10. OIL

Box 10.1 New policy measures to promote oil and gas E&P activities, 2019

On 28 February 2019 the GoI announced a new set of policy measures to boost oil and gas E&P activities in India. Key aspects of the measures include the following:

The timeline for completion of committed Minimum Work Programme has been reduced.

No production or revenue sharing, only statutory levies need to be paid except in the case of a windfall gain.

In the case of windfall gains of more than USD 2.5 billion, revenue sharing varies from 10% to 50% with a ceiling of 50%.

Full marketing and pricing freedom is granted on an arm’s length basis according to competitive bidding.

To expedite production, concessionary royalties are offered if production commences within four to five years.

New gas discoveries are given pricing and marketing freedom.

A series of measures include the streamline the functioning of DGH, such as redefining its role, single-window clearance, standardisation of guidelines and data management accessibility.

National oil companies are given freedom to choose a field-specific implementation model, such as the Technical Services Model, Joint Venture Model, Farming-out Model, to enhance production.

National oil companies are mandated to bid-out fields with complete marketing and pricing freedom on a revenue-sharing model under the supervision of DGH.

The GoI has been encouraging companies to acquire foreign upstream assets to reduce its dependence on oil imports. In 2015 ONGC purchased a 15% stake in Vancor, the Russian Federation’s (“Russia”) second-largest oil field. In 2017 ONGC’s indirect subsidiary OVL acquired a 15% stake in Namibia’s oil block. In February 2018 an Indian consortium led by ONGC was awarded a 10% stake in Abu Dhabi National Oil Company (ADNOC)’s 40-year offshore concession in Lower Zakum. IOCL also acquired a 17% stake in Oman’s oil field in April 2018.

Infrastructure

Refineries

In 2019 India had 23 refineries with a combined refining capacity of around 5.2 mb/d. The proportion of capacity belonging to public-sector, private-sector, and joint-venture refineries stood at 57%, 36% and 7%, respectively. Refinery throughput in 2018 was around 5.1 mb/d and the capacity utilisation rate reached 99%. India’s refining industry is one of the most efficient in the world.

IOCL owns 9 refineries and has the largest (28%) share of total refining capacity in India. The three largest single refineries are privately owned by Reliance and Nayara Energy,

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which add up to a total capacity of 88.2 Mt/y (Table 10.1). They are all located on the west coast of the country facing one of the world’s largest crude oil-producing regions – the Middle East – in order to benefit from low transport costs.

Although several refinery projects have faced delays in the past few years due to financial issues or extreme weather events, the world’s largest oil refinery and petrochemical megaproject with a capacity of 1.2 mb/d is being planned in Ratnagiri. It is a joint venture of state owned companies – IOCL, Bharat Petroleum and Hindustan Petroleum are taking a 50% stake, with international partners Saudi Aramco and ADNOC. The project was expected to be completed in 2024 and commissioned in 2025, but is running into delays. The completion of this mega-project would boost India’s oil product exports after a mediumterm slowdown (IEA, 2019a).

Some refineries are planning to upgrade their capacity to produce higher-quality fuels with reduced sulphur, conforming to Bharat Stage (BS) VI (EURO VI) emission standards. Since April 2017 India has been rolling out EURO IV compliant fuels called BS-IV, but has decided to leapfrog the EURO V norms and directly adopt the EURO VI standard from April 2020. In October 2018 the Supreme Court ordered that vehicles only complying with the BS IV fuel standard cannot be sold or registered in the country after 1 April 2020. The development of cities in India is accelerating. An escalating level of air pollution pushed the government to impose BS VI fuels in the National Capital Region (NCR) of Delhi in April 2018. Following the new directions issued by the ministry, BS VI has been adopted in 10 districts of NCR and 3 districts/cities outside NCR (Karauli, Dhaulpur and Agra City) since 1 April 2019, and 7 districts/cities of NCR since October 2019.

India is continuously building up its refining capacity to meet the rising domestic demand and maintain its position as Asia’s refining hub. To this end, the GoI prepared a roadmap for India’s oil sector to meet projected oil demand in 2040. The roadmap is based on a package of measures: first, to improve domestic production of gasoline and diesel by increasing existing brownfield refining capacity by 125 Mt per year, and build new greenfield refineries at Barmer (9 Mt per year) and on the west coast (60 Mt per year). Based on this plan, India’s total refining capacity could reach 401 Mt per year by 2025, and 443 Mt per year by 2030 (554 Mt per year if including 25% export capacity addition). The government anticipates that if the plan is realised, the built capacity would be sufficient to meet India’s domestic demand up to 2035. Moreover, as India wants to remain Asia’s refining hub, the government plans to further build up its refining capacity (including 25% capacity for export) up to 667 Mt per year by 2040.

Table 10.1 Refinery capacity, 2018

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Source: MoPNG (2018a), Indian Petroleum and Natural Gas Statistics 2017/18,

http://petroleum.nic.in/sites/default/files/ipngstat_0.pdf

Ports and pipelines

As of 2018 there were 12 major crude oil ports in India, with a total capacity of around 5.5 mb/d. The major crude oil ports are in Vadinar (1.3 mb/d), Jamnagar (1.2 mb/d) and Mumbai (865 kb/d), all located on the west coast. There are also about 12 ports handling finished products around the coast of India. Around 227 Mt (4.6 mb/d) of petroleum products were handled through these ports in 2017 and their share of total traffic at the ports was 33%. India’s crude oil pipelines have an estimated combined capacity of 159 Mt per year (3.2 mb/d). As of March 2018 India had 10 406 kilometres (km) of crude oil pipelines, including

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488 km of offshore pipeline. IOCL owns the three longest crude oil pipelines, of which two – Mathura and Panipat – serve refineries close to Delhi from the western coast.

India also has an extensive oil product pipeline network with a total length of 16 612 km, including 2 847 km of LPG pipeline. They are owned by seven different companies, although IOCL controls the majority, and most of the pipelines are small in capacity, the largest being 7.95 Mt per year (162 kb/d).

India has six LPG pipelines with an estimated capacity of around 7.77 Mt per year (158 kb/d). To meet the rising LPG demand, India plans to develop more infrastructure for LPG distribution. IOCL is laying an LPG pipeline from the west coast in Gujarat to Gorakhpur in eastern Uttar Pradesh. This pipeline, with an estimated capacity of 3.75 Mt per year (76 kb/d) could become the longest LPG pipeline in the world. IOCL is also building additional import capacity at Paradeep (east), Kochi (south) and Kandla (west) to meet the increasing requirement for LPG imports.

Storage

As of March 2018, under Phase I of the Strategic Petroleum Reserves programme, India’s total storage capacity of crude oil and oil products was around 38 Mt (281 million barrels [mb]), including 5.3 Mt (39 mb) of strategic reserve capacity (see Table 10.2). These strategic reserves are estimated to hold approximately 9.2 days of India’s crude requirement according to the consumption pattern of 2018/19. The GoI gave in-principle approval in 2018 for Phase II of the Strategic Petroleum Reserves programme, which has a capacity of 6.5 Mt or almost 50 mb.

Storage sites are situated in 20 locations throughout the country, close to major refineries or terminals connected to pipelines. IOCL has a vast crude oil tank farm of 18 tanks with a total capacity of 1 Mt at Vadinar, on the western coast. There are also crude oil storage tank farms at Mundra (0.5 Mt), Viramgam in Gujarat (0.3 Mt) and at Chaksu in Rajasthan (0.2 Mt).

The total volume of stocks from the publicly owned refineries, which have a throughput capacity of around 3 mb/d, are reported to JODI as being 92 mb (except private refineries Reliance SEZ and Nayara). According to July 2019 data, the closing stocks of crude oil were 6.4 Mt and for petroleum and lubricant products 5.54 Mt. This implies that the days of cover provided by publicly owned refineries stood at around 30 days on average. In total, in 2018 India had 64.5 days of estimated commercial reserves of crude oil, petroleum products and gas including both public and private stocks.

Table 10.2 Strategic petroleum reserves

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