India has retained its place as the third-largest consumer of oil in the world. Over the past one year, there has been considerable progress in the upstream segment as new rounds of the Open Acreage Licensing Policy (OALP) and the Discovered Small Fields Policy have been introduced. The government modified its gas allocation policy for the city gas distribution (CGD) sector for the first time since 2014. Further, the Petroleum and Natural Gas Regulatory Board (PNGRB) launched the 11th CGD bidding round. There have been various developments in the fuel retailing segment as well owing to the growth of electric vehicles (EVs).
One of the major challenges faced by the sector has been the volatility in high crude oil prices. During 2021-22, gas markets the world over witnessed volatility owing to high gas prices, a tight supply environment and geopolitical tensions due to the Russia-Ukraine conflict.
Indian Infrastructure presents a round-up of developments in the oil and gas sector in the past one year…
Policy and reforms
- Gas allocation policy: In May 2022, the Ministry of Petroleum and Natural Gas (MoPNG) modified the gas allocation policy for the CGD sector, allowing GAIL (India) Limited to import gas and buy from newer domestic fields to meet the increasing demand from the household and transport sectors. According to the revised order, gas allocation to CGD companies will be made on a three-month basis as against the erstwhile six-month basis.
- Bid round under OALP: In July 2022, the MoPNG launched the eighth round of the OALP bid, offering 10 blocks for international competitive bidding. The successful award of Round VIII blocks will add 36,316 square km of exploration acreage. The cumulative exploration acreage under the OALP regime will be increased to 244,007 square km. In December 2021, the MoPNG launched the seventh bid round under the OALP. Under this round, around 15,766 square km has been offered. In February 2022, the Directorate General of Hydrocarbons received 10 bids for eight oil and gas blocks offered under the seventh round of the new exploration policy. Of the 10 bids received, only two are from the private sector. ONGC placed five bids while OIL and Sun Petrochemicals Private Limited placed two each. GAIL also placed a bid for one block. In May 2022, ONGC won 18 out of the 21 areas offered for finding and producing oil and gas in the sixth bid round under the OALP. OIL won two blocks and Sun Petrochemicals Private Limited won one block.
- Deepwater exploration: In August 2022, ONGC signed a Heads of Agreement with ExxonMobil for deepwater exploration on the east and west coasts of India. The collaboration areas focus on the Krishna-Godavari and Cauvery basins, in the eastern offshore and the Kutch-Mumbai region in the western offshore.
- New rig orders: In August 2022, Drillmec India achieved an oil rig order book of $1.5 billion with new rig orders from OIL and ONGC. The order book was achieved on the basis of orders from OIL amounting to $143 million for five land-based oil drilling rigs at a per unit price of $28 million per rig. In a separate development, ONGC awarded a contract worth Rs 1.5 billion to Deep Industries Limited. The order pertains to charter hiring of two 1,000 HP mobile drilling rigs for a period of three years.
- Petroleum mining leases (PMLs): In May 2022, the Assam government signed PMLs with the Hindustan Oil Exploration Company, OIL and Indian Oil Corporation Limited (IOCL). These companies will operate in the Dirok block on a 75 square km area, in Tinsukia, Assam. In March 2022, the Assam government signed a PML with OIL for the exploration of petroleum products in eight blocks in return for an annual royalty of Rs 20 billion. The eight blocks are situated in Dibrugarh, Dibrugarh extension, Hugrijan extension, Borhapjan, Borhat, Moran, Dumduma extension and Mechaki extension.
- Commissioning of projects: In April 2022, ONGC commissioned two projects worth Rs 60 billion to add 7.5 million tonnes of oil production and 1 billion cubic metres of gas output over the life of the Mumbai High fields. Around Rs 37.4 billion has been spent on developing a state-of-the-art eight-legged water injection-cum-living quarter platform, as part of the Mumbai High South Redevelopment Phase IV, while another Rs 22.92 billion has been spent on the Cluster 8 marginal field development project at Mumbai High.
- Oil discovery: In February 2022, Cairn Oil & Gas announced an oil discovery, “Durga”, in the 542 square km RJ-ONHP-2017/1 block, located in Gudamalani and Chohtan tehsils of Barmer, Rajasthan. In another development, ONGC announced a new oil and gas discovery in the prolific Mumbai basin off the country’s west coast. ONGC discovered oil and gas in the VGN-1 exploration well on its Ratna and R-series acreages in the Mumbai offshore basin.
- New natural gas pipeline: In July 2022, the central government inaugurated the 533 km Bokaro-Angul gas pipeline section in Jharkhand and Odisha for both domestic and industrial use. The Bokaro-Angul pipeline section covers 243 km in Jharkhand and 290 km in Odisha. The project has been built at an investment of Rs 25 billion. In May 2022, GAIL laid a dedicated natural gas pipeline to Hindustan Petroleum Corporation Limited Mittal Energy Limited’s (HMEL) Bathinda refinery in Punjab in a bid to increase the availability and consumption of natural gas in India. The pipeline will supply 1 million standard cubic metres per day of gas to HMEL and has been laid at a cost of Rs 1.42 billion.
- Expansion of Digboi refinery: In December 2022, IOCL plans to expand the capacity of its Digboi refinery from 0.65 mtpa to 1 mtpa. IOCL also has plans to further increase the capacity of the Duliajan-Digboi crude pipeline capacity from 0.65 mtpa to 1 mtpa, to meet the increased output from the Digboi refinery. In addition, the company intends to increase the capacity of the Guwahati refinery from 1 mtpa to 1.2 mtpa and commission it by October 2023.
- Multiproduct pipeline: In December 2021, the central government inaugurated a multiproduct pipeline of 365 km from the Bina refinery, Madhya Pradesh, to the POL terminal at Panki, Uttar Pradesh. The pipeline has a capacity of around 3.45 mtpa. The aggregate cost of the project is Rs 15.24 billion.
- CGD bidding rounds: The 11th round of CGD bidding was launched in September 2021, with 65 geographical areas (GAs) put up on offer. The GAs on offer are spread across 19 states and one union territory (UT), covering 98 per cent of India’s population and 88 per cent of its area. A total of 439 bids were received from 26 bidders against 61 out of the 65 GAs offered. As of February 2022, letters of intents for 52 GAs have been issued by the PNGRB to 13 entities. Of the 61 GAs, 12 were won by Megha Engineering and Infrastructure Limited, and 14 by Adani Total Gas. IOCL and Bharat Petroleum Corporation Limited won eight and four GAs respectively, while Dinesh Engineers won two GAs. Under the 11A CGD bid round, the PNGRB has offered six GAs, spread over 27 districts in five states and one UT.
- CNG stations: In July 2022, the central government dedicated 166 CNG stations across 14 states in the country. These CNG stations have been set up by GAIL and nine of its group CGD companies in 41 GAs across 14 states. The CNG stations have been commissioned at a cost of Rs 4 billion. In June 2022, AG&P Pratham plans to set up 11 CNG stations and provide piped natural gas in Ramanathapuram, Tamil Nadu, over the next eight years.
Oil prices in the international market have been skyrocketing for a year now. Following the global pricing trends, natural gas prices have increased in the country, thereby impacting the domestic market. A sharp economic recovery from the Covid-led slump and Russian supply curbs has also driven up gas prices to record-high levels. Overall, the demand for oil and gas in India is expected to remain strong in the next few years, albeit some change in the demand mix is expected due to the emphasis on EVs. Going forward, the government is planning to rework the natural gas pricing policy to protect consumers from the global gas shocks and ensure fair prices for both buyers and producers.