India’s rapid economic expansion has seen its energy consumption skyrocket, with the South Asian country ranked as the fourth largest energy consumer, behind only the US, China and Russia. With annual economic growth of 7 per cent since 2000, the US Energy Information Agency (EIA) expects India to account for the biggest share of Asian energy demand by 2035.
In fueling this demand expansion, securing energy sources has been a primary focus for the Indian Government, with energy consumption having more than doubled between 2009 and 2011.
Industrial activity is responsible for the majority of India’s power consumption, accounting for 40 per cent of total primary energy demand, according to 2012 figures from the International Energy Agency (IEA).
While sourcing enough hydrocarbons to meet this industrial demand is a key concern of the Indian government, boosting the reliability of the nation’s power supply and increasing individual citizens’ access to electricity is also a high priority.
With India’s population having increasingly moved to cities, urban households have shifted away from tradition biomass and other fuel sources, but around 25 per cent of the population still lacks basic access to electricity, according to a 2012 IEA report.
The report, Understanding Energy Challenges in India: Policies, Players and Issues, states: “Nearly one-quarter of the population of India lacks access to electricity… Thus, providing energy access to its entire population has been a top priority of Indian policy makers for a long time, making it equally or even more important than energy security.”
However, India faces a number of challenges in achieving this, including a high and increasing dependency on oil and gas imports, high fuel subsidies and inconsistent energy policy reform.
In 2012, India was the world’s fourth largest net importer of oil, having increased its crude oil imports from about 40 percent of demand in 1990 to more than 70 percent of demand by 2011. Climbing year on year, crude oil imports reached 172 million metric tonnes (MMT) in 2011-12, up 5 per cent from 164 MMT in 2010-11, according to India’s Ministry of Petroleum and Natural Gas.
In recent years, India has stated its ambition to wean itself off foreign oil, with an ambitious target of halving its energy imports by 2020 and becoming entirely self-sufficient by 2030.
Asked how realistic he thinks this is, Andy Gibbins, vice president - Middle East, EuroPetroleum Consultants (EPC), says: “It is hard to say, but what is clear is that energy is vital for India’s continued development. Unfortunately the present energy scenario is not entirely satisfactory. Despite recent efforts the country’s power supply is hampered by persistent shortages, unreliability and high prices for industrial consumers.”
He refers to a projection from the EIA’s International Energy Outlook, which suggests India will consume more than 5 million bpd of oil per day by 2030, more than double its current consumption.
Boosting local production
In seeking to address this, Veerappa Moily, the country's Petroleum and Natural Gas Minister appointed last October, is a strong advocate of increasing domestic production. With around 5.5 billion barrels of oil reserves at the end of 2012, about 53 per cent of its hydrocarbons are located onshore and 47 per cent offshore.
Most are found in the western part of India, particularly in the western offshore regions of Gujarat and Rajasthan. The Assam-Arakan basin in India’s northeast is also an important oil-producing region, holding more than 10 per cent of its reserves.
Another challenge India faces in increasing its local production is related to the complex regulatory and approvals structure of its industry, as explained by EPC’s Gibbins.
“The Indian Oil & Gas industry landscape is a complicated one – foreign players are or have been active in India but all have had to overcome numerous stumbling blocks,” he says. “Historically, the main difficulties encountered have been due to delays in granting approvals for exploration activities.”
Indeed, Moily has said his ministry would create a roadmap to help the energy-starved nation improve its investment conditions. "Encouraging investment by making a transparent policy [on hydrocarbons] that would cut the time spent in seeking regulatory approvals for exploration activities would be one of such efforts in increasing local production," Moily told reporters in February this year.
Flagging foreign involvement
In the past, foreign companies had taken the lead in exploring new offshore opportunities, with Cairn India a prominent example. In 2009 it brought online the largest field, Mangala, in the Barmer Basin, with a production capacity of 130,000 bpd.
However, foreign investment in India has declined in recent years, as a result of both increased competition from locally-based companies and India’s complex exploration laws.
Gibbins agrees there is a need to simplify the process for foreign companies, who are increasingly important in bringing the technological expertise required to explore and produce in the deeper water offshore areas. “Historically, the main difficulties encountered have been due to delays in granting approvals for exploration activities,” he says.
As examples, Gibbins cites bureaucratic delays as the main reason Norway's Statoil ASA and Brazil's Petroleo Brasileiro SA in 2010 both exited a venture with state-run Oil and Natural Gas Corporation (ONGC) to develop the Krishna-Godavari basin gas block.
Before the mid-1990s, preference was given to Indian companies for the exploration of oil and gas blocks, but the government made a significant step to address this with the introduction of the New Exploration Licensing Policy (NELP) in 1999. This allowed foreign companies to bid on development blocks, permitting foreign direct investment of up to 100 per cent. This has seen the nation’s oil and gas sector become more open and competitive than other energy sectors in India, permitting the entry of a number of private and foreign private companies, including Cairn India, BG Group, Hardy E&P along with BP, ENI, Shell and Gazprom.
Cairn India, a partnership between Vedanta Resources and UK-based Cairn Energy, is one of the most active independent exploration and production companies in India. It recently made its 26th oil discovery in the province of Rajasthan, with the group planning to drill 30 wells in the area in 2013. This will form part its targeted 71 per cent increase in production to 300,000 barrels of oil equivalent per day, which would represent around 40 per cent of India’s total output.
BG Group has been involved in India for 15 years, operating five gas fields in the Panna, Mukta and Tapti regions.
BP also has a strong presence here, having entered India’s upstream space in 2008 when it partnered with Reliance Industries. Since then it has taken a 30 per cent stake in 23 mostly deepwater oil and gas blocks covering an area of some 270,000 sq km.
Since NELP was introduced, nine bidding rounds have been held, which has seen a total 254 blocks awarded for exploration, though the last few rounds have received only a luke-warm response as global oil and gas majors have mainly stayed away.
Of the 34 areas offered in 2010, bids were received for 33 blocks with only 19 awarded. The previous round, NELP 8, was the largest with 70 blocks offered , but only 32 were awarded.
NELP 10 is due to be held this year, with 68 blocks expected to be offered including 20 shallow water and 3 on-shore blocks, the second-highest since 1999. In an effort to boost the participation of foreign upstream players, this round is likely to adopt new terms following recommendations from a government advisory committee.
Under the new terms, bidders will be asked to estimate the expected output of oil and gas they can offer the Indian government from day one. Currently, oil companies are allowed to first recover the entire cost of exploration and production and only then share the profit with the government.
In looking for additional ways to reduce its reliance on foreign energy sources, many believe natural gas will become increasingly important for India. As a proportion of India’s energy mix, natural gas now accounts for around 10 per cent of India’s energy consumption, up from 8 per cent in 2009.
Highlighting the changing emphasis on natural gas versus oil, the EIA expects Indian oil production will grow at an average annual rate of less than one percent through 2035.
“Looking at all the recent forecasts it seems that India’s stable economic growth is expected to continue and as a result this will increase the overall demand on natural gas,” says EPC’s Gibbins.
LNG imports are currently in the order of 20-25 million tpa, with the Indian energy basket comprising 52 per cent coal, 33 per cent oil and 10 per cent gas, with the remaining 6 per cent made up by hydro-electricity and a small proportion of nuclear power.
Proven gas reserves increased from 25 tcf to 29 tcf between 1991 and 2001 but grew by 50 per cent between 2002 and 2011, according to 2012 figures from BP. This increase has been attributed largely to exploration success in fields offered under India’s NELP.
About 80 per cent of India’s gas production comes from off-shore fields, mainly from the
west coast. On-shore production is dominated by four states, including Assam in the north-east, Gujarat in the west, Tamil Nadu and Andhra Pradesh in the south east, which jointly account for close to 90 per cent of gas production.
However, as Gibbins points out, expanding India’s domestic gas industry is not without challenges: “Its growth is constrained due to pricing and marketing policies of the government with respect to gas produced domestically.”
The discovery of the Reliance-operated KG-D6 offshore block in the Bay of Bengal in 2002 drew high expectations, with original estimated recoverable reserves of over 6 tcf, around 40 times the size of India’s largest producing gas field, the off-shore Bombay High.
While production started according to plan in 2009, it has since dropped significantly due to technical problems as stated by the field operator. In March 2012, production was at 34 million cbm per day, instead of the projected 80 million cbm, which would have provided some 46 per cent of total domestic supply, according to a 2012 report from the IEA.
Despite the challenges, Reliance and its partner BP earlier this year won approval to continue drilling in the MA block within the KG-D6 block. This came after the submission of a revised field development plan in February 2012.
Shale gas a potential game-changer
Just as shale gas is reshaping the energy landscape in North America, the Indian Government is hoping it will find unconventional hydrocarbons within its own borders. “India has high potential for shale reserves,” says Gibbins, referring to the latest Indian Oil Ministry estimates of potential shale resources in the range of 300-1,200 trillion cbm.
Six basins have been identified as potential exploration targets – the Cambay, Assam-Arakan, Gondwana, KG onshore, Cauvery onshore and the Indo-Gangetic basins for carving out blocks to tap shale gas.
“The Indian government has announced plans to start bids for shale gas blocks at the end 2013 so realistically we can expect an increase in the E&P activities related to unconventional resources within the next five to 10 years,” he adds.
However, one of the Key challenges in this regard has been a lack of legislation covering exploration and production of shale gas, with current Indian laws only recognising conventional oil and gas. In seeking to address this, in late March, India’s oil minister Veerappa Moily told international press it would unveil a shale gas policy by mid-April 2013.
Unlocking India's shale gas market could help the country decrease its dependence on expensive energy imports, but this emerging industry will have to be promoted by balancing economic benefits with environmental and social issues.
It will also require strong service and infrastructure capabilities along with a favourable regulatory regime, which will not only promote shale gas exploration activities, but also addresses environmental and social concerns.