Petroleum sector of India

Submitted to: Prof. Harshit Shah

Submitted by:

Pradeep Tiwari Wasiurrehman Ravi Thakkar Trupal Vaghodiya

Why petroleum sector?

The Petroelum sector is one of the six core industries in India. The Indian oil and gas sector is of strategic importance and plays a predominantly pivotal role in influencing decisions in all other spheres of the economy.

About petroleum industry

The indian petroleum sector started its journey during the fiscal year 1890 in the north-eastern provinces of india especially place called Digboi.
The production of petroleum along with the exploration of new sites was preliminary restricted to north-eastern upto the1970s. But the scenario is changed drastically with the discovery of Bombay High.

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India has total reserves of 1201 million metric tones of crude oil and1437 billion cubic metres of natural gas as on 1.4.2010. The total number of exploratory and development wells and metreage drilled in onshore and offshore areas during 2009-10 was 428 and 1019 thousand metres respectively. Crude oil production during 2009-10 at 33.69 million metric tones is 0.55% higher than 33.51 million metric tones produced during 2008-09. The refining capacity in the country increased to 184.386 million tones per annum (MTPA) as on 1.4.2010 from 177.968 MTPA as on 1.4.2009

Groth of petroleum industry in India

India has witnessed a significant growth in the refining facilities and increase in the number of refineries from one to seventeen now. Increase in the refining capacity from 0.25 tonnes MMTpa to about 103 MMTpa.

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Structure of petroleum industry

Consist of two major activities Upstream and Down stream. UPSTREAM Exploration and Production of Crude Oil and Gas.

Companies like ONGC,OIL(oil limited),ONGC Videsh Limited Mangalore refinery.

india and

Private players are also involved into it like CAIRN,RIL,NIKO etc.

DOWNSTREAM Refining of crude oil into various products and marketing of these products. Companies involved into this are HPCL, IBP, GAIL, BPCL, GSPC, IOCL, RIL, etc. 80% of crude oil demand met through imports and balance 20% by indigenous production

Market Share of Oil and Gas Companies

Market Share of Oil and Gas Companies
1% 11% 28% 18% IOCL ONGC Reliance HPCL BPCL Others (GAIL, OIL)

20%

22%

Import and Export of Crude Oil and Petroleum Products

During the FY 2009-10, imports of crude oil were 159.25 MMT valued at Rs. 375378 crores. Imports of crude oil during 2008-09 was 132.27 MMT valued at Rs. 348288 crores. This marked an increase of 20.39 per cent during 2009-10 in quantity terms and 7.07 per cent in value terms.
During the financial year 2009-10, exports of petroleum products in quantity terms is 50.97 MMT valued at Rs. 144037 crores marking an increase of 15.9 per cent in value terms compared to 2008-09. Imports of petroleum products and crude oil are more than the exports and there is trade imbalance.

POLICIES AND REGULATIONS

The Petroleum Act to control issues relating to import, transport, storage, production, refining and blending of petroleum was already in place since 1934. Further, the Oil Fields (Regulation and Development) Act, 1948 and the Petroleum and Natural Gas Rules, 1959 provided regulatory framework for domestic exploration and production of Oil & Gas.

Hydrocarbon Vision

The Hydrocarbons Vision 2025 lays down the framework which would guide the policies relating to the hydrocarbons sector for the next 25 years. Issues such as E&P, refining, marketing, external policy, oil security, tariff and pricing, and restructuring and disinvestment are addressed.

NELP (New Exploration Licensing Policy)

Prior to the NELP, the Oil fields (Regulation and Development) Act, 1948 and Petroleum and Natural gas Rules, 1958 regulated the issue of license and PSU's. ONGC and OIL were the only public sector companies involved in exploration and production till 1997 while IOCL was the primary entity concerned with refining and processing oil after extraction. Main features include - Discovery or production bonus by the bidder; income tax holiday for seven years from the start of commercial production - No customs duty on imports - Freedom to the contractor for marketing of oil and gas in the domestic market of commercial production. Eight rounds of NELP have been completed till now and the Ninth Round has recently started in 2010. Two major discoveries as production by Reliance Industries' (RIL) KG-D6 basin and crude oil production in Barmer (Rajasthan) by Cairn India are the result of NELP

Legal Aspects Of Oil And Gas Industry

Oilfields (Regulation and Development) Act, 1948 Basic enabling statute for licensing and leasing of petroleum and gas blocks by the appropriate government. Covers mineral oils which are defined as including natural gas and petroleum .Mining lease is defined exhaustively to cover all forms of exploring and exploiting mineral oils and all purposes connected there. Empowers central government to make rules with regard to mining leases. Also empowers central government to make rules for the development of mineral oil.

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Petroleum and Natural Gas Rules, 1959 Rules provide framework for grant of exploration licenses and mining leases Salient features of the Rules : Prohibition on prospecting and mining except under a license or lease granted under the rules Central Government has the power to grant licenses or leases in respect of any land vested with it or minerals underlying the ocean within the territorial waters or the continental shelf State government has power to grant license or lease over lands vested with it Person obtaining exploration license obtains the exclusive right to a lease for producing (i.e. extracting) oil/gas over any part of area covered in license

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Land acquisition Act, 1894
The law deals with the acquisition of land for Public purpose. The Act is a general Act which deals with the procedure and the conditions under which a land can be acquired. The only requirement is that the land can only be acquired for public purpose as per Section 3(f) of the Act.

The Petroleum Act, 1934

The act deals with import, transport, storage, production, refining, and blending of petroleum. The Act is one of the oldest acts in the oil and gas sector. Earlier to this act the rules regarding the above specified activities were separate for separate States. The Petroleum Minerals Pipelines (Acquisition of Right of users in Land) Act, 1962

Petroleum Product Pricing Taxation comparisons

In April 2002 India abolished the Administrative Pricing Mechanism (APM) controlling the domestic price of petroleum products in India. Under the APM, product prices were directly administered by Indias Central Government based on an opaque and complex cost of operating capital plus formula.

Taxes paid by Oil and Gas Industry over the years

(Rs. Billion) 2006 2007 2008 2009 2010

Royalty from Crude Oil

Royalty from Gas Oil Development Cess Excise and Customs Duties Sales Tax

50.67
8.637 51.96

58.57
10.75 71.77

65.44
14.87 71.56

71.55
16.24 68.86

NA
NA 65.59

631.43 718.93 783.73 705.57 717.67 459.34 539.49 564.45 633.49 649.99

Conclusion

The Indian oil and gas sector is one of the six core industries in India and has very significant forward linkages with the entire economy. Government has taken many steps to regulate it. The Steps are also taken to increase the Indigenous oil and gas reserves. Although there are few loopholes which should be taken care of as soon as possible, one major drawback in the E&P sector is that the Regulatory Body (DGH) does not have any statutory value. The decisions of the DGH are merely advisory in nature and the Government is not to follow them.

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