PETROLEUM/CRUDE

PETROLEUM/CRUDE

Petroleum, also known as crude oil, is a naturally occurring yellowish-black liquid found in geological formations beneath the Earth’s surface. It is refined into various fuels. India is the world’s third-largest consumer of oil, importing 85% of its crude oil and fulfilling 34% of its natural gas needs through imports.

Extent of Oil-Bearing Strata in India

• Sedimentary rocks: Cover 1 lakh sq. km (42% of India).
• Marine basins (Mesozoic and Tertiary times): 10 lakh sq. km.
• Total continental shelf of probable oil-bearing rocks: 2 lakh sq. km.
• Key productive areas: Mumbai High, Khambhat Gulf, and Assam.

Distribution of Petroleum in India

1. Distribution in Assam:

• Digboi: Was India’s only petroleum-producing area until the 1950s, with oil refined at the Digboi refinery.
• Naharkatiya: Located on the left bank of the Burhi Dihing River, oil from here is transported to the Noonmati refinery in Assam and the Barauni refinery in Bihar.
• Moran-Hugirijang: The oilfield is located on the Brahmaputra river valley. Oil from here is transported to the Barauni refinery in Bihar.
• Rudrasagar-Lakwa: Located in the Sibsagar district of Assam in the Brahmaputra river valley.
• Surma Valley: The Badarpur, Patharia, and Masimpur are major oilfields in the Surma valley.

2. Distribution in North-East (Other than Assam)

• Nigru region: Located in Tirap district, Arunachal Pradesh.
• Borholla region: Situated across the Assam-Nagaland border.

3. Distribution in the State of Gujarat

• Ankleshwar: The largest and oldest (1960) oilfield in Gujarat, near Bharuch in the Narmada valley. Oil is transported to Trombay and Koyali for refining.
• Khambat and Lewnage: Located in Borsad region, northern side of the Gulf of Khambat.
  

• Kalol oilfield
• Mehsana oilfield
• Navagaon oilfield
• Kosamba oilfield
• Sanand oilfield
  

4. Distribution in the Western Offshore Region

• Bombay High: Approximately 175 km southwest of Mumbai in the Arabian Sea. Production began in 1976.
• Bassein: Located south of Bombay High.
• Aliabet: Near the island of Aliabet, 45 km from Bhavnagar, in the Gulf of Khambat.

5. Distribution in the Eastern Coast Region

• Godavari-Krishna river basin oilfield: Includes both offshore and onshore regions. The first oil well was dug in 1980, 75 km southeast of Kakinada.

6. Distribution in the Kaveri Basin Region

• Kaveri Basin oilfields: Found in Narimanam and Kovilappal, with oil transported to the Kaveri refinery in Panangudi near Chennai.

Significance of the Oil Sector in India

• Growth potential: According to the Economic Survey 2017-18, a $10 per barrel increase in oil prices can decrease GDP by 0.2-0.3%.
• Remittance and energy security: Civil unrest in oil economies can disrupt supply lines to India, affecting the Indian diaspora, which contributes around $80 billion in forex as remittances.
• Foreign Debt: The Economic Survey 2017-18 notes that a $10 per barrel increase in oil prices can raise the Current Account Deficit (CAD) by $9-10 billion.
• Strength of Rupee: Higher import bills widen trade and current account deficits, putting downward pressure on the rupee.
• Inflation in the Economy: According to the Economic Survey 2017-18, a $10 per barrel increase in oil prices can raise WPI inflation by 1.7%.
• Fiscal impact: Higher oil prices mean increased revenue for states due to ad valorem tax.
• Influence on economic decision-making: The oil and gas sector is among the eight core industries in India, playing a significant role across various economic sectors.
• Export capability: India, although self-sufficient in refining capacity for domestic consumption, also exports petroleum products.
• Energy security: Indigenous oil production can improve energy security as India is heavily reliant on imports.

Challenges of the Oil Sector

1. Economic

• Fiscal challenges: Heavily taxed retail fuel prices have reached record highs, impacting demand-driven recovery.
  • According to the Economic Survey 2017-18, a $10 per barrel oil price increase can raise the fiscal deficit by 0.43% of GDP.
• Import dependence: India imports about 84% of its oil, mainly from West Asia, meeting over three-fifths of its demand.
• Volatile oil prices: Oil-producing countries, like Saudi Arabia, have limited oil production, impacting crude prices.
• Vulnerability to external shocks: As one of the largest crude consumers, India’s economic recovery can be undermined by unpredictable actions of oil-producing nations.

2. Administrative

• Ease of doing business: Major international players often show reluctance in exploring and producing oil in India due to long delays in operationalization, even after allocation.
• Plethora of approvals: Key approvals required for production include environmental clearances and DGHC approval.
• Lack of clarity in SPR (Strategic Petroleum Reserve): Ambiguities exist between the oil refineries and government regarding SPR mobilization processes.
• Ambiguity in mobilization: The lack of transparency around SPR processes hinders efficiency.
• Impractical taxation policy: Fresh taxes and levies are imposed when global oil prices fall, raising extra revenues for the government.

3. Systemic

• Low productivity: Most oil wells in India are aging, leading to reduced productivity over time.
• Oligopoly of oil majors: Oil production in India is dominated by ONGC and Oil India Ltd., which acquire the majority of auctioned blocks.
• Steady decline in oil production: New oil discoveries are rare, and long lead times are required to begin production from existing wells.
• Storage capacity and quality mismatch: A shortage in storage capacity and discrepancies between the quality of West Texas Intermediate (WTI) oil and refinery requirements are prevalent.

Government Initiatives

1. Innovations

• XP100 petrol variant: Developed by Indian Oil with octane number 100, placing India in an elite group with access to high-quality oil.
• Winter Diesel: Introduced by Indian Oil Corp. Ltd. for high-altitude and low-temperature regions like Ladakh, where regular diesel is unsuitable.
• BS-VI fuel: Features significantly lower sulfur content than BS-IV, enabling vehicles with better catalytic converters to capture pollutants.
• National Data Repository: Provides potential investors with geo-scientific data on hydrocarbon resources in India for informed decision-making.

2. Policy Initiatives

• Hydrocarbon Exploration and Licensing Policy (HELP):
  • Open Acreage Licensing Programme: Allows companies to choose exploration blocks independently without waiting for formal bid rounds.
  • Single license: Permits exploration of both conventional and unconventional oil and gas resources, enhancing investment and operational flexibility.
  • Petroleum Exploration Licenses (PEL): Granted by the Central Government for all offshore blocks, with recommendations to state governments for on-land blocks.
• FDI policy: Allows 100% Foreign Direct Investment (FDI) in various segments, including natural gas, petroleum products, and refineries.
• Strategic Petroleum Reserve (SPR) Programme: Provides underground storage capacity in Mangalore, Vishakhapatnam, and Padur to safeguard against supply shortages.
  • India has 87 days of reserves.

3. Government Schemes

• Ethanol Blended Petrol (EBP) Programme: Promotes the use of alternative, eco-friendly fuels to reduce import dependency.
• Sanrakshan Kshamta Mahotsav (Saksham): Raises public awareness on conserving petroleum products and their efficient use for better health and environment.

4. Institutional Framework

• Petroleum and Natural Gas Regulatory Board: Oversees regulation of refining, processing, storage, transportation, distribution, marketing, and sales of petroleum and natural gas.
• ONGC Videsh Ltd. (OVL):
  • Engaged in exploration and production in overseas-acquired oil blocks.
  • Contributes approximately 14.5% to India’s oil production and 8% to its natural gas production.

5. Funding Mechanism

• Viability Gap Funding: Projects are bid for based on funding requirements from the government, with the lowest state funding requirements winning the project.

6. International Collaboration

• Motihari-Amalekhgunj petroleum pipeline: Transports fuel from Barauni refinery in Bihar to Amalekhgunj in Nepal.
• Joining of Advanced Motor Fuels: An international collaboration platform for R&D to develop advanced and alternate fuels, enhancing fuel efficiency and reducing GHG emissions.

Ways Forward

• Reduce levies on oil production: Lower levies such as oil cess, royalties, and profit petroleum, especially when crude oil prices are below $45/barrel.
• Joint investment by government and private sector: To cover trading, crude purchases, and co-freighting.
• Introduce transparency and accountability with respect to SPR: The procedures, protocols, and details regarding Indian SPR storage should be subjected to greater public and parliamentary scrutiny, similar to other strategic reserves. 
• Efficient SPR mobilisation: Assign designated roles to different agencies and streamline processes to avoid redundancies during crises.
• Diversification of SPR holdings: Considerations should be based on location, product type, storage form, and ownership.
• Storing oil abroad:
• Operationalize, modernize, and add oil storage facilities at Trincomalee in Sri Lanka.
• Establish a strategic partnership with Oman (Ras Markaz) for oil storage.
• Empower oil traders and reduce bureaucratic control: India must take advantage of current low and volatile oil prices by enabling traders and reducing bureaucratic barriers.
• Ensuring energy justice: Energy must be accessible, affordable, and reliable for economic and social transformation.