Oil
and natural gas sector - Introduction
Value
chain
The oil industry can be
divided into three major components: upstream, midstream and downstream. The upstream
industry includes exploration and production activities, hence is also referred
as the exploration and production (E&P) sector. The midstream
industry processes, stores, markets and transports commodities including crude
oil, natural gas, natural gas liquids (NGLs) like ethane propane and butane and
sulphur. The downstream
industry includes oil refineries, petrochemical plants, petroleum products
distributors, retail outlets and natural gas distribution companies. The
downstream industry provides consumers thousands of products such as gasoline,
diesel, jet fuel, heating oil, asphalt, lubricants, synthetic rubber, plastics,
fertilizers, antifreeze, pesticides, pharmaceuticals, natural gas and propane.
Both internationally and within India the oil and gas sector is characterized
by existence of "integrated" companies, which are present in all
these three sectors.
The
flow chart below shows oil value chain depicting the entire process under which
both upstream and downstream segments are covered (Figure 2). To start with,
crude oil is explored and produced (Upstream) and then transformed into various
petroleum products with different end uses (see table for end uses) in refineries
and finally marketed to retail customers (Downstream). Except Aviation Turbine
Fuel (ATF) and Liquefied Petroleum gas (LPG), all the end products are sent
to intermediate storage plants through terminal/depots and finally to retail
customers. As regards ATF it is distributed directly to the Airfields or Air
stations and refined LPG is dispatched to LPG storage/bottling plants for liquefaction
and marketing to retail customers. Pipelines are mostly used to transfer the
petroleum products and by products. For onshore fields, coastal tankers are
used.
Figure 1: oil value chain
Upstream sector:
Exploration and production
Upstream sector, the
first part of the oil and gas industry, deals with exploration and production
of oil and gas. Oil exploration takes place at oil wells in four stages. The
first stage is drilling, act of boring a hole through which oil or gas may be
produced if encountered in commercial quantities. The second stage is completion,
process in which the well is enabled to produce oil or gas. The third stage is
production, production time of oil and gas and the final stage is abandonment,
where the well no longer produces or produces so poorly that it is a liability
to its owner and is abandoned. An oil
field is a region with an abundance of oil wells extracting petroleum (oil)
from below ground. Because the oil reservoirs typically extend over a large
area, possibly several hundred kilometres across, full exploitation entails
multiple wells scattered across the area. There are more than 40,000 oil and
gas fields of all sizes in the world (BP statistical Review,2006) and the
largest discovered conventional oil field is the Ghawar Field (75-83 billion)
is Saudi Arabia.
In tandem with the stagnated reserves, the production of oil has
also been sluggish over the last decade, as a matter of fact in last ten years
oil production has increased by only 1.6%.
Reserve
to production ratio
Reserve to Production
Ration (R/P Ratio) is the portion of the identified resource from which usable
natural resources can be economically and legally extracted out of the ground.
Production can be offshore as well as onshore. An offshore system of production
is defined with a platform raised above the water to support a number of
producing wells whereas onshore is a platform at the sea level. R/P ratio for
the world at the end of 2005 is 40.6 implying that natural resources that has
been identified subject to pull out till date is about 40 times the amount already
taken out of the ground.
Downstream:
Refining and marketing
Refining, the second
part of the oil industry after exploration and production, is related with
manufacturing petroleum products by a series of processes that separate crude
oil into its major components and blend or convert these components into a wide
range of finished products, such as gasoline or Aviation Turbine Fuel. Refining capacity depends on the technology
used in refineries, capable of processing crude production into clean fuels. In
the recent age of decreasing oil production refining capacity have to have well
supportive technology, which meet increasingly more stringent environmental
Standards. With the increase in global oil demand and stagnant reserve,
refining capacity deserves new capacity addition to meet demand. But the graph
shows slightly increasing trend of refining capacity till date in last decade.
Refinery throuput, as opposed to designed capacity, is computed by dividing the
number of refined barrels of oil processed by the actual number of days the
refinery was in operation. Refined capacity is lower than refined throuput in
the graph below implying underutilisation of capabilty of processing crude in
the existing refineries and lack of upgradation.
Global
oil & gas scenario
Oil and gas together
account for majority of the total primary energy requirements of the world.
Nearly 60% of the total primary energy consumption the world over is accounted
by oil and gas (BP
Stats). Even with this high proportion of consumption, the reserves for the
same have remained almost stagnant for the last 15 years.
Key
oil suppliers
The Organization of the
Petroleum Exporting Countries (OPEC) is a cartel made up of Algeria, Indonesia,
Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab
Emirates, and Venezuela countries hold about two-thirds of the world's oil
reserves. In 2005, OPEC accounted for 41.7% of the world's oil production, compared
with 23.8% by OECD members and 14.8% by the Former Soviet Union (BP
statistics).
Indian
oil and gas sector
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. The oil & gas sector meets more
than two third of the total primary energy needs in the country. The sector has
been instrumental in putting India on the world map. At present India is the
sixth largest crude oil consumer in the world and the ninth largest crude oil
importer. The country is also increasing its share in the global refining
market. At present Indian refining sector is the sixth largest in the world.
This position is expected to be strengthened with plans of Reliance Petroleum Limited to commission another
refinery with a capacity of 29 MTPA next to its 33 MTPA refinery at Jamanagar,
Gujarat. As a result of this the Reliance refinery would be world?s largest
single place refinery.
Reserves
At the end of 2005,
India had 0.5 % of the Oil and Gas resources of the world and 15 % of the
world?s population whereas the reserve to production ratio is 20.7 (BP
statistics 2006). At the end of 1995 India had the 5.5 thousand million barrels
of reserves, grown only 1% till the end of 2005 whereas crude oil consumption
has grown more than 10% over the last 5 years.
Indian
economy and international oil prices
Oil intensity - the
ratio of oil consumed per unit of GDP- in India is almost three times higher
than that of the OECD countries while that of China is a little higher than
twice the oil intensity of OECD countries(Integrated
Energy Policy, Planning Commisssion, 2005). However, according to the FICCI
estimates of oil intensity based on GDP (on purchasing power parity basis),
India and China had the lowest oil intensity across most major developing and
developed countries. The oil intensity of the Indian economy has slowed down
from 0.05 in 1999 to 0.04 in 2004.
Onshore
and offshore oil and gas fields in India
In India crude oil is
produced in Onshore and Offshore. Onshore fields are in Assam/Nagaland,
Arunachal Pradesh, Gujarat, and Tamil Nadu/ Andhra Pradesh. Oil India Limited
(OIL) and Oil and Natural Gas Commission (ONGC) have the onshore field for
crude oil production. Offshore production occurs at Bombay High run by ONGC and
Private/Joint Venture companies. For the natural gas onshore fields are the
same for Crude oil in addition with Rajasthan as an onshore field. For the
offshore Bombay high is the one for the production.
Market
design
Public sector
corporations dominate the Indian exploration and production sector. In terms of
the percentage share in total production Oil and Natural Gas Corporation (ONGC)
accounts for the highest share. The
second major player in the sector is also a public sector undertaking Oil India
Limited (OIL). Both of these undertakings account for about 87% of the total market. The remaining share of the pie is cluttered
with various private players in the market. In aggregate, private players
account for about 13% of the total.
During Tenth Five year Plan period (2002-07), ONGC and OIL are likely to achieve Tenth Plan
target of 2D Seismic, 3D Seismic survey and exploratory drilling.
New
Exploration and Licensing Policy (NELP)
India has a total of
around 3.14 million sq. km sedimentary basins and in last eight years
significant steps have been made to increase exploration activities. Consequent
to these efforts the total
unexplored area has come from 50% in 1995-96 to 30% at present. One
landmark policy, which was introduced by the Government of India to enhance
exploration activity in the country, was introduction of New Exploration
Licensing Policy (NELP) in 1997-98. The aim of the policy is to provide a level
playing field to all the parties, private and public, to compete on equal terms
for the award of exploration acreage.
Various
measures are being taken to substantially accelerate exploratory
activities for enhancing domestic oil and gas production. These measures
include the following: -
(i) Improving the recovery factor from existing major fields by
implementing Enhanced Oil Recovery (EOR)/Improved Oil Recovery (IOR)
schemes-in particular, Oil and Natural Gas Corporation Ltd have taken up
15 fields for this purpose at an estimated investment of Rs 10,972
crore, which would also help in accelerating oil production from these
fields;
(ii) Exploring new areas, especially in deep waters and difficult
frontier areas, as also the deeper layers of already producing fields;
and
(iii) Developing newly discovered fields speedily and stepping up the
use of new technologies for seismic surveys, work over, stimulation
operations, drilling of wells etc. in producing areas.
Till date five rounds
have been completed under the NELP under which 144 blocks were offered of which
108 have been awarded to various public and private companies or consortia. The bids are then evaluated by the Government
on the basis of transparent quantitative bid evaluation criteria, the key
criterion being technical capability, financial capability, work programme and
fiscal package. Substantial discoveries
have been in the awarded blocks. The most prominent among them are first the
gas discovery at the Krishna Godavari basin in the deep-water block KG-
DWN-98/3 by Reliance and Niko consortium in 2002. The accepted reserves from
the field are around 12-14 TCF. This was the largest gas find in the world for
2002. Second prominent gas find was the gas find by Gas State Petroleum
Corporation in the KG Basin in 2004. According to GSPC?s estimates the field
has reserves of around 20 TCF. During 2005-06 and 2006-07 (till July 2006) a
total 24 oil and gas discoveries have been made under the Production Sharing
Contracts (PSCs) regime. ONGC and OIL have made 5
hydrocarbon discoveries each during 2005-06 in their nomination blocks.
These discoveries are under various stages of appraisal. The amount of
production will depend on their commerciality and, thereafter, their
development plans. Since all production is meant for domestic sale and
consumption it will entirely go toward meeting the domestic demand. Under the
latest NELP round, NELP
VI, the Government of India has offered 55 blocks -24 deepwater, 6 shallow
water and 25 onshore blocks. It has received an over whelming response for this
round with 165 bids for 52 blocks.
Exploration
overseas
In keeping with the
objectives of the Energy Security section of the National Common Minimum
Programme, ONGC Videsh Ltd. (OVL),
wholly owned subsidiary of ONGC, as well as other national oil companies such
as IOC, OIL and GAIL, have been pursuing the acquisition of equity oil abroad,
as well as the acquisition abroad of oil and gas exploration acreages and
producing properties. These companies have participating interests in oil and
gas projects located in Vietnam, Sudan, Russia, Iraq, Iran, Myanmar, Libya, Syria,
Australia, Ivory Coast, Qatar and Egypt. OVL,
in association with other oil sector PSUs, is aggressively scouting for E&P
opportunities in countries such as Venezuela, Kazakhstan, Kuwait, Yemen, Chad,
Niger, Nigeria, Angola, Cuba, Sierra Leone and Ecuador in addition to efforts
to acquire more E&P assets in the countries where it is operating
currently.
Production
Domestic production of
crude oil has been a reason of worry for the Indian economy for some time now.
For more than 16 years the total production of crude has stagnated around 32-33
MMT. This has been particularly
disturbing given the crude oil consumption in the country implying an
increasing dependence on imported crude. At present India?s crude dependence is
around 78%. According to TERI estimates, by 2030 India?s import dependency may
shoot up to a disturbing 93%. In the
current year, the production of crude oil in the country during the first half
(April-Sept.? 06) was 16.14 MMT as against 17.00 MMT during the corresponding
period of 2004-05, a shortfall of about 5% (MoPNG, GOI).
Refining
Oil refining is a
continuous process and the cost of refining of individual petroleum products is
not worked out separately because all products are produced together. The cost
of refining crude oil depends upon a number of factors including the type of
crude oil, size of refinery, refinery configuration, age of equipment,
technology used, etc. The technology for producing the petroleum products from
the crude oil differs from one refinery to another. The hydro cracker and
catalytic hydro cracker technology are the two major technologies through which
petroleum products are yielded.
There
are 18 refineries operating in the country, 17 in the Public Sector and one
in the Private Sector, with a total installed capacity of 127.37 million metric
tonnes per annum (MMTPA).
Natural gas
Natural gas is a gaseous fossil fuel consisting primarily of
methane. In India production of natural gas has increased over 3 times in the
last two decades though the share of the production of natural gas with respect
to world natural gas production wais only 0.6% at the end of 2005 and reserve
to production ratio of 36.2.
Petroleum
and Natural Gas Regulatory Board (PNGRB) Act
Petroleum and Natural Gas Regulatory Board
(PNGRB) Act came into force on April 03, 2006 to protect the
interest of consumers and entitles engaged in specified activities to ensure
uninterrupted and adequate supply of petroleum, petroleum products and natural
gas in all parts of the country and promote competitive markets in Oil and Gas
sector of India.
From http://www.indiaenergyportal.org/subthemes_link.php?themeid=9&text=pet_natural
