E&P Reforms

Current scenario, and oil and gas availability

The demand for oil and gas in the country currently exceeds supply by a wide margin. In order to bridge this demand-supply gap, India has resorted to importing crude oil. Domestic natural gas production in financial year 2020-21 was 28.6 billion cubic metres (bcm) while 30.5 million tonnes (mt) of crude oil was produced in the country during the period. Indigenous natural gas production caters to about 51 per cent of the country’s requirements, while around 85 per cent of the country’s crude oil is imported.

In order to increase domestic production, a number of initiatives are being taken by the government to attract investments in exploration and production (E&P), and for setting up the transmission and distribution infrastructure. The biggest achievement has been the introduction of the Hydrocarbon Exploration and Licensing Policy (HELP) and the Open Acreage Licensing Policy (OALP). These policies allow exploration companies to propose their own area/block for bidding and provide a uniform licensing system to cover all hydrocarbons under a single licensing framework.

Current E&P trends and gas availability

The E&P segment has moved from the pre-New Exploration and Licensing Policy (NELP) days in the 1980s to NELP in the 1990s and 2000s and finally to HELP in March 2016. The government has increasingly used public-private partnership as the framework for implementing these policies. In 2017, the government reassessed the resource potential of its existing 26 sedimentary basins by conducting a hydrocarbon resource reassessment study.

Changes in policies for exploration and production have had a positive impact on the industry. In a significant overhaul of oil and gas exploration permits, in 2019, the government decided not to charge any share of profit on hydrocarbons produced from less explored areas. The decision was taken to attract private and foreign investment in order to raise the domestic output.

HELP, announced in March 2016, replaced the earlier NELP that had been in place since 1997-98. HELP proposes radical changes in terms of moving to a revenue-sharing regime, the introduction of a single licence and a shift to open acreage licensing. The OALP regime gives companies the freedom to select blocks or areas to explore and produce oil and gas after studying the seismic data available in the National Data Repository (NDR). The new policy framework provides a revenue-sharing model for the oil and gas blocks. Further, it provides marketing and pricing freedom for the oil and gas produced from these blocks.

The OALP mechanism allows investors to carve out blocks of their choice by assessing E&P data available at the NDR and by submitting an expression of interest (EoI). EoIs can be submitted any time throughout the year without having to wait for a formal bid round from the government. Domestic natural gas output had fallen 2.8 per cent year on year to 31.2 bcm in financial year 2020, reversing the growth trend recorded since financial year 2018. However, natural gas production increased 22.7 per cent year on year to 2.7 bcm in April 2021, mainly due to higher production from Reliance Industries and BP’s ultra-deepwater field in the KG D6 block of the Krishna-Godavari basin on the east coast.

The current price for the gas produced from local nominated fields has been revised to an all-time low of $1.79 per million British thermal units (mBtu) by the government, which is much below the break-even point for most fields, deterring gas producers from aggressively increasing production or getting into new high-risk projects. Meanwhile, for ultra-deep-water gas fields such as the Krishna Godavari basin, which have higher pricing and marketing freedom, the price cap has been set at $3.62 per mBtu.

Future outlook

Going forward, the new policy changes are likely to reshape the oil and gas sector. The government is now offering a number of oil and gas blocks for E&P under the HELP bidding rounds to increase domestic production. These measures are expected to give an impetus to the sector along with a resultant reduction in imports.

The government has also launched the Exploration & Production Action Plan 2023-24 under which specific production targets have been mentioned. With the help of this action plan, oil and gas E&P operators and national oil companies are expecting to attain a production level of 50 bcm of gas and 40 mt of crude oil by the financial year 2024.

Further, the Ministry of Petroleum and Natural Gas is encouraging the industry to accelerate E&P activities through greater use of technology and geoscientific data and has also assured support to operators in the domestic production of oil and gas to ensure a secure energy future.

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