<p>Year 2006 is a momentous year for the oil and gas sector in India. The year started with launching of NELP VI and CBM III Licensing Rounds in February. The Minister of Petroleum and Natural Gas saw a change at its helm from Mr Mani Shankar Aiyar to Mr Murli Deora. The much-awaited Petroleum and Natural Gas Regulatory Board Act, 2006 was enacted in April. Also, India embarked on the Integrated Energy Policy. More specifically, committees to look into alternative pricing systems for petroleum products, pricing of natural gas, and so on, submitted their reports. The Indian oil and gas companies went on investment binge for assets abroad and a few major oil and gas discoveries were made during the period.</p></sec><sec id="sec002"><title>Change at the helm: petroleum and natural gas ministry

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TERI Information Digest on Energy and Environment

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The Energy and Resources Institute

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RESEARCH NOTE

Developments in the oil and gas sector

92007

63289298

<p>Year 2006 is a momentous year for the oil and gas sector in India. The year started with launching of NELP VI and CBM III Licensing Rounds in February. The Minister of Petroleum and Natural Gas saw a change at its helm from Mr Mani Shankar Aiyar to Mr Murli Deora. The much-awaited Petroleum and Natural Gas Regulatory Board Act, 2006 was enacted in April. Also, India embarked on the Integrated Energy Policy. More specifically, committees to look into alternative pricing systems for petroleum products, pricing of natural gas, and so on, submitted their reports. The Indian oil and gas companies went on investment binge for assets abroad and a few major oil and gas discoveries were made during the period.</p></sec><sec id="sec002"><title>Change at the helm: petroleum and natural gas ministry

On 30 January 2006, Mr Murli Deora became the Minister for Petroleum and Natural Gas. Improving the track record of public sector oil companies in exploration, the issue of fuel subsidies, and the problems of the public sector OMCs (oil marketing companies) were earmarked as the focus areas for the new petroleum minister.

NELP VI and CBM II rounds

On February 2006, under the NELP (New Exploration Licensing Policy) for exploration of oil and natural gas, the Government of India announced sixth offer of exploration blocks. Companies were invited to bid for 55 exploration blocks. A total of 25 onland blocks, 6 shallow water blocks, and 24 deepwater blocks (beyond 400 metre bathymetry) were offered. Companies were allowed to bid for one or more blocks, singly or in association with other companies, through an unincorporated or incorporated venture. Table 1

Bids received under NELP-VI

Type of blocks	Number of blocks	National oil companies	Private	Joint venture	Total

Deep water	24	12	29	11	52
Shallow offshore	6	2	14	8	24
Onland	25	14	35	39	89
Total	55	28	79	58	165

Source www.indiaupstream.com

NELP VI

The government undertook intensive promotional efforts to promote 55 blocks on offer. A special website was created which had online availability of data, bid documents, including terms and conditions for NELP-VI and other promotional material. The successful bidder was required to enter into a PSC (production-sharing contract), which was negotiated based on the MPSC (model production-sharing contract). One of the major achievements of NELP-VI was that besides having received bids for 21 deepwater blocks, bids have also been received for all the 12 frontier onland blocks. This has by far been the highest offering of frontier onland blocks and the interest shown by E&P (exploration and production) companies in undertaking exploration in these blocks shows the maturity of the Indian sedimentary basin.

Exploration activity in these blocks is likely to enhance the understanding of the thrust belt of north-eastern states and central India. It is also a major achievement of the present round that barring the single Andaman deepwater block in the eastern offshore, bids have been received for all the 21 other deepwater blocks in the eastern offshore. The ambitious exercise to launch collection of regional data in the beginning of the year 2006 for deep waters coupled with the sixth round of NELP has been a success in bringing the eastern offshore under exploration in a large way. The renewed interest of multinationals, namely, BG, BP, Petronas, ENI, and the entry of the French multinational, TOTAL, augured well for the oil and gas exploration activity underway in India.

CBM III

In order to explore and produce CBM (coal bed methane), the Government of India announced an offer of 10 blocks. Out of these, two blocks each are located in the states of Andhra Pradesh, Chhattisgarh, Madhya Pradesh, Rajasthan and one block each in Jharkhand and West Bengal. Technically and financially competent foreign and Indian companies were invited to bid for exploration and production of CBM in the blocks on offer. Companies were allowed to bid for one or more blocks, singly or in association with other companies through an unincorporated or incorporated venture. Foreign/Indian companies can have up to 100% participating interest. The successful bidder was required to enter into a contract with the government, which negotiated based on the MC (model contract).

Petroleum and Natural Gas Regulatory Board Act 2006

India achieved a major policy milestone when on 3 April 2006 the much-deliberated Petroleum and Natural Gas Regulatory Board Bill, 2006 finally became an Act after more than four years of toil. On 3 March 2006, the Bill to set up a regulatory board for the downstream petroleum and natural gas sector was passed by the Rajya Sabha. The Petroleum and Natural Gas Regulatory Board Bill, 2005, envisages setting up of an independent regulatory mechanism with the objective of regulating the refining, processing, storage, transportation, distribution, marketing, and sale of petroleum and natural gas. Another aspect that the board would look into is to ensure uninterrupted and adequate supply of petroleum, and petroleum products and natural gas across the country. As this sector is increasingly getting deregulated, the proposed regulator will prevent exploitation of consumers and provide a mechanism for ensuring uninterrupted and adequate supply of petroleum products at fair prices. The ‘Policy for Development of Natural Gas Pipelines and City or Local Natural Gas Distribution Networks’ was notified on 20 December 2006. Table 2

CBM-III blocks

Block name	Coal/lignite	State	Company/consortium

RM-CBM-2005/III	Rajmahal	Jharkhand	ARROW–GAIL–EIG–TATA
BB-CBM-2005/III	Birbhum	West Bengal	BP Exploration (Alpha) Ltd
TR-CBM-2005/III	Tatapani-Ramkola	Chhattisgarh	ARROW–GAIL–EIG–TATA
MR-CBM-2005/III	Mand-Raigarh	Chhattisgarh	ARROW–GAIL–EIG
SP(N)-CBM-2005/III	Sohagpur	Madhya Pradesh	REL–RNRL–Geopetrol
SR-CBM-2005/III	Singrauli	Madhya Pradesh	COALGAS–Deep Industries
KG (E)-CBM-2005/III	Kothagudem	Andhra Pradesh	REL–RNRL–Geopetrol
BS(4)-CBM-2005/III	Barmer	Rajasthan	REL–RNRL–Geopetrol
BS(5)-CBM-2005/III	Barmer	Rajasthan	REL–RNRL–Geopetrol
GV(N)-CBM-2005/III	Godavari North	Andhra Pradesh	COALGAS–Deep Industries–Adinath

Source www.indiaupstream.com

Special committee reports

Several committees were formed to look at various aspects of the oil and gas sector, some of the most prominent ones, that will have a long-term effect on the sector are: i) Committee on Pricing and Taxation of Petroleum Products, ii) Integrated Energy Policy August 2006, and iii) committee to formulate transparent guidelines for approving gas price/formula under PSC.

Gas pricing/transportation tariff

In accordance with the cabinet decision of May 2005, the APM (Administered Pricing Mechanism) gas price applicable to small consumers having allocation up to 0.05 MSCMD (million standard cubic metres per day), and to city gas distribution networks had been increased from Rs 2850/MSCM to Rs 3200/MSCM for general consumers and from Rs 1700/MSCM to Rs 1920/MSCM for consumers in the north-east w.e.f. 1 August 2005. The cabinet decision had also envisaged that the gas price for these consumers would be progressively increased over the next three to five years to reflect the market price. In line with the decision, the APM gas price for these consumers has been further increased by 20% from Rs 3200/MSCM to Rs 3840/MSCM w.e.f. 6 July 2006. For consumers in these categories in the north-east, the price has been increased from Rs 1920/MSCM to Rs 2304/MSCM. It has also been decided that GAIL shall charge market price for the quantity of gas being marketed by MGL (Mahanagar Gas Ltd) and IGL (Indraprastha Gas Ltd) to industrial consumers at market price. It may be noted that the APM gas price for power and fertilizer sector consumers has not been increased. Regarding transportation tariff for natural gas, the government decided that the combined single tariff of Rs 831/MSCM for use of DVPL (Dahej–Vijaipur pipeline) need not be paid by GSPL's (Gujarat State Petronet Ltd) customers. The connectivity charges of GSPL to DVPL were kept at Rs 280/MSCM only. This decision was made effective from 1 June 2006. The government, after examining the report of the Tariff Commission, reduced, w.e.f. 1 November 2006, the transportation tariff for all the customers of KG (Krishna–Godavari) basin gas supply network as follows.

Tatipaka–Kakinada–Kovur network Rs 413/MSCM

Tatipaka–Kondapalli network Rs 1056/MSCM

Indian oil and gas majors intensify oil and gas hunt abroad

In the year 2006, the Indian oil and gas majors further strengthened their international operation and diversified their portfolio, which was predominately in the Middle East to new areas like Latin America. Further, Indian companies also joined hands with foreign companies to explore foreign territories. OVL (ONGC Videsh Ltd) signed a PSC with the Republic of Cuba, Venezuela, Brazil. GSPC (Gujarat State Petroleum Corporation) is to form an overseas investment arm to explore hydrocarbon exploration and production opportunities in Oman, Qatar, and Syria. Project-specific SPV (special purpose vehicle) of the IOC (Indian Oil Corporation) and OIL (Oil India Ltd), floated for overseas acquisitions and exploration, is scouting for new oil and gas blocks in Indonesia.

Major oil and gas discoveries

All gas and oil discoveries made so far under the PSC regime are monitored with respect to the time frame provided in respective PSCs. Some of the major discoveries include Reliance Industries, which discovered huge oil reserves in its gas-rich D6 block in the KG basin off the east coast on 18 December 2006. State-run ONGC (Oil and Natural Gas Corporation) has made a huge gas find in the KG basin with initial estimates suggesting reserves of about 21 TCF (trillion cubic feet), and has also struck a big gas field in the Mahanadi basin off Orissa coast. ONGC, which had previously discovered 2–3 TCF of gas reserves in about half-a-dozen wells in the KG basin block KG-DWN-98/2, struck a 28-metre net gas pay zone when deep sea drill ship Belford Dolphin reached 5300 metres depth at well UD-1, 55-km from the coast. Separately, ONGC has struck an estimated 3–4 TCF of gas in Block MN-OSN-2000/2 in water depths of about 1200 mts (metres), sources said. They said ONGC has also found 15–20 million barrels of oil reserves in an Assam block. OVL (ONGC Videsh Ltd) announced a significant new oilfield discovery in their first exploration well North Ramadan-1A in the North Ramadan Concession, Gulf of Suez, Egypt, along with its partner IPR Red Sea Inc. The total potential resources in the block exceed 200 million barrels of oil. Cairn India announced two new oil and gas discoveries in its Rajasthan block. It also said it had received a six-month extension from the government for exploration of the northern appraisal area of the block. The discoveries were made in the Kameshwari West-2 and Kameshwari West-3 wells. The Kameshwari West-2 discovery is located 12 km north west of the 2003 Kameshwari discovery, and 56 km south of the Mangala field. The Kameshwari West-3 discovery is located to the north of Kameshwari West-2. Two drill stem tests were conducted whose results in the upper interval confirmed the presence of a gas pool that flowed at approximately 75 000 standard cubic feet per day. The deeper test of the potential oil accumulation remains inconclusive due to the tight nature of the reservoir rock.

SourcesTEDDY (TERI Energy Data Directory and Yearbook). 2005/06http://www.infraline.com.The Financial Express, 20 February 2007Hindustan Times, 11 May 2007The Financial Express, 4 January 2007 http://www.indiapetro.com.

Recent developments

India's oil import growth touched a five-year low of 5.33% in the first four months of 2007/08 following a rise in rupee value despite a sharp increase in prices of crude oil in the international market. Oil imports, most of which comprise crude, were valued at $19.87 billion between April and July 2007/08 against $18.87 billion for the comparable period of last year.

The government is contemplating the establishment of the NDR (National Data Repository) to facilitate transparent data assessment in the upstream oil and gas sector.

Crude oil output of the country rose by 10.6% in December 2006. However, natural gas output fell by one per cent to 2.723 BCM (billion cubic metres) in December from 2.751 BCM during the same month of the previous year.

IOC (Indian Oil Corporation) will commission a 15-MT (million tonne) oil refinery and an accompanying petrochemical complex at Paradip in Orissa by October 2011. The refinery-cumpetrochemical complex would cost Rs 256.46 billion ($6.41 billion).

NRL (Numaligarh Refinery Ltd) – a BPCL (Bharat Petroleum Corporation Ltd) subsidiary – has finalized a Rs 3000 million ($66.66 million) investment on up-gradation of diesel hydrocracker unit to replace its existing Euro-II diesel production capacity with Euro-III fuel. The commissioning of the project is expected to begin in 2007/08.

State-owned crude oil refining companies are lining up investments to the tune of Rs 500 billion ($11.11 billion) to upgrade their refineries, as part of the vision to make the country the ‘world's refinery hub’.

TERI

TERI Information Digest on Energy and Environment

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The Energy and Resources Institute

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Media review

92007

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<tideeAbstracts><tideeAbs><Title>Oil exploration companies seek changes in merger policyThe Hindu Business Line 2 September 2007Oil exploration companies including RIL (Reliance Industries Ltd) have sought modifications in the proposed extension policy which seeks to merge exploration phases of offshore blocks under NELP three and four rounds thereby giving these companies additional two years to undertake activities. The exploration companies have cited technical hitches in implementing the proposed policy. Industry sources said the recently formulated policy falls short of intent to address the unforeseen situation of non-availability of offshore rigs in the international market. A precondition for availing the merger policy is that the contractor should have availed the 18-month extension provided for under the existing extension policy. This, in effect leaves the contractor with just additional six months to undertake exploration activities under the new dispensation, they added. Rather than providing relief to the operators in these blocks by granting an extension of exploration phases, the status quo continues for the contractors, the sources said.ONGC, BP in pact for exploration, production bizThe Hindu Business Line 1 September 2007ONGC (Oil and Natural Gas Corporation Ltd) has entered into an MoU (memorandum of understanding) with global oil major, BP, to collaborate in E&P (exploration and production) business in India and abroad, which includes sharing of knowledge in CBM (coal bed methane) and deepwater activities. This tie-up with BP comes close on the heels of ONGC joining forces with Italy's Eni, Brazil's Petrobras, and Norwegian Norsk Hydro, for related activities.India's dependence on oil imports to grow 85% by 2012: reportThe Financial Express 17 August 2007India's dependency on oil imports is likely increase to about 85% by 2012 from the current level of 70%, driven by the rising demand for energy, industry body ASSOCHAM said. A chamber paper on ’Future Imperatives of Crude Oil Scenario’ shows that India's dependence on crude oil import would rise, as domestic discoveries have not been taking place, to touch the level of 12%–13% compared to 7%–8% at present. Even in case of the alternative sources of energy, which are available in abundance in India, their harnessing is again becoming a problem, the statement added. It said even projects that are likely to be commissioned during the Eleventh Plan by companies such as RPL (Reliance Petroleum Ltd), IOC (Indian Oil Corporation), HPCL (Hindustan Petroleum Corporation Ltd), and BPCL (Bharat Petroleum Corporation Ltd) would employ higher imports of crude oil, if domestic crude oil production continues to languish. However, the chamber is of the view that the higher crude oil imports would not impact the trade deficit adversely as most of the addition in the new capacities is aimed at exporting value-added products.Policy report likely to be ready by April 2008Mint 1 August 2007The task force constituted to help streamline the existing CBM policy plans to submit its report by April 2008. The policy is expected to address a range of issues, including the provision of fresh incentives to stoke foreign investments and combining methane extraction with coal mining, especially where blocks overlap. CBM could be a viable alternative fuel for several industries and is a gas found between layers of coal beds that is produced by a process of de-pressurizing and de-watering. India's demand for gas is currently 179.17 MSCMD, while the supply is 80.54 MSCMD. Experts say that the volume of such methane is related to the amount of coal in a country, and India has the fourth-largest reserves of coal in the world. The government has awarded 26 methane blocks for exploration. The total resources in these blocks are 1374 BCM (billion cubic metres), with a production potential of about 38 MSCMD, about half of the country's current gas demand.Navratna oil PSUs allowed to invest abroadThe Hindu Business Line 19 May 2007The RBI (Reserve Bank of India) has allowed Navratna PSUs (public sector undertakings) to invest in unincorporated entities in the oil sector abroad under the automatic route, without prior approval. It has liberalized and simplified the procedures for Navratna PSUs – ONGC (Oil and Natural Gas Corporation), HPCL (Hindustan Petrochemical Corporation Ltd), BPCL (Bharat Petroleum Corporation Ltd), GAIL (Gas Authority of India Ltd), and IOC (Indian Oil Corporation) – and has done away with the prior RBI approval for investing in oil companies abroad. However, the PSUs will have to continue to get their proposals approved by the appropriate competent authorities—the Empowered Committee of the Secretaries and Cabinet Committee on Economic Affairs. It also has to be supported by a certified copy of the Board Resolution approving such investment.

TERI

TERI Information Digest on Energy and Environment

0972-6721

The Energy and Resources Institute

tidee-6-3-001c

Technoscan

92007

63297298

<tideeAbstracts><tideeAbs><Title>ONGC, Norsk Hydro in tech transfer MoUBusiness Standard 20 June 2007The ONGC has entered into an agreement with Norway's Norsk Hydro for technology to produce gas in the ultra deep-water block in the KG basin, even as an ONGC official said that the gas reserves in the block were ’just above 2.5 TCF (trillion cubic feet) as against the earlier estimates of about 15 TCF’. ’It appears that the reserves in the block are far below what we had first estimated. The MDT (modular dynamic testing) in the block seems to have thrown up some wrong estimates,’ the ONGC official said. The DGH (Directorate General of Hydrocarbons) had earlier disallowed the MDT carried out by ONGC in the KG basin block. The DGH had then said that conventional testing needed to be carried out in order to correctly determine the reserves. ONGC had earlier given Brazil's Petrobras 15% stake in the KG-DWN-98/2 block in a swap offer through which the Brazilian company offered India's largest exploration company 25%–30% stake in three of its blocks in Brazil.Vehicles may run on ’Hithane’DNA 1 June 2007An ambitious project to ensure fuel efficiency, cut down emission levels, and slash dependence on oil imports is finally being kickstarted. The project, which aims to develop an optimal mix of CNG (compressed natural gas) and hydrogen for use in existing vehicles, is being commissioned under the aegis of the Society of Indian Automobile Manufacturers. It would involve five Indian automobile majors, entail investment between Rs 100 million and Rs 120 million investment, and should begin yielding results within two years. The centre has agreed to bear about Rs 30 million of the total project cost, with a similar amount being invested by IOC. The rest would come from the five automobile majors participating in this project. Besides Tata Motors, Bajaj Auto, Mahindra and Mahindra, Ashok Leyland, and Eicher Motors have also come together for this project. The idea is to use various combinations of CNG and Hydrogen – called hithane – in existing vehicles to determine an optimum mix, which not only ensures fuel efficiency but also allows minimum engine modification.New fluid technology developedDrilling & Exploration World 16(7): 8 (2007)Saudi Aramco, the world's premier oil company, and Schlumberger, the world's leading oilfield services provider, have jointly developed new reservoir FMM (fluid-movement monitoring) technology to manage flow-monitoring challenges in carbonate reservoirs. The joint effort has resulted in the development of a highly specialized interpretation method with verification of an experimental EAR (electrode array resistivity) measurement technique that allows measurement of changes in water saturation over time at different distances from well-bore. The results have shown that the EAR measurement is an important component in the development of reliable reservoir formation data. It enables simultaneous measurement of flow rate, pressure, and resistance for better in-situ static and dynamic reservoir characterization, ultimately leading to maximized recovery of oil and gas resources in the region.A new aqueous emulsion breaking solution for oil and gas sectorDrilling & Exploration World 16(7): 13 (2007)Planet Resources Recovery, Inc. developer, manufacturer, and marketer of the Petroluxus family of products, has introduced Petroluxus 500—a new aqueous emulsion-breaking product for the oil and gas sector. Petroluxus 500 is a specially blended aqueous chemical solution developed for the treatment of hydrocarbon emulsions. When introduced into an emulsion, Petroluxus 500 disperses rapidly while eliminating the interfacial surface tension between oil and other materials such as water, metals, dirt, sediments, and other contaminants. The product works rapidly, usually within several hours, to effect separation of hydrocarbon emulsion components resulting in a stratification of materials by specific gravity. The stratification of materials by specific gravity provides an efficient method for the remediation and recovery of the components. Petroluxus 500 offers the opportunity to recover hydrocarbons and reduce former waste to non-hazardous, disposable, and saleable materials.