Continued policy support has strongly contributed to the growth of the oil and gas sector. Upstream initiatives have improved domestic production in the past few years. Meanwhile, the city gas distribution (CGD) network has expanded rapidly owing to the recent bidding rounds and authorisations. Digitalisation has become central to the sector’s operations, with the industry deploying technological solutions for asset maintenance, leak detection, etc. Against this backdrop, industry experts discuss the sector’s growth, key challenges, notable policy measures, and future trends…
How has the oil and gas sector evolved over the past few years? What have been the key sector milestones?
Ranajit Banerjee, Advisor, Energy and Infrastructure
The most significant development in the gas sector has been the proliferation of transmission pipelines and CGD licences. The establishment of a market mechanism has also been noteworthy, although it is fairly small, relatively speaking. However, the heavy hand of regulation and administrative price determination for a large chunk of domestic players have played spoilsport.
Akhil Mehrotra, MD and CEO, Pipeline Infrastructure Limited
India’s oil and gas sector has evolved significantly during the past decade. The government has undertaken several initiatives and reforms to identify and address the enablers that were required for the overall development of the sector.
The key reforms in the upstream sector include the Hydrocarbon Exploration and Licensing Policy, the Open Acreage Licensing Policy, the National Data Repository, the Discovered Small Fields Policy, a reduction in the “No Go” zone, and the provision of marketing and pricing freedom for natural gas. India’s natural gas production has increased significantly in the past couple of years, leading to a slight reduction in import dependence.
India has been focusing on increasing the natural gas share in the country’s energy basket from 6 per cent to 15 per cent by 2030. Owing to the increased focus on the development of CGD, the CGD network now covers 630 districts from just 66 districts in 2014, taking the number of domestic PNG connections from merely 2.54 million in 2014 to a whopping 10.39 million at present.
The development of the National Gas Grid consisting of all major interconnected cross-country pipeline networks and the introduction of a unified tariff regime have been landmark developments in the natural gas pipeline sector. With these reforms, gas will be accessible to each consumer across the country at affordable rates.
The establishment of a gas exchange has also been a key milestone. It has facilitated the development of gas markets and strengthened the government’s vision to enhance gas utilisation in the country, providing a transparent, efficient, competitive and technologically advanced market platform for natural gas trading in India.
What are the biggest challenges that the sector faces today?
The gas sector has the twin problems of limited domestic production and huge import dependence. Domestic gas production remains stagnant and imported gas is highly cyclical. The sector is between a rock and a hard place. Further, open access to pipes exists only on paper.
“The most significant development in the gas sector has been the proliferation of transmission pipelines and CGD licences.” Ranajit Banerjee
With the transition to cleaner fuels, the oil and gas sector is expected to face competition from renewables in the future. However, as India is a price-sensitive market, affordability will play a determining role. Going forward, as cleaner fuels become more and more affordable, the demand outlook for the oil and gas sector may get impacted, which, in turn, may impact investments in the sector.
As for natural gas pipeline transportation, the biggest challenge for the pipeline operator is the volume risk owing to volatility on both the supply and demand sides. The existing tariff structure does not allow operators to cover for the volume risk. Incentivising the pipeline operators will encourage investments in the sector and expansion of pipeline infrastructure.
While the formation of the National Gas Grid and the implementation of a unified tariff are welcome steps, the prevalent regional disconnect between pipelines limits the reach of natural gas to all parts of the country. Obtaining right of use (RoU) and approvals from local authorities is challenging for the pipeline operators. It is time-consuming and often leads to delays in project execution.
Natural gas is still outside the purview of the GST regime, but gas transportation is subject to GST. Consequently, consumers are unable to get the benefit of input tax credits, ultimately resulting in an overall increase in costs. It becomes imperative for the benefit of consumers to rationalise the tax structure on natural gas by bringing it within the ambit of GST.
“Every fuel will find its space in India’s energy basket, based on its application and affordability.” Akhil Mehrotra
What are your views on the initiatives being taken to reduce the country’s import dependence?
While the Hydrocarbon Exploration and Licensing Policy and Discovered Small Fields policies were targeted to give a boost to domestic exploration and production (E&P), they have not yielded any visible material success in oil and gas production so far. There is a huge regulatory overhang and a significant lack of dispute resolution initiatives. National oil companies’ (NOCs) production growth has also been unremarkable. Moreover, foreign capital and technology flow has not happened. The problems are technical as well as contractual. The windfall tax has sounded a warning bell for foreign investors to cover political risks. While we have improved access to acreages, there is still a need to assure capital against political risks related to contract frustrations.
E&P NOCs have been trying to induct technology partners for their strategic operations. But there is very little success to announce. The E&P space thus does not present a promising picture. A major influx of investments and technology into offshore acreages in the next couple of years is our only hope for a turnaround in the sector.
India’s oil and gas sector has historically been import-reliant as we have 80 per cent and 50 per cent import dependency for oil and gas respectively. The government has consistently taken initiatives and implemented reforms to increase domestic oil and gas production and enhance energy security. The introduction of marketing and pricing freedom for natural gas exploration and production has significantly improved our domestic gas production. Domestic gas producers can now trade the available volumes on the gas exchange, which will increase market liquidity and facilitate consumer access to the available gas quantities. The upstream initiatives have encouraged private sector investment and increased domestic gas production in the country. The government’s initiatives to develop other indigenous energy sources such as compressed biogas and ethanol blending in petrol are also expected to help reduce the country’s import dependence.
What are the digital initiatives being taken to improve asset maintenance and operational efficiency?
Data is everywhere – whatever we do generates data. These data sets can assess the operational performance and suggest improvements. By using data analytics, we can strive to reduce operational costs, optimise maintenance schedules, enhance safety, and prevent incidents through timely forecasting and implementation of preventive and remedial measures. However, the key for a successful data analysis lies is correct data capturing.
At PIL, we always ensure accuracy in data capturing through digital modes. We have taken multiple digital initiatives for enhancing asset management and operational efficiencies. Robotic process automation helps us compute metering flow through robotics, ensures accuracy in custody transfer billing, reduces customer grievances and optimises man-hours and facilitates decision-making based on historical data. Our asset maintenance tool named fugitive methane emissions detection is currently under implementation. It employs optical gas imaging technology to capture equipment leaks that cannot be detected by conventional fire and gas detectors/LEL meters. Drones help in the surveillance of the entire pipeline length using artificial intelligence, and highlight changes in RoU or any abnormal conditions.
What is the demand and supply outlook for the sector amid the ongoing energy transition?
As India advances towards its target of net zero transition by 2070, it is likely that the government’s focus would be the promotion of clean fuel usage in the future, and the policies would reflect the same. However, considering our diverse fuel mix and the presence of several energy-consuming sectors, coupled with India’s highly price sensitive energy market, the consumption of oil and gas will continue to grow in the future. India’s energy appetite is growing rapidly owing to economic development and urbanisation, and thus every fuel will find its space in India’s energy basket based on its application and affordability. With the recent increased support from the government across the entire value chain of the oil and gas sector, it would be apt to suggest that the demand-supply outlook is positive, at least for the next decade and a half.
What are the key trends that will shape the sector going forward?
Going forward, India needs to strengthen energy security by reducing import dependence, expand its natural gas infrastructure and rationalise taxation on petrol, diesel and natural gas. The key trends that will shape the sector include ethanol blending in petrol, rapid development of the natural gas pipeline and LNG import infrastructure to create a regional balance, inclusion of natural gas in the GST ambit, development of compressed biogas, blending of hydrogen in natural gas pipeline networks, integration of renewables with gas, uniform gas pricing – “One Nation One Gas Price” – and digital transformation for efficient, secure and safe operations.