Bright Prospects: Recent policy and regulatory developments in the oil and gas sector

Recent policy and regulatory developments in the oil and gas sector

March 2022

India is looking to transform into a gas-based economy as it targets to increase the share of natural gas in its energy mix from 6 per cent in 2019 to 15 per cent by 2030. Repor­te­dly, the country will more than double the area under oil and gas exploration and production (E&P) to 0.5 million square km by 2025 and to 1 million square km by 2030 with a view to increase domestic output and reduce the re­liance on imported fuel.

Indian Infrastructure tracks the recent policy and regulatory developments in the oil and gas sector…

In terms of budget allocations, the sector’s share has reduced. While the allocation for the Mi­nistry of Petroleum and Natural Gas (MoPNG) in the Union Budget 2021-22 was 62.83 per cent lower than the revised budget estimate of 2020-21, it has reduced further in 2022-23 budget.

  • In the Union Budget 2022-23, the MoPNG has re­­ceived an allocation of Rs 89.4 billion (bud­get estimate). This allocation is 43.92 per cent lower than the budget estimate of Rs 159.43 billion for 2021-22. Of the total allocation in 2021-22, Rs 87.38 billion was allocated for central sector sc­he­mes and projects.
  • In another development, the government had increased the prices of natural gas by 62 per cent, from $1.79 per million British thermal units (mBtu) until September 2021 to $2.9 mbtu from October 2021 onwards for the next six months. However, according to ICRA Li­mited, the price of natural gas is still low and, therefore, gas production in India will still continue to remain a loss-making proposition.
  • Meanwhile, the Cabinet Committee on Eco­no­mic Affairs approved fixing higher prices for ethanol derived from different sugarcane-bas­ed raw materials from December 1, 2021 till November 30, 2022. There will be a three-tier pricing system comprising sugarcane, B-grade heavy molasses and C-gra­de heavy molasses from Ethanol Supply Year 2021-22.
  • The government plans to reduce the country’s oil and gas import dependence by 10 per ce­nt by 2022. In a bid to achieve this, both the central and state governments have taken ma­ny initiatives.

Central government

  • The central government unveiled the green hydrogen policy in February 2022. Under the policy, the renewable energy used for green hy­drogen production will get open access without central surcharge and zero interstate transmission charges for 25 years for projects commissioned before June 30, 2025. The policy will help cut the cost of manufacturing green hydrogen by 40-50 per cent.
  • As per latest updates, MoPNG and the Pet­roleum and Natural Gas Regulatory Boa­rd (PNGRB) have authorised 232 geographical areas (GAs) covering 407 districts spread over 27 states/union territories for the development of city gas distribution (CGD) networks. During 2019-20 and 2021-22 (till De­c­ember 31, 2021), over 3.6 million piped na­tural gas connections and 2,041 compress­ed natural gas stations have been added in the GAs authorised under the 9th and 10th bidding rounds. The 11th CGD bidding round was launched on September 17, 2021. It received 439 bids from 26 entities against 61 GAs. As of February 3, 2022, letters of in­tent for 52 GAs have been issued by the PNGRB to 13 entities.
  • Meanwhile, a total 105 exploration blocks ad­measuring an area of 156,580 square km have been awarded under the open acreage licensing policy (OALP) over five bidding rounds. On August 6, 2021, India launched a new oil and gas exploration bid round, to at­tract $300 million-$400 million investment in discovering hydrocarbon reserves. As many as 21 blocks or areas were offered in the OALP bid round 6, which was closed for bidding on October 6, 2021.
  • In another development, MoPNG has issued revised guidelines pertaining to au­tho­ri­sation to market transportation fuels. The revised guidelines would promote the ease of doing business and encourage private pl­a­yers to invest in the retail sector. The MoPNG has granted marketing authorisation to seven entities – Reliance India Limited, IMC Limited, Onsite Energy Private Limited, Assam Gas Company Limited, MK Agrotech Private Limited, RBML Solutions India Limi­ted, and Manas Agro Industries and Infra­structure Limited.
  • In a bid to enable ethanol blending, in Dec­em­ber 2021, the government lowered the goods and services tax on ethanol meant for blending under the ethanol blended petroleum (EBP) programme from 18 per cent to 5 per cent. This change is in line with the government’s plan of increasing ethanol in EBP to 20 per cent. The government has also notified the Pradh­an Mantri Jivan Yojna to promote second-generation ethanol production from cellulosic and lignocellulosic  by providing financial support.
  • In August 2021, the government launched Ujjwala 2.0, that is, the second phase of the Pradhan Mantri Ujjwala Yojana (PMUY) at Ma­hoba, Uttar Pradesh. The objective of the scheme is to issue deposit-free liquefied pet­roleum gas (LPG) connections to 10 million families that were not covered under the first phase of the PMUY. The government aims to provide LPG services to all poor ho­useholds that are otherwise dependent on traditional cooking fuels.
  • In a notable development, the government la­un­ched the Rs 6 trillion worth National Mo­netisation Pipeline (NMP) on August 23, 2021, with the aim of raising funds by leasing out state-owned infrastructure assets over the next four years. A total of 13 infrastructure sectors have been identified under the NMP, including natural gas, petroleum, airports, railways and roads. With regard to na­tu­ral gas pipelines, the government has planned to monetise 8,154 km of natural gas pipelines, equivalent to 25 per cent of the total natural gas pipelines in 2022-25, and expects it to yield Rs 244.62 billion. The government also plans to monetise 3,930 km of petroleum and liquefied natural gas pipelines for Rs 225.03 billion. Besides, two hydrogen generation plants at the Gujarat refinery ow­ned by Indian Oil Corporation Li­mi­ted (IOCL) have been considered for monetisation, for Rs 12 billion. Other asset classes from IOCL include effluent treatment plants, sulphur recovery units and flare gas recovery systems that will be monetised in a phased manner over the NMP period for an estimated value of Rs 80 billion-Rs 100 billion.
  • The central government constituted an empowered coordination committee under the cabinet secretary for streamlining and speeding up clearances and approvals in July 2021. It has also approved self-certification of production sharing contracts. A total of 22 processes have been identified where documents from contractors will be accepted on self-certification basis and no appro­val will be required.

State governments

  • In January 2022, the Odisha Government and GAIL signed an MoU for the production of clean and eco-friendly fuels. The agreement was signed by GAIL and the Industrial Promo­tion and Investment Corporation of Odisha.
  • According to the MoPNG, oil public sector un­dertakings have entered into MoUs with the sta­te governments and technology providers for developing the second generation of etha­nol biorefineries and for augme­nting ethanol su­p­plies for the EBP progra­m­me in Panipat, Ba­th­in­da, Bargarh, Numali­garh and Da­vangere.
  • In August 2021, India began selling oil from its strategic petroleum reserve to state-run refiners as it implemented a new policy to co­mmercialise its federal storage by leasing out space. India had changed its policy to allow Indian Strategic Petroleum Reserves Limited, which manages the federal oil in­ventories, to lease 30 per cent of its overall 37 million barrel capacity to Indian and foreign companies.
  • Meanwhile, in July 2021, the Directorate Ge­neral of Hydrocarbons modified the procedu­res relating to oil and gas E&P activities in India. It reduced the requirement of statutory approvals to only extension of contracts, sale of stake and annual accounts while permitting self-certification and deemed app­roval for other factors. Meanwhile, the central government approved a proposal for allowing 100 per cent foreign direct investment (FDI) under the automatic route in state run oil and gas companies. India allows 49 per cent FDI in state-run oil and gas companies.

The road ahead

Going forward, energy demand is anticipated to grow faster in India than in other major econo­mies owing to its continuous, robust ec­o­nomic growth. The country’s energy demand is expec­ted to double to 1,516 mtoe by 2035 from 753.7 mtoe in 2017. Moreover, its share in global primary energy consumption is projected to double by 2035. The growth prospects for the oil and gas industry look promising in the future, backed by healthy demand and favou­ra­ble project cost economics.