India Energy Market
Overview
India
is the world's fifth-biggest energy consumer and continues to grow rapidly. It
is the third-biggest global coal producer, but has limited supplies of oil. Oil
accounts for about 30% of India's total energy consumption, with its share of
the mix having fallen from 35% earlier this decade. India's 5.82bn bbl of
proven oil reserves (BP Statistical Review of World Energy, June 2010)
represents just 0.5% of the world's total, with Mumbai High being the biggest
producing field. India's average oil production (total liquids) in 2009 was
754,000b/d. BMI believes output rose to 815,000b/d in 2010.
In
terms of gas, India currently accounts for 0.4% of global reserves and just
over 1% of production. The BP review puts end-2009 reserves at 1,115bcm, with
2009 production of 39.3bcm -- representing 76% of consumption. While most of
the developed gas is in Mumbai High, major discoveries by a number of domestic
companies hold significant medium- to long-term potential, with Reliance
Industries, state-controlled ONGC and Gujarat State Petroleum
Corporation (GSPC) all confirming significant deep water finds that are now
under development or in early-stage production.
The
oil and gas sector is dominated by state-controlled enterprises, although the
government has taken steps in recent years to deregulate the industry and
encourage greater foreign participation. ONGC is the largest upstream-oriented
oil company, dominating the exploration and production (E&P) segment and
accounting for roughly three-quarters of the country's oil output. The Indian
government has introduced policies aimed at increasing domestic oil production
and oil exploration activity. As part of this effort, the Ministry of Petroleum
and Natural Gas crafted the New Exploration Licensing Policy (NELP) in 2000,
which permits foreign companies to hold 100% equity ownership in oil and gas
projects. Very few oil fields are currently operated by IOCs.
The
government will introduce tax incentives aimed at drumming up IOC interest in
the country's upcoming NELP-IX licensing round, according to an October 2010
report in Indian newspaper the Telegraph. The move is part of the government's
efforts to reverse its fortunes after the NELP-VIII round failed to meet
expectations.
Companies
operating in India currently receive a seven-year tax holiday on revenues from
the sale of oil produced domestically. The government now intends to extend
that incentive to the production of gas as well, according to an anonymous oil
ministry source quoted by the Telegraph. The source said that oil companies
were likely to receive further benefits from reforms that have proposed
replacing profit-linked incentives with investment-based incentives, which
could see capital expenditure (capex) become eligible for deduction.
NELP
IX may be the last licensing round of its kind if the proposed Open Acreage
Licensing Policy (OALP) is implemented. This would allow interested companies
to bid for any unallocated blocks at a time of their choosing without having to
wait for a formal acreage auction.
The
government is offering 34 exploration blocks in 10 sedimentary basins covering
an area of about 88,807sq km under NELP IX. There are 19 onshore blocks (of
which eight are 'type S blocks' in the most prolific producing basins), eight
deepwater blocks and seven shallow-water blocks. Under the current offer, an
area of 58,336sq km, covering 19 new blocks, is being offered for the first
time. For the remaining 15 blocks on offer, newly acquired data based on new
concepts for hydrocarbon exploration and frontier areas is available. The bid
closing date for NELP-IX is March 18 2011.
India's
downstream segment is also dominated by state-controlled entities, although
private companies have increased their market share. Indian Oil Corporation
(IOC) is the largest state-controlled downstream company, operating 10 of
India's 19 refineries (20 if the Jamnagar complex is counted as two plants) and
controlling about three-quarters of the domestic oil transportation network. Reliance
opened India's first privately owned refinery in 1999, and has gained a
considerable market share.
Refining
capacity at the end of 2009 was around 3.57mn b/d after significant expansion
(according to BP Review data). The end-2010 Oil & Gas Journal (OGJ)
refining survey lists Indian crude distillation capacity as 4.00mn b/d, and BMI's
own calculations suggest that there was 3.6mn b/d of available capacity at the
end of 2009.
Bharat
Petroleum Corporation Ltd (BPCL) is considering
increasing its refining capacity by expanding two of its existing plants or setting
up a greenfield refinery. In a separate but related development, a new
investment in private Indian company Cals Refineries, with which BPCL
has a fuel-offtake agreement, looks set to give a boost to the long-delayed
project to reconstruct Germany's Ingolstadt refinery in India.
The
Indian government decided on June 25 2010 to end gasoline price subsidies and
allow the market to determine prices in a bid to cut the country's
subsidy-fuelled fiscal deficit. The move marks the most significant economic
reform since Manmohan Singh's United Progressive Alliance (UPA) won in the 2009
general elections and will have wide-ranging macroeconomic as well as industry
implications.
From
an industry perspective, the decision should boost the profitability of India's
largest downstream players, notably domestic players IOC, Reliance and Essar
Oil, and provides scope for growth in their downstream operations.
In
its announcement, the government said that it would end subsidies on gasoline
and cut them on diesel, kerosene and natural gas, though subsidies on those
fuels will remain. The Indian government has been looking to cut the popular
subsidies as strong fuel demand has made them increasingly expensive to
maintain. The country previously tried to lift the subsidies in 2002. Soaring
energy prices, however, led to political pressures that forced the government
to re-impose the price restrictions.
India
spends about US$16bn a year subsidising petroleum products, and the freeing of
petrol prices could reduce the bill to around US$11.7bn according to petroleum
secretary S. Sundareshan. Concerns over the subsidies' pressure on the budget
have taken precedence over inflation concerns, which had dampened hope in the
industry that the government would be able to lift the price controls.
The
steady rise in global crude prices during the second half of 2010 has stalled
the Indian government's plans to deregulate diesel prices, according to a
statement by Oil Secretary S. Sundareshan on December 1. Speaking to Reuters on
the sidelines of a conference, Sundareshan said that it was 'extremely
difficult for the government to pass on the entire burden' of higher crude
prices to consumers and that, although the prices of other fuels had been freed
from state control, diesel would have to wait.
Coal
looks set to remain the dominant fuel source, although there is growing
emphasis on gas expansion and huge potential over the long term for solar, wind
and hydro power. Recoverable coal reserves are estimated at 58.6bn tonnes,
providing 558mn tonnes of annual production to meet 369mn tonnes of annual
consumption. The country is beginning to investigate the possibility of
converting coal to oil, thus providing a new source of gasoline and diesel to
meet growing demand. Power generation accounts for about 70% of India's coal
consumption, followed by heavy industry. Power generation in 2009 was 870
terawatt hours (TWh).
In
2010 coal accounted for an estimated 50.8% of primary energy demand (PED),
followed by oil at 31.0%, gas at 10.0% and hydro-power at 6.3%. Regional energy
demand is forecast to reach 5,496mn toe by 2015, representing 20.6% growth from
the estimated 2010 level. India's estimated 2010 market share of 11.29% is set
to rise to 11.84% by 2015. Our projections suggest that by 2014, India will be
dependent on coal for 43% of PED, with the share of oil down to a forecast 29%.
Gas, by this point, should claim a 15% market share, while nuclear is set to
take just over 2% and hydro should have a market share of almost 9%.
The
country's share of Asia Pacific regional electricity generation in 2010 is an
estimated 11.82%. By the end of the forecast period, we expect the country to
account for 12.20% of regional power generation and, thanks to system
inefficiencies, it may struggle to meet demand. Electricity generation in India
is largely based on coal, hydro and gas. Coal provides an estimated 68% and
hydro provides 14%. The share of gas has been rising and was estimated at 10%
in 2010.
As
of 2008, installed generating capacity was approximately 177GW, according to
EIA data. By July of 2009, total installed capacity had risen to 151.1GW,
according to the Central Electricity Authority. By the end of 2010, BMI
estimates suggest that installed capacity will have climbed to around 197GW.
At
the end of 2009, hydro-electric power represented some 17% of India's total
installed capacity, with the country ranked around sixth in the world in terms
of hydro-power. There is plenty of new hydro capacity in the construction and
planning stages, according to the Indian government. In particular, hydro-power
development in the Brahmaputra river basin in eastern India is expected to
result in several large generating units, which should add up to 30GW to
capacity.
