Demand for Petroleum Products 6.15 The growth in the consumption of petro- leum products has been sluggish during the first three years of the Eighth Plan. As against the Plan target of 7.34% per annum growth in the consumption of petroleum products, the growth rate achieved during the first three years of the Plan is estimated to be 4.1% only. According to the latest demand estimates pre- pared by a Sub-Group set up by the Ministry of Petroleum & Natural Gas in February 1994, the growth in the consumption of petroleum products would be more than 6% per annum during 1994-97 period. In terms of quantity, the demand for petroleum products by the terminal year of Eighth Plan (1996-97) has now been estimated at 74.33 million tonnes against 81.19 million tonnes estimated origi- nally.
Domestic Crude Oil Production 6.16 The Eighth Plan had emphasised the need for maximisation of domestic crude oil pro- duction during the Plan. However, against a total planned production of 197.3 million tonnes during 1992-97, the current assessment indicates that oil production may be 167 nil- lion tonnes. The terminal year production may be only 38.465 million tonnes as against the target of 50 million tonnes. The medium sized oil fields to be developed under Joint Ventures were expected to produce about 5.4 million tonnes of crude oil during the Plan period. Production from these fields is now expected to materialise only in the Ninth Plan period on account of delays in award of contracts.
Hydrocarbons Reserves Accretion 6.17 The accretion to hydrocarbon reserves has registered a declining trend for the last 4/5 years and during last 2 years the accretion has fallen to very low levels. The Reserves Re- placement Ratio, which is a measure of re- serves discovered to reserves depicted has declined to less than unity value thereby im- plying that oil reserves are being depleted
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faster than being replenished. Against a total production of about 54 million tonnes of oil during 1992-94 period, the accretion to recov- erable reserves of oil was about 23 million tonnes.
6.18 The in-place reserves accretion was about 43 million tonnes during 1992-93 whereas during 1993-94 about 76 million tonnes of in place hydrocarbons were discovered. The out- come of exploration during past 3/4 years is characterised by discovery of predominantly smaller size fields. At the current pace, the Eighth Plan accretion target of in place hydro- carbon reserves of 1325 million tonnes of oil and oil equivalent gas and recoverable reserves of about 455 million tonnes of oil and oil equivalent of gas would be almost impossible.
6.19 Considering the scale of exploration ac- tivities and the growing size of exploration budgets, recasting/reorientation of exploration strategy is immediately warranted to improve accretion to hydrocarbon reserves during bal- ance period of Eighth Plan. Repriortisation of exploratory efforts, greater application of close grid seismic surveys and interpretation of data on priority in areas with relatively higher potential for extensions/new discover- ies, re- evaluation/re-exploration of some of the promising areas through application of technologically advanced techniques of explo- ration may help in improving the rate of re- serves accretion.
6.20 In order to intensify exploration, two ma- jor programmes have been launched in addi- tion to the exploration programmes being implemented by National Oil Companies (NOCs). Starting September, 1991 blocks in onland and offshore areas are being offered for exploration on continuous basis. So far about 150 blocks have been offered but the response has not been very encouraging. No major ex- ploratory drilling campaign from private sec- tor can be visualised during the Plan period as these operators with whom contracts are signed, would be mostly busy with pre-drilling surveys and evaluation studies. Therefore, no major exploration efforts and hence no large accretion to hydrocarbon are expected to ma- terialise,from the bidding rounds during Eighth Plan.
6.21 An Accelerated Exploration Programme, to be implemented by National Oil Companies during the period 1994-97, has been approved with an outlay of Rs.6500 crore. The pro- gramme has five major components : i) Na- tional Seismic Survey mainly for unexplored areas; ii) Deep water exploration; iii) Explora- tion in frontier areas; iv) intensive exploration in hydrocarbons producing basins; and v) Overseas activities, covering acquisition of acreages, farm in's, reserves acquisition etc. The benefits from survey programmes would mainly arise during Ninth Plan. Under inten- sive exploration component the major thrust would be in Assam where exploration has suf- fered seriously in the past. The success of accelerated exploration programme would de- pend on how quickly the oil companies can undertake pre drilling technical evaluation studies for priortising their efforts and also gear up operationally to implement the pro- gramme including overseas activities. It is also necessary to work out time bound action pro- grammes.
POL Import Bill 6.22.1 Based on the i) demand projections; ii) domestic crude oil production; iii) domestic availability of petroleum products; iv) crude oil and petroleum products prices in interna- tional market in the later part of 1991; and v) the exchange rate prevailing then, it was esti- mated at the time of commencement of Eighth Plan that the total POL import bill would be Rs.74,660 crore.
6.22.2 The POL import bill for the Eighth Plan period, considering actual position for the first two years of the Plan, estimates for 1994-95 and assuming some firming up in crude oil prices (average US $ 18 per barrel) during last two years of the Plan, may be of the order of Rs.89,500 crore.
6.22.3 The POL import bill still accounts for 25-30% of total export earnings. The continu- ous spell of soft crude oil and petroleum prod- ucts prices in international market has been responsible for more manageable POL bill. However, the import bill may increase sharply beyond Eighth Plan on account of. i) expected firming up of crude oil and products price in the international markets; ii) additional de- mand for POL resulting from power genera- tion capacities based on liquid fuels; and iii) possibilities of gas imports.
Gas Sector 6.23.1 Consequent to lower domestic produc- tion of crude oil the gas production would also be lower compared to the Plan targets. In ad- dition there would be shortfall in the produc- tion of free gas also on account of delays in the
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development of gas fields. The gas production may fall short by about 22 billion cubic metres or about 20 million tonnes of oil equivalent during the Plan period. Accordingly gas des- patches to downstream users of gas are likely to fall short by almost 10 billion cubic metres.
6.23.2 The overall management of the domes- tic gas sector will improve during the Eighth Plan with better utilisation of produced gas and minimisation of flaring. The gas utilisation, particularly offshore gas, would improve with the commissioning of gas compression, evacu- ation, shore based treatment facilities as well as the augmentation of the capacity of HBJ pipeline in later part of the Plan. For onland areas also efforts are underway to maximise the gas utilisation and, therefore, gas commit- ments are being made to small industrial con- sumers on fall back basis.
Refining Sector 6.24 Based on overall demand supply outlook for petroleum products the Eighth Plan recom- mended that the domestic refining capacity be augmented to 65 million tonnes by 1996-97 which is likely to be achieved. Highest priority has been accorded to low cost expansion of refining capacities involving Cochin Refiner- ies (3 million tonnes), Koyali refinery (3 mil- lion tonnes), Bongaigaon refinery (1 million tonnes), and Visakh refinery (3 million tonnes). The new grass root refining capacities would be commissioned at Mangalore (3 mil- lion tonnes), Panangudi (0.5 million tonnes) and Panipat (6 million tonnes).
Plan Outlays 6.25 An outlay of Rs. 24,000 crore was ap- proved for petroleum sector at the time of formulation of the Eighth Plan. However the revised requirement of petroleum sector would be significant higher than the approved out- lay considering the progress of expenditure during first three years of the plan and na- ture/size of the projects under implementation. This increase could be arising out of the fol- lowing:
i) sharp increase in project costs having large FE component following devalu- ation/convertibility.
ii) inclusion of projects in the Plan to be im- plemented solely by PSU's against Joint ventures earlier.
iii) inclusion/approval of projects with small/token provisions.
iv) increase in project costs due to time and cost over-runs including delinking of pro- jects from external financing.
v) Additional funds requirements for Acceler- ated Programme of Exploration approved by the Government.
6.26 The petroleum sector finances the Plan Outlays mainly from internal and extra budgetary resources. PSUs have been permitted to expand their equity base and tap the capital markets for raising funds for their Plan programmes. Therefore, no funds constraints can be visualised by petroleum sector for meeting their en- larged funds requirement.
Privatisation 6.27 The Government of India has adopted two pronged approach for privatisation. Firstly it is divesting its equity holding in oil sector PSUs to bring it down to 51% progressively. The PSUs are being permitted to increase their authorised capital and tap capital markets for raising funds for implementing their projects and programmes.
6.28 Secondly, in line with Eighth Plan thrust for attracting more private sector investment in exploration and production and refining and marketing sector, the Government of India has thrown open major segments in upstream and downstream sectors for private investment. These are as follows :
6.28.1 Upstream Sector
i) Announcement of exploration bidding rounds, on continuous basis, for onland and offshore areas.
ii) Announcement of speculative seismic sur- vey rounds.
iii) Offering discovered oil and gas fields for development by private sector either solely or as joint venture with upstream sector PSUs.
6.28.2 Downstream Sector
i) Setting up of new grass root refineries by private sector either solely or as joint venture with downstream sector PSUs.
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ii) Setting up of lube refineries by private sector.
iii) Parallel marketing of petroleum products by private sector.
iv) Joint ventures for blending and marketing of lube oils.
The oil sector PSUs are also being permitted to form JVs among themselves and with Indian private and foreign companies.
6.29 So far two rounds for development of small and medium sized oil and gas fields have been announced. The contracts for the fields offered under first round are being awarded. It has been observed that the award of contracts particularly for medium sized oil and gas fields have got delayed due to protracted negotia- tions. The problems are arising due to inade- quacy of transparency in the terms and conditions for award of such fields as well as efforts of the bidders to secure more attractive terms by subjecting the basic commercial terms and too many variables to prolonged negotiations. About 5 million tonnes of oil production was expected from such projects by the terminal year of Eighth Plan but in view of delays the production may be much lower.
6.30 Funds and foreign exchange constraints were also responsible for offering proven fields to private sector. The situation has dras- tically undergone a change since the start of Eighth Plan as follows:-
i) the foreign exchange position is very com- fortable.
ii) the internal resources position of upstream sector PSUs has improved very signifi- cantly on account of increase in price of domestic oil. Expected increase in gas and oil prices would further augment re- sources generation.
iii) PSUs have been permitted to expand their equity base and tap capital market for funds.
6.31 In view of this, it may be desirable to review the earlier decision for development of fields by private sector. The PSU's besides developing these fields much faster can also achieve better integration with available infra- structure probably at lower investments.
6.32 As regards downstream sector, LOIs for more than 40 million tonnes of grass toot refining capacity have been issued to private sector. Two new grass root refineries, for ad- dition of 12 million tonnes capacity are under consideration as JV projects with Oman Oil Company. Similarly LOIs for two lube refin- eries, with annual capacity of 0.7 million tonnes have been issued to private sector. Five JVs have already started the business of blend- ing and marketing lubricating oils in India. So far the projects where financial commitments are low have been taken up and not much of activity has been seen in major grass root re- finery projects. In fact the LOIs to private sector are posing problems for investment de- cisions on new refineries/capacity expansion projects of PSUs because of uncertanties of the time frame within which private sector pro- jects can mature. New proposals of low cost capacity expansions, over and above the Plan programme, have been identified by PSUs and hence these would need to be accorded prefer- ence over the expensive grass root capacity. The advance action on refining capacity addi- tion projects, during Eighth Plan, would thus need to be prioritised.
6.33 The parallel marketing of most the petroleum products (except MS, HSD) by pri- vate sector has been permitted and imports have been decanalised. This has introduced the dual pricing system for petroleum products to a limited extent i.e. PSUs sell products at ad- ministered prices whereas private marketing companies sell at market related prices. An appropriate tariff structure need to be consid- ered for eliminated anomalies in this regard Due to constraints in port and other storage and despatch facilities the parallel marketing has succeeded only to a limited extent, so far However, some of the private operators are either setting up or contemplating storage. and despatch facilities to step up their marketing activities. Some of the PSUs are also planning Joint Ventures with private sector for jointly providing marketing infrastructural facilities for private parties.
Other Important Developments
Gas Imports 6.34 The proposals for import of large quanti- ties of gas from West Asian Countries i.e. Oman and Iran are under serious considera- tion. Import of natural gas was not, envisaged at the time of Plan formulation. An 'Agree- ment on Principal Terms' has already been concluded with oman according to which gas supplies to India can commence by mid-1999
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provided the technical feasibility of deep sea offshore gas pipeline route is established by the studies likely to be completed by July 1995. As regards import of gas from Iran, a feasibility study is expected to be commis- sioned shortly. In case feasibility of gas im- ports from Oman is established by mid 1995, action would need to be initiated concurrently for creating gas transportation and distribution system. Additional funds requirement will arise for now projects related to gas imports. It would be, therefore necessary to identify agency/agencies for implementation of such projects in order to mobilise the funds accord- ingly from PSUs as well as the private sector.
Mid-Term Approach for Petroleum Sector 6.35 Some of the important issues emerging from the Mid-Term Appraisal of the petroleum sector are given below.
i) The outcome of exploration has been char- acterised by two important features : a) the rate of accretion has been low and b) predominantly smaller size discoveries have been made. Against the 8th Five Year Plan accretion target of 1,325 mil- lion tonnes of oil and oil equivalent gas, about 120 million tonnes of hydro car- bons have been discovered during the first two years of the Plan. At this pace it would be extremely difficult to achieve the 8th Plan target of reserves accretion, unless major discoveries are made in the remaining period of the Plan. To step up reserves accretion an Accelerated Explo- ration Programme (APEX) has been ap- proved with an outlay of Rs.6,500 crore. However, the success of APEX would depend on how quickly the oil companies can undertake the necessary pre-drilling technical evaluation studies for prioritis- ing their efforts and also gear up opera- tionally to implement the programme during the Plan period.