Budget 2019 wishlist: Here are the key challenges for oil and gas sector

Key challenges

• Declining domestic crude production: Most of the producing fields (in Cambay, Assam-Arakan and Mumbai Offshore) are maturing or have already matured. Due to inadequate new oil and gas discoveries and subsequent development, India is witnessing a decline in crude production.
• Large crude import bills: In 2018-19, India imported more than 80% of its crude consumption and spent in excess of $110 billion
• Inadequate transmission & distribution infrastructure: India needs to invest heavily in midstream and downstream sector to overcome infrastructure constraints in LNG, gas pipelines and CGD.
• Technology constraints: The country needs investment in exploring and developing Category-2 and Category-3 basins. However, Indian operators do not have the requisite technology and experience in this area.
• Low share of MNCs: Despite being one of the largest consumers of energy, India has a low share of MNCs in the domestic market.
• Environmentally friendly fuels: India continues to rely heavily on coal and petroleum products to meet its energy needs.

 

Industry asks

• Reduce oil cess on nomination era blocks and rationalisation of royalty rates to boost domestic production.
• Provide impetus to renewable energy production to reduce crude import dependence
• Build road map for a gas-based economy in order to achieve the vision of increasing the share of gas in the energy mix to 15% by 2030
• Development of pipeline infrastructure by the government for a gas trading hub to be functional in India
• Bring gas, diesel and petrol under the GST

At a glance

• Crude imports rose to $111 billion in 2018-19 from $88 billion in 2017-18
• India retained its spot as the third largest consumer of crude in the world with consumption of 227 MMT in 2018-19  
• India was the fourth-largest Liquefied Natural Gas (LNG) importer in 2017 after Japan, South Korea and China. LNG imports increased to 29 BCM in 2018-19 from 27 BCM in 2017-18
• Crude oil domestic production declined to 32.5 MMT in 2018-19 from 34.0 MMT in 2017-18, while production of natural gas increased to 32 BCM in 2018-19 from 31.7 BCM in 2017-18
• India refined 257 MMT of crude in 2018-19, compared to 252 MMT in 2017-18
• LPG coverage in the country increased to 90% in FY 2019 primarily on the back of Pradhan Mantri Ujjwala Yojana scheme
• PNGRB auctioned 50 geographical areas in its 10th round of bidding for City Gas Distribution (CGD)

Deepak Mahurkar, Partner and Leader Oil & Gas – PwC India

PwC point of view
 
“The demand is here. Companies are
favourably considering investing with the government  improving ease of doing
business experience in hydrocarbon sector. Two common questions they are asking — will fuels and feedstock be under classical GST any sooner, and is the sector  welcoming private companies across the value chain to infuse efficiency”

 

Ajay Dixit, chief executive officer for oil and gas, Vedanta

Industry voice
 
“The major share in crude oil price is a built-up of cess, royalties and profit petroleum. I would say that it should be halved at least. We should charge it on the revenue and not upfront. Then, this will make application of some of the technologies not only possible but also viable, and improve the cash requirement. The Government will be getting its share, one way or
the other”