Case of Oil & Gas policy

framework in India

Energy security
Sustained economic growth requires an uninterrupted supply of energy to carry on the economic and commercial
activities of a country. Ensuring energy supply through in house production and imports, if required, constitutes
the concept of energy security. Policy framework is the most influential tool in the hands of the government to drive
its energy security plans. Exploration and development of oil and natural gas blocks and new capacity formation
of renewable sources needs to be ensured. Private and foreign investments require a stable policy regime which
also promises an attractive revenue stream in the long term. Also, investment opportunities in energy assets in
foreign lands needs to be increased coupled with an increase in inventory storage for meeting the day to
day demand. Innovative methods and disruption strategies need to be explored as possible way
forward for energy security.

E&P sector worldwide

Over the past decade, oil and gas capex worldwide has increased substantially. Further, substantial investments
will be required annually to meet the demand growth, a majority of which will be used for sustaining supply from
maturing oil & gas fields. From a policy perspective, producing countries strive for developing resources and
long term sustainability, whereas consuming countries strive to reduce their dependence on oil imports through
developing domestic resources. Policy decisions worldwide, thus, become important for individual producer and
consumer nations.

Indian Scenario: Supply and demand

India, like China, is a large, high-growth economy and an emerging market for international business. Adequate
availability of energy is one of the basic requirements for faster economic growth. Large addition to power
capacities and higher growth rate of the economy requires substantial increase in availability of energy fuels.
A high economic growth and modest domestic reserves of fossil fuels have resulted in increasing imports of
crude oil and LNG which adversely affect the countrys energy security. IEAs World Energy Outlook 2011 projects

World energy investment

2000
1800

Biofuels

1600

Coal

1200

Gas

1000

Oil

800
600
400
200
0
2007-2013

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Source: IEA World Investment Outlook 2014

Power

1400

2014- 2035

Case of Oil and Gas policy framework in India

that with a demand of 7.4 mb/d, India would be the third-largest crude oil consumer by 2035 after China and the
United States. Its rapid demand growth of a CAGR of 3.4% from 2010 to 2035 would be one of the highest in the
world, driven primarily by the transport sector.
Indias hydrocarbon reserves are small compared to its increasing demand, resulting in dependence on imports,
thus raising concerns of energy security. Indias domestic crude production has stagnated, growing very slightly
from 0.7 mb/d in 1990 to 0.89 mb/d in 2011 at a CAGR of around 1% (IEA database; IEA, 2012a). Declining
production from mature wells and insufficient addition of new wells are major reasons behind the decrease in
domestic supply of crude oil.
Hence, keeping import dependencies at a reasonable level by stepping up the domestic production requires a
sustained effort.

Indias Policy on Oil & Gas

The Indian government as a whole plays an indispensable role in the oil and gas sector through state-owned
enterprises, public policy and market regulation, indirect guidance and personal networks. Indian upstream and
downstream sectors have been historically dominated by different National Oil Companies (NOCs). Numerous
policy reforms over the past 20 years have sought to provide a more level playing field for both public and private
sectors in the oil & gas sector.
India adopted the currently prevailing Production Sharing Contract (PSC) structure in 1991-92 for exploration
and production of hydrocarbons, and moved from nomination basis to competitive bidding structure under New
Exploration Licensing Policy (NELP) in 1999-2000. The move towards PSC was driven by the need to create an
attractive regulatory regime which would attract private investments into the sector.
The NELP, launched in 1999, awards exploration blocks through international competitive bidding and allows
100% foreign and private participation with the PSC as the managing instrument. To mitigate risks from growing
import dependence, India has also encouraged oil companies to acquire overseas upstream assets.

Source: EIA International Energy Outlook - 2013

Indias growing oil import dependency

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Case of Oil and Gas policy framework in India

Under the NELP, Indias unexplored sedimentary areas decreased from 50% in FY 1995/96 to 12% in FY 2010/11
(DGH, 2011). However, the sector is still getting limited interest from foreign and private players as is visible from
their declining participation in New Exploration Licensing Policy (NELP) rounds. For instance, a total of 21 foreign
companies participated in NELP-VII (2008), ten foreign companies took part in NELP VIII (2009), while only eight
companies took part in NELP-IX (2011).

Challenges
Since the liberalization of the upstream sector and subsequent reforms in the downstream, the oil and gas sector
is comparatively more open and competitive than other energy sectors in India. However, numerous aboveground factors including operational issues have led to sub-optimal outcomes. A distorted gas and petroleum
product pricing mechanism, resolution of contractual disputes, and lack of investment from major international oil
companies (IOCs) remain largely unresolved.
Regulatory uncertainty and bureaucratic procrastination have resulted in vast unexplored basins and inadequate
upstream activities in the country. India though initially succeeded in luring some foreign energy firms such
as Petrobras, Statoil, Santos, BHP Billiton and Eni but eventually lost them because of operational hassles and
delays in regulatory approvals.
Indias consumption of fossil fuels will only rise in future. Its dependency on oil & gas imports in particular
exposes India to greater geopolitical risks, fluctuating world market prices and intensifying international
competition.

Way Forward
The need for accelerated and concerted exploration efforts is of utmost importance and needs to be given priority
by the Government. This calls for implementation of transparent policies and processes that, while safeguarding
sovereign rights also make it attractive for companies to engage in E&P activities in the country. Creating the
necessary framework will be critical to attract much needed investment and to compete internationally for
investment. A conducive policy environment for the stakeholders coupled with an effective regulatory regime
should form the basis for an energy secure India.

Deliverables
A Policy Framework for Oil and Gas Industry in India for 2030 encompassing the following:
Build a case for timely action on energy security for India by commenting on the likely energy fuel mix in next
couple of decades as per available projections. Discuss the observable shifts in Indias consumption pie with
respect to petroleum and natural gas
Discuss whether energy security is synonymous to energy self-sufficiency with regard to petroleum and natural gas
Recommend a road map for 2030 for India to be energy secure through self-sufficiency in Oil and Gas
Discuss the recommendations from various government and ministerial committees towards this goal
International best practices on invigorating domestic oil & gas E&P sector: Discuss two countries of relevance and
their approach specific points only
Discuss the extant E&P exploration policy framework. Recommend on whether India needs a new policy design for
O&G sector

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Case of Oil and Gas policy framework in India

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Case of Oil and Gas policy framework in India