Areas of Service

INDUSTRY BACKGROUND

India has always been an import dependent nation in the Oil and Natural Gas (“O&NG”) sector. Prior to the Covid-19 pandemic, India’s energy demand was projected to increase by almost 50% between 2019 and 2030. However, growth over this period is now closer to 35% in the Stated Policies Scenario (“STEPS”),¹ and 25% in the Delayed Recovery Scenario (“DRS”).² The two biggest contributors of energy demand growth in India are coal (for power generation) and oil (for transport). India is the significant driver of rising demand for energy over the next two decades, accounting for 25% of global growth.³ Natural Gas consumption is forecasted to increase at a compound annual growth rate (CAGR) of 12.2 percent to 550 million cubic metres per day (“mcmpd”) by 2030 from 174 mcmpd in 2021. Consumption of natural gas in India is projected to increase to 143.08 billion cubic meters (“bcm”) by 2040.⁴

In May 2020, India had 4.7 thousand million barrels of proven oil reserves and produced 37.5 million tonnes in 2019. As of November 1, 2021, India had 10,419 kms of crude pipeline network, with a capacity of 147.9 million metric tons per annum (“mmtpa”).⁵

From an industry perspective, O&NG industry is divided into three major sectors:

Upstream: Comprises activities pertaining to exploration, recovery and production of O&NG. In industry parlance it is simply called Exploration and Production (“E&P”).

Midstream: Processes, stores, markets and transports commodities such as crude oil, natural gas, natural gas liquids (liquefied natural gas such as ethane, propane and butane) and sulphur.

Downstream: Refers to the refining of crude oil and the selling and distribution of natural gas and products derived from crude oil.

IMPORTANT TRENDS IN THE INDUSTRY

The Hydrocarbon Exploration and Licensing Policy (“HELP”) was introduced in 2016, in order to revamp the oil and gas sector and address various industry concerns in the New Exploration and Licensing Policy (“NELP”) regime. HELP is a huge improvement from NELP in so far as it provided (a) uniform license for exploration and production of all forms of hydrocarbon; (b) marketing and pricing freedom for the crude oil and natural gas produced; (c) easy to administer revenue sharing model; and (d) an open acreage policy.⁶ In June 2022, India has offered 14 blocks (around 30,000 sq. km) for oil and gas exploration in the latest auction round under which winning bidders can carve out areas for drilling. This round would be the second auction under the HELP.⁷

The Discovered Small Fields Policy and Bidding Round, 2016, (“DSF Bid”) aims to develop and commercialize production from the already discovered small fields and marks India’s moves towards a new era of hydrocarbon production. The bidding under DSF Bid Round-II started in August 2018 where 25 contract areas were on offer covering 59 discovered oil and gas fields, spread over 3,000 Sq. Kms with prospective resource base of over 190 MMT (O+OEG).⁸ The Empowered Committee of Secretaries (“ECS”) and Group of Ministers of Ministry of Petroleum and Natural Gas on March 1, 2019 approved the award of 23 contract areas as part of the DSF Bid Round – II. The bid submission process under this Round completed on January 30, 2019.

After the successful completion of the DSF Bid Round – II, the bidding under the DSF Bid Round-III started in April 20, 2022. In DSF Bid Round III, 32 contract areas, approved by ECS and Group of Ministers of Ministry of Petroleum and Natural Gas, were on offer which comprise of 75 discoveries, spread over 9 sedimentary basins covering more than 13,000 Sq. Kms with Inplace Hydrocarbon estimated to be around 230 MMT.⁹ The bid submission process under this Round completed on May 31, 2022. However, the award of the contracts has not been completed.¹⁰

Further, under the Open Acreage Licensing Policy, an Expression of Interest (EOI) can be made round the year with bidding round every six months. The EOIs form the basis of blocks being offered in the bidding rounds.¹¹

MAJOR PLAYERS

The major industry players in India’s O&NG sector currently are:

Upstream Sector: Oil and Natural Gas Corporation, Oil India Limited, Larsen & Toubro Ltd., BP plc

Midstream Sector: Indian Oil Corporation, GAIL Ltd., Bharat Petroleum Corporation Ltd.

Downstream Sector: Indian Oil Corporation, Bharat Petroleum Corporation Ltd., Hindustan petroleum Corporation Ltd.

Further, the key players globally are: Sinopec (China), Saudi Aramco (Saudi Arabia), Gazprom (Russia), Exxon Mobil (USA), PetroChina (China), British Petroleum (BP), Royal Dutch Shell (Netherlands), Chevron (UK), Petrobras (Brazil), Lukoil (Russia), Total (France).

VARIOUS LAWS APPLICABLE TO THE O&NG INDUSTRY IN INDIA

The Union Government, under the Constitution of India, 1950 (“Constitution”) has the power to legislate in respect of O&NG. Legislative powers are conferred on the Union Govt. under Entry 53, to List I of Schedule VII of the Constitution.

The Petroleum Act, 1934 regulates the import into India, transfers within, storage, production, refining and blending of petroleum and deals substantially with midstream activities.

The Oilfields (Regulation and Development) Act, 1948 (“Oilfields Act”) constitutes the basic statute for licensing and leasing of petroleum and gas blocks by the Union Government, empowering the same with broad authority to make rules providing for the basic regulation of oilfields and for the development of mineral oil resources. Along with Petroleum Rules, the Oilfields Act governs grant of Production Exploration Licenses and mining leases.

The Petroleum and Natural Gas Rules, 1959 provide a framework for grant of exploration licenses and mining leases, and together with the Petroleum Act, 1934, regulate the sale and distribution of petroleum and petroleum products.

The Petroleum and Natural Gas Regulatory Board Act, 2006 provides for the setting up of the Regulatory Board to regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas (excluding production of crude oil and natural gas).

The HELP aims to enhance domestic oil and gas production by encouraging exploration in sedimentary basins, and introduces a number of measures including a uniform license regime for conventional as well as non-conventional hydrocarbons, an open acreage licensing policy, a revenue sharing model and freedom in marketing and pricing (subject to certain limits).

INVESTMENT IN OIL AND NATURAL GAS

In the O&NG industry, Foreign Direct Investment (“FDI”) is allowed through the automatic route.

FDI is allowed:

• up to 100% in areas such as exploration of oil and natural gas fields, infrastructure & marketing related aspects of the industry, refining in the private sector, etc. and

• Up to 49% in PSUs engaged in petroleum refining.¹²

The O&NG sector holds a great potential to provide room for commercial organisations to expand and flourish. The landscape in the O&NG sector promises to be dynamic with scope for growth of business entities. The O&NG industry has always attracted foreign direct investments, and according to data released by the Department for Promotion of Industry and Internal Trade Policy (DPIIT), the petroleum and natural gas sector attracted FDI worth US$ 7.98 billion between April 2000 - December 2021. India’s potential in the oil and gas sector is immense and there exists vast headroom for new discoveries, India aims to commercialise 50% of its strategic petroleum reserves to raise funds and build additional storage tanks to offset high oil prices.¹³

Further, the Government of India’s push towards a gas-based economy,¹⁴ is estimated to present new investments and opportunities in this area. Recently, the Central Government is set to raise the target of the share of natural gas in the energy mix to 15% by 2030 from 6.7%.¹⁵ India’s focus on a gas-based economy is in line with the global commitment made at the Paris meeting on climate change, which aims to reduce India's carbon emissions by up to 35% from 2005 levels by 2030 and producing 40% of the power from non-fossil fuel sources by 2030. These developments present an opportunity for India’s downstream and midstream oil and gas sectors.

Recently, Minister of State for Petroleum and Natural Gas stated that India is en route to become a top energy consumer and therefore, it is important that Oil and Gas sector should develop fast and import dependence should come down.¹⁶ Additionally, the second phase of Pradhan Mantri Ujjwala Yojana has been launched by Prime Minister in the Mahoba District of Uttar Pradesh on 10th August, 2021 on pan-India basis to provide additional one Crore LPG connections.

Oil and Gas is an important import for our economy, many initiatives have been taken by the Ministry for increasing production and exploitation of all domestic petroleum resources to address the priorities like Energy Access, Energy Efficiency, Energy Sustainability and Energy Security.¹⁷ Under its scheme ‘Start-up Nurturing, Enabling & Handholding’ (SNEH), Oil India Limited (OIL), second largest Indian-government owned hydrocarbon explorer and producer, is presently incubating six start-ups from all over the country working on various hi-tech fields like robotics, instrumentation, biotech and fuel delivery solutions.¹⁸ As of March 2022, Oil & gas CPSEs and their Joint Ventures/subsidiaries are implementing over 7500 economic activities/projects which include projects and activities in upstream oil and gas exploration and production, drilling/survey activities, oil refining, Bio Refineries, gas pipelines infrastructure for connecting national gas grid, city gas distribution networks in the newly authorized geographical areas and LNG terminals, Marketing infrastructure projects, compressed bio-gas plants, capacity addition of refineries, fertilizer plants and petro-chemical units.¹⁹

From an economical and financial perspective, investment in O&NG is lucrative with substantial prospects in India. Given the growing demand for crude oil in India and its wide application in household and industrial activities, it is unlikely that there will be any reduction in investment in this sector. While the Union Government resolves teething issues in the O&NG sector, the landscape in the O&NG sector promises to be dynamic with scope for growth for business entities and development of the sector.