In line with one of the key thrust areas identified in the National Common Minimum Programme (NCMP) of the UPA Government, emphasis is being laid on enhancing energy security of the country. The first year of the Government saw several initiatives being taken to enhance domestic oil & gas production, acquire oil & gas blocks abroad, strengthen oil and gas PSUs to reinforce their competitiveness globally, promote use of alternative fuels and to minimise the adverse impact of  unprecedented and volatile rise in international oil prices on the consumers and the citizens of the country. 

Enhancing Energy Security

  The Government has adopted multi-pronged strategies to enhance the energy security of the country.  On the domestic front, these steps include intensive exploration for oil and gas through the New Exploration Licensing Policy (NELP); exploration by National Oil Companies, namely, ONGC and OIL, in their nomination   blocks; increasing recovery of oil and gas from existing major producing fields by enhanced oil recovery (EOR) / improved oil recovery (IOR) techniques; exploring for alternative sources of hydrocarbons such as Coal Bed Methane (CBM), gas hydrates and underground coal gasification (UCG);  and creating strategic petroleum reserves.

On the external front, the thrust areas conclude acquisition of equity oil abroad and augmentation of natural gas supply in the country through import of LNG and transnational gas pipelines.

Offer of blocks under the Fifth Round of NELP

The Government initiated an exercise for identifying new areas for opening up indigenous exploration of oil and gas under the fifth round of the New Exploration Licensing Policy(NELP-V).  NELP-V was launched on January 4, 2005 with an offer of 20 blocks (six deepwater , two shallow water and twelve on land blocks) for exploration under an international competitive bidding system.  The last date for receipt of bids is 31 May 2005.  This will open an area of about 1,15,000 Sq.Km of domestic sedimentary basin for exploration and should help find more oil and gas in the country.  The Government have undertaken comprehensive promotional road shows in India and abroad to generate interest amongst local and foreign E&P companies and potential investors.  To facilitate data viewing on the blocks, data centres were opened for review of technical data.  For the first time data on all the blocks has also been made available online. There has been encouraging response from Indian and foreign companies and already several companies have purchased data packages, which promises good response in bidding under NELP-V.  Notable among the companies showing keen interest in the Indian oil and gas blocks are global oil majors such as Statoil, BP, BG, Petrobas.

New Oil and Gas Discoveries

Reliance Industries Limited – Niko Resources Ltd. (consortium), ONGC, OIL and Cairn Energy have announced oil and gas discoveries in the last one year both in offshore and onshore areas.  These discoveries are under appraisal.  Similarl, ONGC announced three oil & gas discoveries - one in the western offshore south west of Mumbai high field and two in the eastern offshore in KG basin.  Oil  and gas discoveries were also made by Oil India in Assam during this period.  RIL-Niko consortium’s development plan for their gas discovery in Krishna-Godavari in deep water was approved at an estimated investment of $ 2.47 billion to develop two gas discoveries.  Gas production is expected to commence in March 2008 with a peak production of 40 Million Standard Cubic Metres of gas (equivalent to 14.60 million Metric Tonnes of oil per annum).  This will contribute in a significant way to enhance gas supply in the country.  Cairn Energy of UK has targeted oil production from their Rajasthan block in Barmer district in the 3^rd Quarter of 2007.  The plateau rate of production is projected at four million Metric Tonnes per annum.

Harnessing Alternative Sources of Hydrocarbons

Exploration  efforts are under way and first commercial production of Coal Bed Methane (CBM)  in the country is expected  in 2006-07  in the 16 CBM contracts signed by the Government so far.  The Government has also taken steps to offer more blocks under the 3^rd round of CBM by the end of 2005.  This will increase gas supply in the country.  

In order to use the energy of commercially non-producible coal from deeper layers, the Government initiated a move to convert this coal into gas through Underground Coal Gasification (UCG).   ONGC signed a technical collaboration agreement with Skotchinsky Institute of Mines, Russia, which is known to have pioneered the technology and GAIL also signed an agreement with a Canadian company for pilot projects in UCG.  The estimated UCG potential in the country is larger than the conventional natural gas resources.

Gas hydrates are essentially methane entrapped in ice cubes and are located in deep sea. However, at present no technology is available for their commercial exploitation.  India has formulated a national gas hydrate programme and has tie-ups for experience sharing with leading countries such as USA, Canada, Japan and Russia, who are engaged in research activities for developing technologies for exploiting hydrocarbons from gas hydrates.

Strategic crude storage for oil security           

Availability of oil is vital for all countries.  Oil security is of particular concern for countries like India with a high level of oil import dependency, at present around 71 per cent.  Taking into account the oil security concerns of India, the Government had decided  to set up strategic crude oil storage of five million tonne at Mangalore, Vizag and location in or near Mangalore. Currently, the financing mechanism is being worked out.  The cost of construction for the reserves at Mangalore and Vizag has been estimated at Rs. 1,360 crore  and the DFR for the third site is under preparation.  A special purpose vehicle called “Indian Strategic Petroleum Reserves Limited” has been incorporated on June 16, 2004, which would implement the strategic oil reserve project.  The time frame for the execution of the project is 48 months. 

Equity Oil Abroad

One of the major initiatives taken towards enhancing energy security in the country is the concerted efforts to acquire equity oil and gas abroad and participating interest in producing or prospective properties.  ONGC-Videsh Limited (OVL) and other National Oil Companies are already involved in 14 countries and the Indian presence is in the process of being established in a further 33 countries world-vide.  Committed investment so far is in excess of $ 5 billion.   During the last one year, OVL acquired exploration blocks in Australia, Egypt, and Qatar; OVL & Oil India obtained interests in a block in Ivory Coast while the consortium of OIL – IOC acquired one exploration block in Libya. 

Transnational Gas Pipelines & LNG Imports

On environmental and techno-economic considerations, gas is now the preferred fuel.  Substantial gas imports are needed to satisfy growth requirements, to reduce dependence on crude oil, as well as to reduce the cost of energy imports. There is a severe shortage of natural gas in the country from domestic sources, both current and projected, which seriously jeopardises the prospects for our energy security.  Therefore, it is proposed to import natural gas in the form of Liquefied Natural Gas (LNG) as well as through transnational pipelines from  gas-rich countries in West Asia (including Iran), Central Asia and South East Asia.  The Government is particularly pursuing gas imports through pipelines from Iran through Pakistan and from Myanmar through Bangladesh.  Negotiations with Iran are at an initial stage of discussion.  For the pipeline from Myanmar through Bangladesh, following tripartite Ministerial-level discussions at Yangon on January 12-13, 2005, a draft MoU was prepared at the technical/bureaucratic level in Yangon on February 24-25, 2005.  This is to be signed by the Ministers of the three countries concerned after the approval of their respective Governments.  

            Besides steps to increase domestic production of gas, initiatives have been taken to augment supply of gas, which is quite short of demand in the country.  A decision has been taken to undertake construction of Kochi LNG Terminal which was pending since long.  The capacity of the terminal is proposed to be raised to five MMTPA from the earlier plan of 2.5 MMTPA.  The project is expected to be completed by the year 2008-09.  Efforts are under way to revive the Dabhol LNG Terminal.  As regards imports of LNG from Iran, GAIL and IOC signed an agreement with M/s NIGEC (National Iranian Gas Export Corporation), to import 7.5 MMTPA of LNG.  Detailed discussions are underway between the two sides in this regard.   On the issue of participation of Indian companies in Iranian oilfields, an MoU was entered into by OVL with NIOC as per which Indian oil PSUs, led by OVL, would participate in Yadavaran field (20 per cent participation equivalent to 60,000 barrels per day) and Jufeyr field (around 30,000 barrels per day) in Iran through service contracts. 

Asian Ministers Round Table Initiative 

The first ever Ministerial Round Table of the principal Asian producers and buyers was held in New Delhi on January 6, 2005 with a view to promoting stability, security and sustainability in the Asian oil economy through regional corporation.  The meeting was so successful that it was agreed to hold such Round Tables on an annual basis.  It is now proposed to complement the Round Table already held with another Round Table, which oil Ministers of North and Central Asian producing countries have agreed to attend.  To reinforce the diplomatic thrust for energy security, an Advisory Committee on Oil Diplomacy for Energy Security has been constituted and is rendering valuable assistance to this priority National endeavour.

Promoting Alternative Fuels for Energy Security

            Steps were taken to encourage/streamline supply and use of bio-fuels for blending with petrol and diesel.  Resources like ethanol, bio-diesel and hydrogen hold a significant potential to supplement efforts to reduce import dependence for hydrocarbons. Implementation of the Ethanol-blended petrol (EBP) programme envisaging 5 per cent blending of ethanol in petrol in notified sugar producing States and adjoining areas was suffering due to inadequate availability of ethanol at reasonable prices. In order to enable smooth implementation of the programme, the Government decided that the Oil Marketing Companies (OMCs) will supply 5per cent EBP in notified areas if  the indigenous price of ethanol offered for the programme is comparable to that offered by the indigenous ethanol industry for alternative uses and is also comparable at a particular location to the import parity price of petrol subject to adequate supply of ethanol.  The oil marketing companies have accordingly invited tenders for procuring ethanol and the bids are now under evaluation. It is expected that there will be no further roadblocks for smooth implementation of the programme. The Government has also mooted a proposal for an MoU with Indian Sugar Mills  Association (ISMA) for ensuring long term  availability of ethanol for EBP programme.

Biodiesel is another area which is receiving the attention of the Government, as this fuel can provide sustainable livelihood to marginalised rural farmers and the landless who can plant/collect Jatropha curcus from the oil of which primarily biodiesel can be made.  On its part, the Ministry of Petroleum & Natural Gas has committed to lend blending and marketing support for large scale use of Biodiesel when such Biodiesel becomes available through the proposed National Mission on Biodiesel which envisage large scale Jatropha curcus plantation and for which the Ministry of Rural Development has been made the nodal Ministry.  The OMCs in cooperation with the State Government are experimenting with running Biodiesel blended diesel buses in Gujarat, Haryana and Maharashtra. 

The Ministry of Petroleum and Natural Gas has recently set up a Hydrogen Corpus Fund with a corpus of Rs.100 crore  through contribution of oil and gas companies and the Oil Industry Development Board (OIDB) for supporting research & development in various aspects of hydrogen, which could substitute part of natural gas as transport fuel in future. Demonstration projects in pipeline include using 10 per cent hydrogen in CNG at IOC R&D Centre at Faridabad (planned for July 2005), and a similar demonstration project later in Delhi.

Measures To Contain Impact of Volatile Global Oil Prices

The Government undertook a number of fiscal measures to contain the adverse impact on common man of the unprecedented rise and volatility of international oil prices since late 2003/early 2004, distressingly escalated since mid-2004.  The Government allowed OMCs on July 26, 2004 a limited freedom to revise the prices of petrol and diesel within a price band in order to modulate the impact of high oil prices on domestic oil selling prices and mitigate the under recoveries of the oil companies.   Accordingly, OMCs were to be permitted to carry out autonomous adjustments in prices of petrol and diesel within a band of +/- 10 per cent of the mean of rolling average C&F prices of last 12 months and the last quarter i.e. three months.

Moreover, the Government effected excise & customs duty reductions on appropriate occasions to reduce the impact of volatile international oil prices on the common man.   Excise duties on petrol, diesel and domestic LPG were reduced by 4 per cent, 3 per cent and 8 per cent respectively on  June 16, 2004.  Further, excise duties on petrol, diesel and PDS Kerosene were reduced by 3 per cent, 3 per cent and 4 per cent respectively on August 19, 2004 along with reduction in customs duties on petrol, diesel, PDS Kerosene and Domestic LPG by 5 per cent each.  Besides, excise & customs duties were reduced/rationalised in the General Budget 2005-06 effective from March 1, 2005.  Customs Duty on crude has been brought down from 10 per cent to 5 per cent, on domestic LPG and PDS Kerosene from 5 per cent to nil and on other petroleum products from 15 per cent- 20 per cent to 10 per cent.  Excise Duty on Domestic LPG and on PDS kerosene was brought down from 8 per cent to nil from 12 per cent to nil respectively.

On dismantling the APM on April 1, 2002, it had been decided that the subsidy on kerosene and LPG will be wound up in a phased manner during a period of  three-five years. However, the UPA Government have now decided to continue the subsidy for five years on PDS kerosene and domestic LPG.   In addition to Government subsidy, public sector oil marketing companies (OMCs) have been sharing the burden by not passing the full increase in the international prices in the domestic consumer prices of these products.

            There has been no increase in the price of PDS kerosene since April 2002; Diesel and LPG prices have been frozen since midnight of November 4-5, 2004; and of petrol since November 14-15, 2004.

Strengthening The Distribution Network Of PDS Kerosene

As of now, there are no dealerships in over half of the blocks in the country.  This needs to be addressed on an urgent basis if the highly subsidised PDS kerosene is to reach the targeted beneficiaries belonging to the lower strata of the society.  A pilot project has been approved by the Government for strengthening the distribution network of PDS kerosene in 10 per cent of the blocks initially with a view to ensuring that this product is made available to the intended  consumers and is not diverted for unauthorised applications. It would create infrastructural facilities like underground storage tanks, dispensing pumps, barrel-filling facilities and barrel storage sheds at wholesale/ Sub Wholesale Points at Block level on a pilot basis in 10 per cent of the blocks in the country initially.  Based on the experience of the scheme for six months, the proposal for scaling it up to cover the entire country would be considered.

The deliveries up to wholesale and sub-wholesale points would be under the Government Oil Marketing Companies (OMCs) to prevent kerosene diversion.   An adequate number of Sub Wholesale Points would be created in each block in consultation with the State and District Administration.      

            Further, keeping in view the demands being received from various States for increasing the Kerosene allocation, the Ministry has commissioned a study through National Council for Applied and Economic Research  (NCAER) to assess the genuine demand and requirement of kerosene.  Further action to strengthen and streamline PDS Kerosene supply will be taken on receipt of NCAER’s report, expected in August  2005.

Advisory Committee On Synergy In Energy

            An Advisory Committee on Synergy in Energy was set up on January 17, 2005 with a view to making oil PSUs domestically & globally competitive leveraging their collective strength and accelerating growth. The Committee will examine the core competence of the public sector undertakings in the petroleum and natural gas sector of India to assess their competitiveness in the evolving domestic and international scenario.  It will analyse the various options of leveraging their strengths to optimally fulfill their required contribution to the national objectives of energy security; accelerated growth; sustained development; and  social objectives of Government policy.   The Committee has also been mandated to identify the most appropriate structure of the oil public sector undertakings to secure these ends. The Advisory Committee is holding deliberations, and has held six meetings so far.  

Self-Sufficiency In Refining, Exports

            As against a demand of 111.17 million tonnes of products in the country in 2004-05 refining capacity stood at 127.37 million tonnes per annum (MMTPA) up from 118.37 MMTPA during 2003-04.   The projects are being executed to create additional capacity of 14.3 MMTPA in less than two years. Besides, self sufficiency in refining, the Petroleum sector emerged as a big exporter with net-exports increasing by 69 per cent in 2004-05 to Rs.28,385 crore from Rs.16,781 crore in 2003-04.  

Refinery At Bhatinda

            The Government of Punjab agreed in February 2005 to grant incentives for HPCL’s refinery project at Bhatinda (Punjab) in a mutually acceptable form.   The work on refinery project  was kept on hold as Deed of Assurance (DOA) by the Government of Punjab was awaited.  The Bhatinda Refianery project was to be set up by Hindustan Petroleum Corporation Limited (HPCL) keeping in view the incentives granted by Government of Punjab (GOP) to the project. Accordingly, HPCL intends to take up the refinery project on formally concluding the DOA with GOP.

Refinery At Bina

            Implementation of Bharat Oman Refineries Limited’s Central India Refinery Project at Bina (Madhya Pradesh) has been delayed due to delay in receipt of certain environmental clearances. In order to ensure the financial viability of the project, the Government of Madhya Pradesh was requested to grant certain concessions for the project. In February 2005, the Government of Madhya Pradesh has agreed to grant deferment of commercial tax of Rs.250 crore per year for a period of 15 years from the year of commercial production. Detailed Project Report is under preparation.  BPCL has signed an MoU with the Government of Madhya Pradesh to implement the project.

Implementation Of Clean Auto Fuel Policy

As per the recommendations of the Mashelkar Committee, the Ministry has implemented the clean auto fuels in the country.  The report had recommended Euro-III in Metros and Euro-II in the rest of India by April 1, 2005.  Barring Euro-II diesel in seven States, all the other stipulations have been complied with on April 1, 2005.  These seven States will also be fully covered by October 2005.

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RK:LV

PIB  SF-43  (15.5.2005)