UNIVERSITY

OF

CENTRE

PETROLEUM & ENERGY STUDIES

FOR

CONTINUING EDUCATION

EXECUTIVE MBA
(OIL & GAS MANAGEMENT)
SEMESTER III
YEAR: 2014

SESSION: JULY

ASSIGNMENT 1
FOR
Petro Economics
(MDSO 821D)
(TO BE FILLED BY THE STUDENT)

NAME:

_______________________

SAP NO/REGN. NO: _______________________

Section A (20 Marks)

Write short notes on any four of the following
1. Oil Industry Structure
Ans: The Oil sector has two major activities:a. Exploration
b. Production
Of crude oil and gas (E and P)- and is an upstream activity while refining , distribution and
marketing are classified as downstream activities. In India, the operation of oil companies
are upstream or downstream or both. The oil companies can be grouped into
Exploration and production
Refining and marketing
In India, the E and P companies are oil and natural Gas Corporation Ltd (ONGC) and Oil India
Ltd, (OIL).-both government controlled and companies in JV with NOCs. The primary
producers of all and gas, ONGC and OIL, conduct exploration activities across the country and
in their territorial waters.
On the other hand, the downstream oil companies include
India Oil Corporation (IOC),
Bharat Petroleum Corporation Ltd., (BPCL) Indo-Burma Petroleum (IBP)
And Hindustan Petroleum Corporation (HPCL). Of these IBP is a pure marketing
organisation-now a subsidiary of IOC- while the other three have their own refineries and
also market petroleum products. Standalone refining companies like Kochi Refineries
Ltd., (KRL)-a Subsidiary of BPCL- Chennai petroleum corporation Ltd (CPCL) and
Bongaigaon Refinery and petroleum Corporation Ltd. (BRPL) subsidiaries of IOC do
not have any marketing rights and their products are marketed by marketing companies.
Mangalore Refinery and petrochemicals Ltd. MRPL the first joint sector refinery of
Aditya Birla Group and HPCL now a subsidiary of ONGC.
Exploration and Production:
The domain of ONGC and OIL upstream E and P is a high risk and high return capital intensive e
business. ONGC explores oil across the country and accounts for about 80 per cent of the crude
produced while OIL operates mostly in the Northern-eastern parts of India. In E and P, there is
high uncertainty with regards to striking of oil in commercial quantities. The companies need to
invest significant risk capital and have to accept high ratio of failures before discovery.
It was because of the exploratory efforts of ONGC and OIL that a number of oil and gas bearing
structures were discovered in Gujarat and Assam. Of these the important ones were in Assam.
The government made the search of foreign firms to join hands with ONGC. The contract was
signed with the USSR for offshore seismic survey in the gulf of Cambay, Arabian Sea and on the
East Coast. Oil on the other hand further developed their existing fields and opened two new
areas for exploration. Indias crude oil production during this period rose from about 0.5 millions
tonnes to 5.66 million tonnes per annum. With recovery of the national economy exploration for
oil was intensified. ONGC increased the speed of exploration in not only the inland basins but
also extended it to the offshore areas. Discovery of oil in large quantities at Bombay High in
February, 1974 opened up a new prospect of oil exploration in offshore areas. In order to develop
the Bombay High field quickly, ONGC adopted the concept of phased development.
Production from Bombay high was started initially from two platforms at the rate of 40000

barrels of oil per day. Later, the oil production from other platforms was also added to reach a
production rate exceeding 60,000 barrels of Oil Per day by October 1977.
OIL, meanwhile continued exploratory efforts in their license in upper Assam and increased their
reserves by additional discoveries. They had started exploration in Arunachal Pradesh in 1961
and struck oil in the Kharsang areas in 1976. During the decades (1967-77), the production of
crude oil increased from 5.66 MTPA to 8.9 MTPA. Next decade( 1977-87) began on a note of
deep concern due o the escalating import bill. The demand for petroleum products was rising and
international prices were also high. The exploratory efforts yields results in the form of
discoveries of oil and gas in a number of structures in the Mumbai offshore areas. Exploration
was extended to other offshore area like the East Coast by ONGC and in the offshore of the
Andaman by the OIL with varying degrees of success.
Both the ONGC and the OIL continued their efforts to make the discoveries through of small
size. OIL discovered a few other small pools in the nearby areas which were taken up for
development. I its newly acquired areas in Rajasthan, OIL has completed its first phase of
seismic survey. It is to start exploratory drilling in this basin.
In the year 2009-10, the production of Petroleum Product in the country was 149.65 MTs as
against 150.52s during 2008-09, a decline of about 0.6%. out of the total domestic production of
149.56MTs of all types of petroleum products , high speed diesel oil accounted for the maximum
share (41%) followed by fuel oil (12%) Motor gasoline (11%) Napatha (10%) Kerosene (6%)
and Aviation Turbine fuel (5%). During the current financial year (2010-2011) production of
crude oil is estimated at 37.96 million metric ton (MMT) which is about 12.67 per cent higher
than the crude oil production of 33.69 MMT during 2009-10. The projected production for
Natural gas including coal bed methane (CBM), for 2010-2011 is 53.59 billion cubic meters
(BCM) which is 12.80 per cent higher than the production of 47.51 BCM from the KG deepwater block.
The upstream oil and gas sector is characterised by high commercial risks, upfront financing
exposure and commitment necessitating high premium on stable relationship with Government
and patterns. In the context of domestic upstream sector, some other typical constraints are:
Stagnate production level
Rapidly rising oil import bill
Increasing maturity of production acreage
A large unexplored/less explored terrain
Requirements of large investments
One way of meeting the deficient is what the government has decided at present to provide more
opening for the private sector in exploration. If it is accepted by the private sector then at least
technology and finance two critical inputs would be made available. The chances of new
discoveries are enhanced. Oil production from old and depleting fields may be sustained over
longer periods by applying suitable enhanced oil recovery techniques. Large investments needs
to be made to commence production on large scale. Production levels from existing wells cannot
be increased beyond a certain point.

2. Crude oil reserves

Ans: The definitions of reserves are given in several reports of the international oil companies.
The definition given by Mobil corporation are technically and practically more useful than and

other ones. It provides a good framework within which industry can further evolve a set of
industry accepted practices for the understanding of hydrocarbon assets.
Mobiles recoverable hydrocarbon volume system has three main classification the discovered
classification are reserves and contingent resources while the undiscovered classification is
designed speculative potential. This schematic is shown

Undiscovered

Discovered

Contingent Reserves
(uneconomic, not
currently producible)

Reserves (Economic,
currently producible)

Proved
P1

Proved
P2

Proved
P3
Proved
P1

Proved
P2

Proved
P3

Speculative
Potential

Geological Risk
Pg

Associated Conflict Factors

Reserves are quantities of hydrocarbons is known reservoirs that are estimated to be recoverable
in future years under existing economic and operating conditions. Contingent resources are
significant quantities of resources estimated to be recoverable but are not currently produciable
because of existing economic, political environment or technical conditions. Included in this
category are resources that are not produciable because there are no development plans and
major capital commitments are required for facilities such as offshore platforms , pipelines or
production licence. Both reserves and contingent reserves are technically categorised as proved,
probable or possible , based on the relative, degree of certainity as to the presence , recovery,
ability and economic viability considering all physical technical, political economic and
regulatory factors. The Mobil categories of proved, probable and possible are very similar to the
recently approved joint SPE/WPC definition, with a few minor exceptions. Of these, the chief
difference is that currently uneconomic probable and possible volumes are categorised as
contingent resources (P2 to P3) under the SPE/WPC criteria.
Speculative potential is the quantity of hydrocarbons located in unproved traps, in undrilled
provinces or deeper reservoirs underlying productive fields where geological condition are
believed to be favourable for the accumulation of hydrocarbons. Speculative potential provides
estimates of the quantities which may eventually be recovered. This potential forms the basis for
exploration ventures. Probability of geological success (Pg) is the probability of finding
measurable hydrocarbons. It is based on the technical assessment of geological variables i.e., trap
reservoir, source and timing of migration. A further business overlay is defined for mobile

volumes that involve further movement in addition to the current classification. These define the
inventory in terms of the timing for the P 2-P6 volumes to become proved, developed, producing
hydrocarbons i.e. to the monetised. The categories are transferable and static. The transferable
volumes are sub-divided into planned and unplanned. The static volumes while they are
discovered, recoverable hydrocarbons are not expected to be mentioned in the next ten years.
Mobil utilises a unique methodology for reserve and resource evaluation. The approach
integrates both deterministic and probabilistic method to evaluate and establish the full
hydrocarbon potential ofp field/prospects. Both methods have valid justification for utilisation.
When used jointly they can provide even greater insight into the recoverable hydrocarbon
volumes and the probability of recovering those volumes (Nanga et al 1999).
In India out of total area of 3.2 million KM, sedimentary basins account for 1.78 million km
within the 200 m isobaths line of which 1.46 million km is on onshore and the remaining is on
offshore. These basin are classified into four categories.
Category I: Petroliferous basins with proven production of hydrocarbons namely,cambay basin,
Upper Assam shelf , Mumbai offshore basin and the Cauvery , Krishna and Godavari Basins.
Category II : Basins with known occurrence of hydrocarbons but here no commercial
production on a significant scale has been started e.g. Rajasthan, Kutch, Andaman, West Bengal,
Himalayan foothills, Ganga valley, Tripura and Nagaland fold belt.
Category III: Basins where significant amount of hydrocarbons have not been found. However
on general geological grounds these basins are considered prospective e.g., Kerala, Konkan and
Mahanadi.
Category IV: Basins which are prospective on the basis of analogy with similar hydrocarbonproducing basins in the world. These include the Vindhya Basin, Deccan Syneclise, Narmada,
Bastar and Chhattisgarh.

4. LPG Marketing by PSUs

Ans: LPG was introduced in Mid-fifties as a cooking fuel by multinational oil companies. IOC
began marketing the product in 1965. In 1986-87, there were 123.7 lakh LPG consumers as
against 33.3 lakh in 1980-81. They were served by 3071 distributors and consumed 15 lakhs
tonnes of LPG.
The government had approved the release of 40 lakh new connections/DBCs during 1997-98.
Against this target the oil companies have actually releases 41 lakh new LPG connections and 38
lakh DBCs during the period april97-March 98. During the year 1997-98,4.2 lakh new
connections under Tatkal Scheme was released. To make LPG accessible in the rural areas, the
prototype of Mobile LPG filling truck mounted with a bullet and calsin, housing cylinder

filling/correction facilities was developed and introduced in May 1997 in some district in
Tamilnadu on an experimental basis. Oil companies have released 5042 LPG connections
(provisional )in the district of Tanjore, Nellai and Thiruvarur in Tamilnadu in 1997-98.
The government has also decided to allow the use of LP as automotive fuel. For thus purpose, the
Ministry of petroleum has requested the other concerned ministries and organisations to
implement an identified action plan for allowing use of LPG as automobile fuel at the earliest.
During 1997-98, the total production and import of LPG was about 3.45 MMT and 1.1 MMT
respectively. During the period of 1997-98 the total sale of LPG by the Government oil
companies was about 4.61 MMT. This has gone upto 8.2 MMT in 2002-03.
In February 1993, the government introduced a parallel marketing of LPG and Kerosene by
private parties in order to increase the availability of these two products with the common man,
cumulatively upto 31.3. 1998, 117 parties for g=kerosene and 18 parties for LPG has signed
MS;s for importing these products by using Oil companies facilities at port locations. So far , 88
private parties have importd about 3011.4 kerosene and 18 parties have imported 343.6 TMT of
LPG under the Parrallel marketing scheme. Governments drive to expand us of domestic LPG t
provide smoke free kitchens for the women and protect the environment from cutting of trees
have resulted an addition of over 6 million consumers in the year 2003. This takes the total LPG
customers to over 73 million in the country out of which over 38 million were added in the last 4
years alone which means that more custimers to have enrolled in the last 4 years than in the
previous 40 years. The LPG customer population in India is now second largest in the world,
only after China. The coverage of population at 37.5% is about the same in both countries.
There has been substantial expansion of LPG in the country. As of 01.09.2010 there are 4692
LPG markets and 9858 distributors. The total LPG bottling capacity is 11637 TMT and 1207.4
lakh customers (domestic & Non-domestic) with 592.3 lakh of double barrel connection (DBC).
OMCs are in the process of setting up 1340 new LPG distributorship mainly in rural locations
under Industry Marketing Plan 2004-07 (including against termination and previous pending) out
of which 509 have already been commissioned. Also under Industry Marketing plan 2008-10
advertisement for setting up of 299 LPG distribution ship was released; out of which 1 have
already been commissioned.
The setting up of LPG distributorship is a continuous process and involves identifying of suitable
location, arranging land for up of godwon and other statutory clearances.
As per the Vision-2015 adopted for the LPG sector, target has been given to the OMCs to raise
the overall LPG population coverage to 75% in the country by releasing 5.5 crore new LPG
connections by 2015, especially in rural areas and under-covered areas. As the urban centres are
more or less, covered by LPG network future growth envisaged under Vision-2015 will be
concentrated in rural/under-covered areas. As step a towards this
5. ONGC and Deregulation
Ans: The biggest primary producer of oil and natural gas is all set to transform itself into an
efficient value-creater. The environment in which ONGC operates is changing rapidly.
Demand Supply Gap widening

Indian Crude Demand

Outpacing supply

ONGCs assets mature but

significant potential remains

Technology has improved

dramatically

Advance techniques enhancing

recovery and productivity

Data API and management

becoming even more critical

Regulation changing

Competition being introduced

e.g NELP

Operating freedom and

accountability increasing

Worldwide E&P restructuring

Independence emerging

Service Company and operator

roles converging.

Major and NOC;s reorganizing

around assets

A widening gap in demand and supply of oil in India is exerting pressure on ONGC to enhance
recovery. The changing India regulatory environment is beginning to allow greater operating
freedom for ONGC but is also introducing more competition. Restricting in the global E&P
industry has led to dramatic cost reduction and emergence of credible competitors. Technology in
the global scene has improved dramatically (e.g. 3D/D Seismic, FPSU slim hole drilling). To stay at
the forefront, ONGC too will have to adopt them appropriately. ONGC must face challenges and
embrace opportunities. ONGC has to focus on the following:
(a) Reserve Accretion: ONGC must recreate its frontier of the 70s when reserve accretion was the
mantra and the best organisational resources were developed on the most important areas.
(b) Commercial objective: To retain its premier position in the increasingly competitive E&P
environment, ONGC must enforce commercial accountability. Each of ONGCs assets (e.g.
exploratory areas, producing fields, support services, research institute) must become
commercially accountable and appropriately empowered business units.
To make such a system work, ONGC will need to reinforce a commercial performance ethic.
This will require an evaluation system that motivate, recognises and rewards good performance.
In addition, several system and procedures related to MM, finance and personnel will need to be
modified.
(c) Multidisciplinary working approaches: The contribution of multidisciplinary working
approached to improve the performance of oil companies worldwide is widely recognised.
ONGC must move away from its current functional approach (which, often, leads to
fragmentation of efforts) and depend more on multidisciplinary cross-functional teams.
(d) Additional opportunities: Several potentially attractive growth opportunities are available to
ONGC in addition to its existing India E&P business. These include overseas E&P (Via ONGC
Videsh) Oilfields services and downstream integration into gas-related areas.

Section B (30 marks)

(Attempt any three)
1. Discuss the global trends in demand and supply of oil.

Ans: The economic growth in the major OECD (organisation for Economic cooperation and
development) industrial countries economics in Asia (excluding Japan) will be the key factor in
deciding global demand for oil for the next decades. The economics of the industrialised
countries are expanding and the economics of many developing countries are growing rapidly.
Preserving the environment now appears to be key objective in a large number of countries.
Concern for the adverse changes in the environment is now global and pacific regional concerns
about the impact of environment changes now influence economic decisions. This has a direct
influence on the demand for crude oil.
Worldwide petroleum demand has been one of the major determinates of trend in all activity in
all activity in the oil and gas industry. Economics forces generally determine the level of
petroleum demand but from time to time political considerations also have a great deal of
influence in the oil market. An extreme example of this was the conflict in the Persian Gulf.
Political events greatly influence the oil markets before and after those hostilities.
The level of worldwide economic activity is still a major factor in determining demand for oil
and oil products. Energy is an essential input for all types of economic activity. Therefore, there
is a close relationship between economic activity and energy consumption. Although the
relationship has changed over time as long as there is economic activity, large quantise of energy
will be consumed. In todays modern economic system with high level of economic activity, vast
quantise of energy are consumed in a wide variety of forms and form many sources. Out of
several basic energy sources two of the most important sources are oil and natural gas. Oil
products and natural gas are consumed throughout the world in all geographic area, with
differing levels and types of economies the developing economies and in the rapidly changing
economies of the former communist countries.
latrends provide the background information needed to grasp the relationship between the many
factors that influence worldwide oil demand. Throughout the world, there are regional
differences in oil industry activity. But to a great extent the oil industry is a global rather than
regional industry. Recent trend and events in the industry will be related and then extrapolated
into a global outlook.
Because of technological advances, the world oil demand supply picture has undergone o
transformation. Global oil reserves rose by 6.6 billion bbls to 1383 billions bbl in 2010 that
represents an increase of 25% over the 2000 figure of 1105 billion bbls, despite an estimated
cumulative production of 318 billion bbls during the intervening ten years. Thus global reserves
additions amounted to around 596 billion bbls between 2000 and 2010.
The technology advances made by the oil industry in the last three decades have been effective
investment in terms of an appreciable reduction in production cost and improved exploration,
development and production efficiencies. Yet despite these great achievements, technology
cannot breathe new life into commercially depleted reserves. Projections based on rising global
demand and declining discovery rates indicates that the present age of conventional crude oil
will soon be approaching stagnancy and probably by the mid of century there may be not be
enough oil to supply motor fuel to the ever widening private transportation sector around the
world . The future trends points towards declining production with a confining increase in
demand a situation that cannot be sustained for long.
According to BP statistical review in 2010 world oil production grew by 1.8 Mb/d and surpassed
the level reached in 2008. Growth was the largest since 2004 and was divided evenly between
OPEC and Non-OPEC. The largest incresase in OPEC were in Nigeria (+340000 b/d) and

Qatar(+ 220,000 b/d ). Non-OPEC output increased by 0.9 Mb/d, the higest since 2002, was led
by china (+271 Kb/d)- which recorded its largest increase ever the US(+242 Kb/d and Russia
(+236 Kb/d). the oil consumption in Non-OECD rose by 2.2 Mb/d- the higest annual growth on
record in volumetric terms- just slightly outpacing the growth seen in 2004.
Consumption of petroleum and other liquids fuels increase from 85.7 million barrels per day in
2008 to 11.2 millions barrels per day in 2035 in the IEO2011 refrence case. Although workd
liquids consumption actually declined in 2009 tp 83.9 million barrels per day, it receoverde in
2010 to an estimated 86 million barrels per day and is expected to continue increasing in 2011
and beyond as economic growth strengthens, especially among the developing non-OECD
nations. In the long term world liquids consumption increase despite world oil prices that rise to
$125 per barrel by 2035. More tha 75 per cent of the increase in total liquids consumption is
projected for the nations of non-OECD Asia and middle East, acess to ample and relatively
inexpensive domestic resources drive the increase in demand.
Global oil Supply:
If we look back over the past few years we notice several factors affecting the world wide crude
oil supply. There was the Persian gulf war, which removed oil production capacity from the
market by eliminating output from Iraq and temporarily eliminating output from Kuwait. The
worldwide crude oil supply situation changed markedly following the conflict in the Persian
Gulf. After a brief period of uncertainty that drove up the price of crude oil in late 1990 and early
1991, the market experienced an extended period of price stability. The war and substantial
number of years there was excess production capacity in the world, which put downward
presence on prices. Most of that excess capacity of Kuwait and Iraq a substantial portion of
excess capacity was eliminated. There was even some danger of temporary supply shortages
when demand moved up late in 1990, during the winter heating seasons.
To satisfy the increase in the world liquids demand in the reference case, liquids production
increases by 26.6 millions barrels per day from 2008 to 2035, including the production of both
conventional liquids supplies (crude oil and lease condensate, natural gas plant liquids and
refinery gain) and unconventional supplies (biofuels, oil sands, extra-heavy oil, coal to liquids
(CTL), gas to liquids (GTL) and shale oil. in the reference case , sustained high world oil prices
allow for the economic development of unconventional resources and the use of Enhanced Oil
recovery (EOR) technologies to increase production of conventional resources. High world oil
prices also incentivise the development of additional conventional resources through technically
difficult, high risk and very expensive projects including wells in ultra-deep water and the Arctic.
The most significant non-OPEC contribution to production growth are Russian, the United States,
Brazil an Canada. Total Non-OPEC liquids production in 2035 is 15.3 million barrels per day
higher than 2008, representing 57 percent of the total world increase. OPEC producers are
assumed to restrict investment in incremental production capacity in the reference case, below the
levels justified by high prices. As a result, OPEC provide roughly 42 percent of the worlds total
liquids supply over the 2008-2035 period and consistent with its share over the past 15 years.
2. The oil industry in India has been thoroughly regulated until very recent past. Comment.
Ans : The Oil industry in India has been thoroughly regulated until very recent past. All business
decisions needed government sanction and improving efficiency of refineries and marketing

functions were the only avenues that companies had to improve for returns. But like many
industries the control on oil industry have been easing and have been completely deregulated by
1.4.2002. Indias oil industry was greatly insulated from international movement in oil prices
beginning September, 1997 several of these regulations began to be rolled back. Prices were
decontrolled and administrated price mechanism was dismantled. The coming period will
witness the Indias oil industry moving from regulated to completive one. Tariffs will decline,
government intervention will be withdrawn and he entry of private players will be encouraged
(IRIS study 1990).
Exploration and production exploration and production economics discovery and production of
oil and gas by undertaking geological surveys like remote sensing airborne magnetic and field
gravity to identify the principle areas of adequate sediment cover. The area this identified are
assessed for the most likely hydrocarbon potential through various methods of resources
appraisal. Depending on the resource estimated, available technology and the current economics
factors, each basin is ranked in terms of risk and reward and exploration priorities assigned.
Basins/areas of low to medium risk and high to moderate rewards are taken up first for
systematic exploration which begins with detailed geological and regional seismic surveys. The
results of such surveys highlights areas of cost intensive exploratort inputs like seismic surveys
on adequate grid and structural.
3. Describe the Potentials of Indian Hydrocarbon Sector.
Ans : India is endowed with large sedimentary basins that can be trapped for oil and natural gas.
Out of 28 billion tonnes of hydrocarbon resources, only about 6.8 billion tonnes have been
converted to reserves. Based on recent analysis carried out by Directional General of
Hydrocarbons (DGH) and analogy with other producing sedimentary areas of the world it is felt
that, so far in India, we have upgraded less than half of possible production reserves (Chandra,
1999). India is in position to produce/establish at least as much more oil and gas reserves as has
been done so far without any major success.
Studies reveal that major parts of the sedimentary areas of the country are still unexplored. As
per the data of the total 3.14 million square kilometre of sedimentary areas about 1.02 milion
square kilometre i.e. 34 percent remains totally unexplored and another 1.58 million square
kilometre i.e. 50.32 percent remains inadequate or poorly explored. Deep water areas also remain
almost completely unexplored. Deep water potential of Indian waters is estimated to be in the
range of 5 to 9 billion tonnes of hydrocarbon resources. DGH has recently carried out satellite
gravity , 2D seismic and gravity , magnetic surveys of the Eastern offshore and Andaman seas
and these deep water areas have now been opened up for exploration. It appears that resources
of deep waters are likely to be several times higher than what was anticipated earlier. Along the
East Coast alone, about 30 new geological plays/structures have been mapped with limited data
collected by DGH. Structures mapped fall under large to medium size category and average size
is close to 500 sq. km. several structures exhibits direct seismic indicator for the presence o gas
deposits. Latest interpretation carried out by DGH suggest that some of these prolific oil and gas
producing field are the west cost of Africa, deep water areas of Gabon, Nigeria and compos
basin in Brazil. Several large international companies have shown interest in deep water areas
surveyed by DGH (Chandra, 2002)
Salient Features of NELP

In order to increase the quantum of investments into this sector and to achive a greater level of
self-sufficiency in oil Production the government recently announced the NELP. This is now
expected to offer a level playing field to all the companies entering this sector and thus would
address he major grouse of many of the private sector companies. This policy is expected to be
set into motion and in the first phase nine blocks in the Western, Eastern and the Andaman
offshore areas are being offered for open bidding. The national oil companies too will have to
compete in this process if they want to carry out operations in these areas.
The salient features of NELP are elaborated below.
There will be no mandatory state participation through ONGC/OIL nor there did any
carry interest of the state.
ONGC and OIL to compete for obtaining the petroleum exploration licences on
competitive basis instead of the existing system of granting them PELs on nomination
basis. At the same time, ONGC and OIL will also get some fiscal and contract terms
available to private companies.
Open availability of exploration acreage to provide a continuous window of
opportunities to oil companies. The acreage will be demarcated on grid system and
pending preparation will be demarcated on a grid system and pending preparation of the
grid , blocks will be carved out of offer.
Companies will be able to choose and propose acreages.

Section C (50 marks)

(Attempt all questions. Every question carries 10 marks)
Read the case Oil & Gas Industry in India. and answer the following questions:
Case Study: Oil & Gas Industry

The Indian oil and gas (O&G) sector is projected to touch US$ 139,814.7 million by 2015 from US$
117,562.9 million in 2012. The sector provides vast opportunities for investors. The New Exploration
Licensing Policy (NELP) of 199798 was envisioned to deal with the ever-growing gap between
demand and supply of gas in India. It has successfully attracted both foreign and domestic investment, as
attested by the presence of Cairn India and Reliance Industries Limited in the country.
Indias economic growth, as with all other countries, is closely linked to energy demand. The need for
oil and gas, which are among the primary sources for meeting energy requirements, is thus projected to
grow further.
To meet this demand, the government has adopted several policies, such as allowing 100 per cent
foreign direct investment (FDI) in several segments of the sector, including petroleum products, natural
gas, pipelines, and refineries.

Key Statistics
In 2011, Indias O&G sector witnessed one of the biggest FDI deals in the country, with British
Petroleum (BP) formalising a US$ 7.2 billion partnership with Reliance Industries, for exploring
offshore gas reserves.
At the end of FY 201112, India had total reserves of 1330 billion cubic metres (bcm) of natural gas and
760 million metric tonnes (mt) of crude oil.
Diesel & Petrol
Diesel is the countrys most consumed fuel, accounting for almost 45 per cent of the total demand for
petroleum products. Since 200304, the demand for the transportation fuel has been increasing at a rate
of 68 per cent.
About 62 per cent of petrol in the Indian market is consumed by two-wheelers, 27 per cent by cars, and
6 per cent by three-wheelers. The rest are consumed for other purposes such as operating generators, and
by people in rural areas who need the fuel to run their livelihood, according to a survey conducted by
global information and measurement company, Nielsen.
Gas

India's natural gas output was 3.01 bcm in July 2013.

India's natural gas output will increase by 67 per cent in the next three years owing to higher
production from several blocks, especially Reliance Industries-operated KG-D6, according to the
countrys Oil Minister, Mr M Veerappa Moily.

Oil & Gas Key Developments and Investments

Bharat Petroleum Corp Ltd (BPCL) plans to invest around US$ 4 billion to increase its refining
capacity, according to a top executive of the corporation. The company has already stated its desire
to hike its refining capacity from the current annual output of 30.5 mt to 47.5 mt by 201617.
Capacity expansion and innovation are vital for a company to sustain in todays business
environment, said Mr S Varadarajan, Chairman and Managing Director, BPCL, at a Refinery
Technology Meet in Kochi.

Pune-based My Eco Energy has announced its foray into the bio-fuel industry. The company is
involved in the production of bio-diesel, a non-petroleum based fuel. Bio-diesel is manufactured
from waste materials such as vegetable oils and animal fat, and is available for commercial and
consumer use. Bio-diesel manufactured by My Eco Energy caters to the demand for non-petroleum
based fuel, according to Mr Santosh Verma, Director of the company.

The lubricants-making arm of Malaysia's national oil company, Petronas, has formalised a land-lease
agreement with Maharashtra Industrial Development Corporation (MIDC) for building a lubricant
plant near Mumbai. Petronas Lubricants International aims to consolidate its position in the growing
Indian lubes market that is projected to reach US $8 billion by 2017. The plant will cost around US$
50 million and will possess an initial capacity of 60 kilo tonne per annum (kta).

ONGC Videsh Ltd (OVL), the overseas arm of Oil and Natural Gas Corporation (ONGC), has
agreed to buy an additional 12 per cent stake in a Brazilian oil block from Brazils Petrobras for US$
529 million. This purchase will raise the companys stake in the field to 27 per cent, the company
stated.

Indian major Larsen & Toubro (L&T) has bagged two engineering, procurement and construction
(EPC) projects believed to be around Rs 1,100 crore (us$ 177.57 million) in the hydrocarbon
segment in the United Arab Emirates (UAE) and Qatar. The company has secured the contract for
the fuel depot expansion of the Abu Dhabi International Airport. This project aims to improve the
facility to meet demand for jet fuel over the next 20 years. Also, L&T has secured an EPC contract

from Dolphin Energy for third party gas interconnecting facilities in the coastal city of Ras Laffan,
Qatar. The construction periods for the Abu Dhabi and Qatar projects are 30 months and 20 months,
respectively.
Oil & Gas - Government Initiatives
The Government of Assam has agreed to allow the clearing of forest areas that were hindering a major
investment by ONGC. The investment was endorsed by Indian Prime Minister, Mr Manmohan Singh as
a means to revive the hydrocarbons industry in the state. ONGC had previously embarked on a Rs 7,800
crore (US$ 1.25 billion) investment plan to revitalize its operations in the state with fresh technology
and infrastructure, in 2008.
With the objective of harnessing the countrys hydrocarbon prospects and to give them greater flexibility
in future, the Government of India plans to establish a National Data Repository (NDR) centre. The
centre is expected to be complete by 2015 or 2016. The companies would use the data and pick acreage
for prospecting, which is an attempt at reforming the existing production sharing contract system. Also,
there will be hydrocarbon production linked payments (PLP) as against the present production sharing
basis. Most of the reforms are aimed at encouraging indigenous energy exploitation, by offering flexible
terms to companies.
Oil & Gas - Road Ahead
ONGC will explore 30 additional shale gas wells in the country over the next two years, according to its
chairman and managing director Mr Sudhir Vasudeva. The company plans to invest about Rs 600 crore
(US$ 96.81 million) for the project. Shale gas is natural gas that can be found in fine-grained
sedimentary rock. The gas is often locked in small spaces and is called tight gas due to this
characteristic. It requires high-end technique to produce the hydrocarbon at economic rates.
The use of shale gas can be the first step towards economic freedom, according to Oil Minister M
Veerappa Moily. The minister feels that India could follow a similar path to the US, which turned from a
net importer of energy to a net exporter of energy with the use of shale gas and oil. The news could not
have come at a better time. By 201516, Indias demand for gas is set to rise to 124 million tonnes per
annum (mtpa) against a domestic supply of 33 mtpa and higher imports of 47.2 mtpa, which still leaves
a shortage of 44 mtpa, according to projections of the Petroleum and Natural Gas Ministry.
1. Throw light on the Indian Oil & Gas Sector.
Ans: India has one of the fastest growing economies in the world, and the demand for oil and gas is
rising at a matching rate. Not only is Indias market potential huge, but in recent years India has emerged
as one of the most prospective regions in the world with major oil and gas discoveries, both onshore and
offshore.
India has total reserves (proved & indicated) of 1,201 million metric tonnes (MMT) of crude oil and
1,437 billion cubic metres (BCM) of natural gas as on April 1, 2010, according to the basic statistics
released by the Ministry of Petroleum and Natural Gas. Against a crude oil production of about 37
million tonnes per annum (MTPA), Indias consumption currently exceeds 138 million tonnes. In 2010,
194 MMT of crude oil was refined and actual natural gas production was 31.0 BCM. By the end of
2012, the refinery capacity is expected to reach 240.96 million metric tonnes per annum (MMTPA).
The refining capacity of the oil refineries in India has undergone nearly a three-fold increase in 2010.
The country exported 50.974 MMT of petroleum products during 2009-10. To provide energy security,
the Government of India is seeking private and foreign investments in excess of $250 billion in both the
upstream and the downstream sectors during the next 10 years. Indias petroleum product consumption
has grown by 4-5% over the past 10 years and the oil demand in India is expected to rise to 368
MMTPA by 2025. With widening gap between demand and supply, both for oil and gas, the outlook for

the upstream sector is extremely positive. While oil and gas will continue to play a substantial role in the
total energy mix, the need for harnessing alternate energy sources like Coal Bed Methane (CBM),
Underground Coal Gasification (UCG) and Shale Gas (gas locked in sedimentary rocks) will become
crucial to balance the demand and supply.
Key Statistics
In 2011, Indias O&G sector witnessed one of the biggest FDI deals in the country, with British
Petroleum (BP) formalising a US$ 7.2 billion partnership with Reliance Industries, for exploring
offshore gas reserves.At the end of FY 201112, India had total reserves of 1330 billion cubic
metres (bcm) of natural gas and 760 million metric tonnes (mt) of crude oil.
Diesel & Petrol
Diesel is the countrys most consumed fuel, accounting for almost 45 per cent of the total
demand for petroleum products. Since 200304, the demand for the transportation fuel has been
increasing at a rate of 68 per cent. About 62 per cent of petrol in the Indian market is consumed
by two-wheelers, 27 per cent by cars, and 6 per cent by three-wheelers. The rest are consumed
for other purposes such as operating generators, and by people in rural areas who need the fuel to
run their livelihood, according to a survey conducted by global information and measurement
company, Nielsen.
Gas
India's natural gas output was 3.01 bcm in July 2013. India's natural gas output will increase by
67 per cent in the next three years owing to higher production from several blocks, especially
Reliance Industries-operated KG-D6, according to the countrys Oil Minister, Mr M Veerappa
Moily

2. What were the key developments and investments that were made in the Indian Oil sector?
Ans:
Key developments in Indian Oil Sector:
1) The Government of India has been taking many radical actions to formulate strategic policy
and controlling foundations for enticing investments.
2) Foreign Direct Investment (FDI) up to 100 per cent under the regular means is allowed in
exploration activities of oil and natural gas fields, infrastructure associated with marketing of
petroleum products, actual trading and marketing of petroleum products, petroleum product
pipelines, natural gas and LNG pipelines, market study and formulation and petroleum refining
in the private sector. FDI up to 49 per cent is permitted under the government route in petroleum
refining by the public sector undertakings (PSU) according to the Consolidated Foreign Direct
Investment (FDI) Policy document by the Department of Industrial Policy and Promotion.
3) The Indian Government announced a seven-year tax holiday for the commercial production of
gas in respect of contract to be signed under NELP VIII & Coal Bed Methane (CBM) IV with a
view to enhance the exploration and production according to a press release by the Ministry of
Petroleum and Natural Gas.

4) To be successful at a feasible and sustainable system of cost of petroleum products, the

Government has set up an Expert Group, and on its recommendation, the Government has
determined that the pricing of petrol and diesel both at the refinery gate and the retail level will
be market-determined as per a press release by the Ministry of Petroleum and Natural Gas.
Investment in Indian Oil sector:
1) The Ministry of Chemicals and Fertilisers, Government of India has approved a scheme of
investments worth US$ 25.25 billion in three areas under its flagship petroleum, chemicals and
petrochemicals investment regions (PCPIR) policy. The investment consist of US$ 7.32 billion for
physical infrastructure development, and the rest is project-specific investments committed by various
public and private companies in three PCPIRs Visakhapatnam and East Godavari districts in Andhra
Pradesh, Bharuch in Gujarat and East Midnapore in West Bengal. US-based industrial gases company
Praxair has decided to invest about US$ 370.74 million into its India operations, said Gajanan Nabar,
Managing Director, Praxair India. Chennai Petroleum Corporation Limited (CPCL) plans to invest
around US$ 3.39 billion for the next five years for capacity expansion including a brownfield refinery
project at Manali near Chennai with an expenditure of US$ 1.69 billion.
2) Essar Oil proposes to enlarge its refinery capability by 2 million tonnes a year at Vadinar in Gujarat
with an investment of US$ 278.46 million. The company will increase its volume to 20 million tonnes
by 2012. According to Mr S. Sundareshan, Secretary, Petroleum and Natural Gas, public sector oil
companies are going to be the major investors in Kerala over the next two years as they have allocated
over US$ 1.61 billion money in the State. State-owned refinery and marketing firm, Hindustan
Petroleum plans to spend US$ 4.87 billion into a new refinery with a capacity of 18 million tonnes per
year in Maharashtra.
3) Bharat Petroleum Corp Ltd (BPCL) plans to invest around US$ 4 billion to increase its refining
capacity, according to a top executive of the corporation. The company has already stated its desire to
hike its refining capacity from the current annual output of 30.5 mt to 47.5 mt by 201617. Capacity
expansion and innovation are vital for a company to sustain in todays business environment, said Mr S
Varadarajan, Chairman and Managing Director, BPCL, at a Refinery Technology Meet in Kochi.
3. Write a brief note on the government initiatives undertaken in the last decade.
Ans:
Initiatives undertaken by an Indian Government:
1) The Government of India has been taking many radical actions to formulate strategic policy
and controlling foundations for enticing investments.
2) Foreign Direct Investment (FDI) up to 100 per cent under the regular means is allowed in
exploration activities of oil and natural gas fields, infrastructure associated with marketing of
petroleum products, actual trading and marketing of petroleum products, petroleum product
pipelines, natural gas and LNG pipelines, market study and formulation and petroleum refining
in the private sector. FDI up to 49 per cent is permitted under the government route in petroleum
refining by the public sector undertakings (PSU) according to the Consolidated Foreign Direct
Investment (FDI) Policy document by the Department of Industrial Policy and Promotion.

3) The Indian Government announced a seven-year tax holiday for the commercial production of
gas in respect of contract to be signed under NELP VIII & Coal Bed Methane (CBM) IV with a
view to enhance the exploration and production according to a press release by the Ministry of
Petroleum and Natural Gas.
4) To be successful at a feasible and sustainable system of cost of petroleum products, the
Government has set up an Expert Group, and on its recommendation, the Government has
determined that the pricing of petrol and diesel both at the refinery gate and the retail level
will be market-determined as per a press release by the Ministry of Petroleum and Natural
Gas.
5) The Government of Assam has agreed to allow the clearing of forest areas that were
hindering a major investment by ONGC. The investment was endorsed by Indian Prime
Minister, Mr Manmohan Singh as a means to revive the hydrocarbons industry in the state.
ONGC had previously embarked on a Rs 7,800 crore (US$ 1.25 billion) investment plan to
revitalize its operations in the state with fresh technology and infrastructure, in 2008.

6) With the objective of harnessing the countrys hydrocarbon prospects and to give them
greater flexibility in future, the Government of India plans to establish a National Data
Repository (NDR) centre. The centre is expected to be complete by 2015 or 2016. The
companies would use the data and pick acreage for prospecting, which is an attempt at
reforming the existing production sharing contract system. Also, there will be hydrocarbon
production linked payments (PLP) as against the present production sharing basis. Most of
the reforms are aimed at encouraging indigenous energy exploitation, by offering flexible
terms to companies.

4. Highlight the future scenario of the Indian Oil Sector.

Ans:
1) Worlds fourth-largest energy consumer. Indias energy demand is expected to double to
1,464 Mtoe by 2035 from 559 Mtoe in 2011. Moreover, the countrys share in global primary
energy consumption would increase twofold by 2035 Fourth-largest consumer of oil and
petroleum products. Oil consumption is estimated to reach 4.0 mbpd by FY16, expanding at
a CAGR of 3.2 per cent during FY08FY16F Sixth-largest LNG importer in 2011. LNG
imports accounted for about one-fourth of total gas demand. India's gas demand is estimated
to more than double over the next five years.
2) ONGC will explore 30 additional shale gas wells in the country over the next two years,
according to its chairman and managing director Mr Sudhir Vasudeva. The company plans to
invest about Rs 600 crore (US$ 96.81 million) for the project. Shale gas is natural gas that
can be found in fine-grained sedimentary rock. The gas is often locked in small spaces and is
called tight gas due to this characteristic. It requires high end technique to produce the
hydrocarbon at economic rates.

The use of shale gas can be the first step towards economic freedom, according to Oil
Minister M Veerappa Moily. The minister feels that India could follow a similar path to the
US, which turned from a net importer of energy to a net exporter of energy with the use of
shale gas and oil. The news could not have come at a better time. By 201516, Indias
demand for gas is set to rise to 124 million tonnes per annum (mtpa) against a domestic
supply of 33 mtpa and higher imports of 47.2 mtpa, which still leaves a shortage of 44 mtpa,
according to projections of the Petroleum and Natural Gas Ministry.

5. Suggest some effective measures that can be undertaken to preserve and save the extinguishable oil
reserves in India.
Ans:

Renewable resources that are non-extinguishable such as wind and sunlight

Renewable resources that are extinguishable i.e. all biological resources and vulnerable
reservoirs such as soil and fresh water
Non-renewable resources that are non-extinguishable such as metals and minerals. These
resources cannot be destroyed, but they can be dispersed due to natural causes or human activity.
Recovery is generally possible, but will require input of energy depending on the level of
dispersal;
Non-renewable resources that are extinguishablei.e. fossil fuels. Either their use will be stopped
through policy as a response to environmental impacts or by the market, as increased scarcity
leading eventually to non-competitive prices.

For the sustainable use of natural resources, three generic management principles were established
during the 1990s by political institutions following Rio. These are:
1. The use of renewable resources should not exceed their renewable and/or regeneration rates;
2. The use of non-renewable resources should not exceed the rate at which substitutes are
developed;

3. Outputs of substances to the environment from the use of resources (see below) should not
exceed the assimilative capacity of environmental media (carrying capacity).
Today, the use of renewable resources as referred to by principle 3 (see above) is perceived to include
the full life cycle of the resource use or material flow, respectively. The life cycle includes extraction
from the environment, processing, transformation, utilisation and disposal. The material output of the
life cycle includes the release of all resulting residuals (e.g. waste, emissions, heat) back to the
environment during all the life cycle stages.
The principles above integrate two separate but interrelated perspectives with respect to the use of
resources:
1. The source-perspective - natural resources are input to economic activities;
2. The sink-perspective- the capacity of natural systems to absorb and assimilate residuals
released by human activities.
On this ETC/SCP website, three generic objectives are described that can be derived from the three
sustainability principles above:

security of supply
maintenance of sufficient supply of natural resources as basis for economic development and
well-being of society today and in the future. This is a source issue.

equity
safeguarding the natural resource base of the EU, and the development opportunities of other
regions, without shifting environmental burdens to other regions and/or future generations. The
issue of equity is affected by both source and sink aspects of natural resources

protection of the environment

ensuring that the use of resources and the associated output of pollutants during the life cycle do
not exceed the carrying capacities of the natural environment. This is a sink issue

The Thematic Strategy on the Sustainable use of Natural Resources

The Thematic Strategy on the Sustainable use of Natural Resources aims to "reduce the negative
environmental impacts generated by the use of natural resources in a growing economy a concept
referred to as decoupling. In practical terms, this means reducing the environmental impact of resource
use while at the same time improving resource productivity overall across the EU economy. For
renewable resources this means also staying below the threshold of exploitation"
The Thematic Strategy outlines a number of broad action areas for achieving this objective. These are:

to improve our understanding and knowledge of European resource use, its negative
environmental impact and significance in the EU and globally,
to develop tools to monitor and report progress in the EU, Member States and economic sectors
to foster the application of strategic approaches and processes both in economic sectors and in
the Member States and encourage them to develop related plans and programmes, and
to raise awareness among stakeholders and citizens of the significant negative environmental
impact of resource use