Oil Industry Future Challenges

by Shri. B.K. Bakhshi

Oil - Price Peaks & Effect on Indian Economy

Sr No 1. 2. 3. 4. Year 1973 1979 1990 2008 GDP Inflation Growth (+/-) - 0.3 % 20 % - 5.2 % + 1.3 % - From expected 9% to less than 8% 17 % 14 % 12 % + Event Yom Kippur War oct 73 Iranian Revolution 1st Gulf War From Katrina Onwards

CRUDE OIL PRICES

(Indian Basket)
Sr No. Year 1. March 2003 2. 3. 4. 5. 2005 2006 2007 2008 (avg 1st 6 months) Price ($/BBL) 23 52 63.35 70.06 110.52

Peak July 08 - $142/BBL

3

VERTICAL INTEGRATION HELPS OIL MAJORS

Integrated International Majors profits go down when crude price go down and profits go up when crude price are up. Examples: The slump in crude prices to less than $15 per bbl in 1998 led to mergers such as Exxon Mobil, Philips Conoco, etc. When crude prices rose from $33 per bbl in April 2004 to 70.25 per bbl in Aug 2005 2 weeks after Katrina Hurricane. Gasoline prices in USA peaked to $3.06 per USG. The combined net income of Exxon Mobil, BP, Royal Dutch, Shell & Conoco Philips totaled $ 32.8 Billion during the quarter ending Sept 2005 on a revenue of $ 378 Billion.

* Source Black Gold by George Orwell, page 147 4

Journey so far

Governments liberalization drive hastened the pace of hydrocarbon market development in India

1950

1990

2007-08 Comments

1 2
3

Population (bn) GDP Growth Rate (%)

Crude Production (MMT)

0.36 3.9@
0.26

0.84 5.58$
32.6

1.13

2nd most populous country

Around 9 >8% for last four years

34 Almost stagnant since 1990

4
5 6 7 8 9

NG Prodn (MMSCMD)
Refining Capacity (MMT) Crude import (MMT) Pipelines (kM)

NA
0.25 3.05* 37^ 3.3 0 NA
*1955 figure

49.3
51.85 20.7 9,945 55 2.6 14,264

91
149 122 31,061 129 39.3 34,696#

Bulk production from Mumbai High field

6th largest refining capacity in world 29% & 44% of total import & export in value Worlds longest operating LPG pipeline

Product Consumption (MMT)

Product Export (MMT)

>11% growth in MS/HSD & 14% in ATF last yr

20.2% growth in POL export over 2006-07 (32.7 MMT)

10 Retail Outlets

@1950-60 Avg

Catering to more than 80 mn motor 5 vehicles #As on 1.4.07 $1990-200 Avg ^Product pipeline

Sectoral Overview Upstream

Upstream sector in India is a relatively unexplored market with reserves estimated in only 15 of the 26 sedimentary basins.
Key Facts

26 sedimentary basins: 3.14 mn sq kM

(44% onland and 56% offshore)

Prognosticated Hydrocarbon reserves: 28

BTOE (<25% established) ~ 200 bn barrels

Crude oil production - 34 MMT Upstream NOCs dominate

production/acreage
Directorate General of Hydrocarbons

(DGH) vested with upstream regulatory functions

New Exploration Licensing Policy (NELP)
6

Sectoral Overview Upstream

NELP rounds have opened up large sedimentary areas for exploration to private and JV companies leading to decrease in unexplored or poorly explored areas from 67 to less than 37%
Out of total 205 bn bbl of prognosticated resources in 15 basins, 66 bn bbls have been established since 1947. 15 bn bbl in-place reserves were added during last 7 years

Exploration Acreage April 96

Poorly Explored 18%

Exploration Acreage April 07

Poorly Explored 21% Unexplored 15%

Sedimentary Area

Yet to offer 32%

Moderate to well explored 16%

Unexplored 49%
Moderate to well explored 20%

Exploration initiated 17%

Exploration initiated 44%

Area under License 68%

Source: Directorate General of Hydrocarbon

Overall Demand-Supply Gap (MMSCMD) Natural Gas

2008-09 2009-10 2010-11 2011-12

Supply
Domestic
LNG Total Demand

120
34 154 197

140
52 192 222

147
70 217 265

170
70 240 282

GAP

MMSCMD
MMT

43
14.9

30
9.9

48
15.84

42
13.9
8

LNG Terminals
Rated Capacity
Company/Location Petronet-Dahej Shell-Hazira RGPPL-Dabhol Total 2008-09 5.00 2.50 7.50 2009-10 10.00 3.50 2.90 16.40 2010-11 10.00 3.50 5.00 18.50 2011-12 10.00 3.50 5.00 18.50

Expected Share of Natural Gas in the Energy Basket in India

(Hydrocarbon Vision 2025)

Year

2006-07
50
32 15

2011-12
53
30 14

2024-25
50
25 20

Coal
Oil Gas

Nuclear
Hydel

1
2 100

1
2 100

3
2 100
10

Sectoral Overview Downstream

Indias downstream sector is dominated by NOCs.

Major Downstream Players as on April 1, 2008
Refining capacity (MMTPA)
Essar, ONGC, 10.5, 7% 9.8, 7% IOC, 60.2, 40%

Key Facts
19 refineries with 149 MMTPA installed capacity 105% capacity utilization in 2007-08 Refined product consumption 129 MMT Refined product consumption: 7% annual growth Refined product net exports 39 MMT, Gross

HPCL, 13.0, 9% BPCL, 22.5, 15% RIL, 33.0, 22%

exports $26.8 bn 07-08 (50% growth over 2006-07)

Source: MoPNG

Product pipelines stretch over 9,500 km

Market Share of sale of Petroleum Products (in Vol

sales excl. CNG & LNG) Pvt Other 10% (PSUs) 2%

New entrants in the oil marketing business include

RIL, Shell, EOL, MRPL and NRL

Domestic auto sales 14.1% CAGR (06-07 over 01-

HPCL 19% BPCL 21%

02); petroleum products consumption jumped by 7% from last year

Over 34,000 retail outlets
Source: Monthly IPR

IOC 48%

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Sectoral Overview Downstream

Refining industry in India is poised for rapid growth with additional investments planned over the next decade supported by GoIs intention to promote India as an integrated refining and petrochemical export hub.
Developments

Refining Capacity Vs. Crude Import in MMT as on April 1
225.88 210.21 194.7 170.41 148.9 120.37 107.27 150.51 195.49 240.96

241 MMTPA refining capacity by 2012 38 MMTPA addition in the Pvt sector Private investments from Chevron/Mittal

RIL/Essar/IOC venturing abroad (Kuwait, Africa, Turkey etc.)

Crude import and product exports expected to jump Investments

Investment of over $22 bn estimated for creating new refining capacity Refinery upgradation projects to require investments of the order of $2.5 bn
2008 2009 2010 2011 2012
12

Source: XI FYP, MoPNG

Oil Companies Under Recoveries 2007-08 On price controlled products

Sr. 2007-08 No. 1. LPG UnderRecovery (Rs Crs) 15,000

This is BORNE By
Sr. Agency No. 1 Upstream Companies (Rs Crs) 26,000

2.
3. 4.

MS
SKO HSD Total

7,000 2.
19,000 35,000 77,000 3.

OIL Bonds
OIL Companies

35,000
16,000

Total

77,000
13

High Taxes on Transport Fuel

Sr. Item No
1. Basic Price (Rs/KL)

MS

Percentage

HSD Percentage

23,149.33 50.9%

23,241.11

73.18%

2.

Custom/Exchange 22,370.67 Sales/Other Taxes (Rs/KL) Total Retail Price Rs/KL

49.1%

8518.89

26.82%

3.

45,520.00 100%

31760.00

100%

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SHARE OF OIL REVENUE IN TOTAL REVENUE IN 2002-05

Year Accrued to Oil Revenue (Rs. Crs) 64595 32156 96751 Total Revenue (Rs. Crs.)* 236936 178001 414937 Share of Oil Revenue in Total Revenue (%) 27.3 18.1 23.3

2002-03

Centre States Total

2003-04

Centre
States Total

69195
35180 104375 77692 43254 120946

263027
203746 466773 300904 235283 536187

26.3
17.3 22.4 25.8 18.4 22.6

2004-05

Centre States Total

*Centres revenue is taken as net of transfers to States. States revenue is the total receipts of own tax and nontax revenue. Source: Report of the Standing Committee on Petroleum & Natural Gas in Parliament, Government of India; State 15 Finances, A study of Budget of 2004-05, RBI, Government of India; Budget documents, Government of India.

Renewable Energy Sources Potential

Source/ Technology
Biogas Plants

Units

Potential/ Availability
12

Potential Exploited Units

3.2

Percentage
26.8

Million

Biomassbased Power.
Efficient wood stoves. Solar Energy. Small Hydro Wind Energy. Energy Recovery from Wastes. Hydel.

MW
Million MW/Sq. Km MW MW MW

19,500
120 20 15,000 45,000 1,700

384
33.9 1.7 1,398 1,367 16.2

1.9
28.2 8.7 9.3 3.0 0.9

MW

148,700

16,083

10.8
16

* Table 7.3.3/7.3.16 10th plan document

Biofuels Activities
JV under formation with Chhattisgarh Government to produce 30,000 MTPA Biodiesel 2000 ha revenue wasteland allotted by Government of M.P. In Jhabua district for energy crop plantation. Investment approval being obtained 10% ethanol blends in MS by 2012 (The end of the 11th plan) Discussions with U.P. and Rajasthan Government for creating Biodiesel units. 17

Status - Hydrogen Activities of IOC

IOC R&D had set up the Indias first Hydrogen Dispensing Station in October, 2005 which is being used for fueling test vehicles. A similar Hydrogen-CNG Dispensing Station is being set up at Delhi in Dwarka by IndianOil which will be commissioned by end of 2008. IOC R&D working closely with SIAM members under an MNRE project for optimisation of various vehicles to Hydrogen-CNG. IOC R&D planning further projects related to Hydrogen production, development of codes & standards etc.
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Planning Cycle Key Corporate Activity

Perspective Plan Long Term Plan

Vision

Annual Plan

5 Year Plan

19

Knowledge Explosion
Knowledge Doubling

Rate of Change of Everything is Hyperbolic

itself every 5-7 years The importance of R&D escalating exponentially

Years

20

Formula for Organisational Perpetuity

1. Creativity Without which no new Technologies products goods & services can emerge. Continuity Without which in a changing environment the sense of purpose and/or directions may get lost and develop aberrations.

2.

3.

Discontinuity The essence of discontinuity / change is to discard the irrelevant / obsolete on a continuous basis. Without it no forward progress can take place.
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