & GAS SECTOR SUMMARY

Limitations
The above study is limited to the below points: The sample studied was small and limited and only online medium was used to collect the responses. The results of the study may vary outside these areas. Also the time and resources to conduct the study was limited. Also personal biases of the respondents cannot be detected