Scaling Up: Key initiatives to boost domestic gas production

Key initiatives to boost domestic gas production

The share of natural gas in India’s primary energy mix has hovered at around 7 per cent in the past couple of years. The rapid increase in domestic energy consumption has resulted in rising imports of liquefied natural gas (LNG), given the almost stagnant state of domestic natural gas production. As per data available from the Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas (MoPNG), the country’s import dependence increased to 83 per cent in 2017-18 (and 47 per cent in 2018-19, till October 2018) from 49.7 per cent in 2013-14. Taking cognisance of this very high dependence, the government announced that it would like to reduce oil and gas imports to 67 per cent by 2022 from the 2015 level of 78 per cent.

History and current state

Indigenous gas production started in Assam and Gujarat in the 1960s. During the decade, the largest crude oil producer, the Oil and Natural Gas Corporation (ONGC) accounted for about 80 per cent of the total domestic production. At present, its share has declined to about 40 per cent.

Further, the existing gas pipeline infrastructure in India is skewed heavily towards the western region, while the eastern and southern parts of the country are not well connected.

Given the rapidly increasing gas demand, the sustainability of gas fields is crucial. However, despite a 50 per cent increase in the oil and gas discoveries over the past 20 years, domestic oil and gas production has remained low. A number of gas fields have been excessively exploited and have dried up within 10-15 years.

Oil and gas companies are now taking initiatives to improve gas recovery from their fields. For instance, ONGC has invested in the installation of booster compressors to enhance the life of its gas fields. Even today, the company produces 30 million standard cubic metres per day of gas from its Bassein natural gas field in the Arabian Sea which was discovered in 1976 and began production in 1988.

Key initiatives

In March 2015, the central government formulated the Energy Security Vision 2022, which laid down the objective of creating 175 GW of renewable energy capacity by 2022 and achieving a 10 per cent reduction in hydrocarbon imports by 2021-22. To this end, various steps have been taken by the government. In March 2016, it introduced the Hydrocarbon Exploration and Licensing Policy (HELP), replacing the New Exploration Licensing Policy (NELP) that was in existence since 1997-98. By allowing exploration and production (E&P) companies to choose the areas they want to explore, the new policy attempts to address a major drawback of the NELP regime that forced E&P companies to bid for projects selected by the government. Further, to boost indigenous gas production, five key strategies have been adopted. These are enhancing energy efficiency; energy conservation; promotion of alternative fuels such as gaseous fuels in the short term and renewable energy in the long term; demand substitution in favour of unconventional gas sources such as coal bed methane and shale gas; and improvements in refinery processes.

Issues and challenges

Low gas prices have been a major area of concern for the oil and gas industry, particularly E&P companies. The current price of nominal gas is $3.36 per million British thermal units (mmBtu) from October 1, 2018 to March 31, 2019, has been derived from the Henry Hub (US), BP Alberta (Canada) and Russian gas price indices. At this price, the expansion of existing domestic facilities is barely affordable. However, the gas price is not viable for the development of new gas fields. On the other hand, the prevailing spot LNG price is not sustainable for segments such as city gas distribution that operate on very narrow profit margins.

Another issue is the lack of progress in the pipeline segment. Utilisation of the existing pipelines has remained low, while the development of new pipelines has been slow owing to issues related to land acquisition and right of use. The exclusion of natural gas from the ambit of the goods and services tax, overexploitation of gas fields by private players, and ageing fields and infrastructure are other key challenges.

Going forward

In order to promote E&P activity, gas prices, which are currently not very attractive, will need to be reviewed on a regular basis. Further, there is an urgent need to adopt advanced technologies and solutions in oil and gas production and operations in a bid to optimise costs. This would require greater private sector participation, particularly in E&P activities. Even though the government has taken several policy initiatives, these are fairly recent and are yet to have any significant impact on the sector.

Going forward, there is a need to incentivise the upstream and midstream segments and develop the infrastructure necessary to improve last-mile connectivity. The creation of adequate support infrastructure (LNG terminals, pipeline connectivity, draught, etc.), investment in unconventional sources, and monetisation of discoveries will be key enablers for sector growth.

Based on remarks by Sanjay Kumar Moitra, Director, Onshore, ONGC, at a recent India Infrastructure conference