Budget 2020 Wishlist: Here are the key challenges for oil and gas sector

Resolving gas transmission and distribution infrastructure constraints are one of the industry's key demands

Sector snapshot 

• India is the largest crude oil consumer in the world after China and the US. India consumed 213 MMT of petroleum products and 61 BCM of natural gas in the year 2018-19
• Domestic crude oil production declined to 34.2 mmt in FY19 from 35.7 mmt in FY18. While natural gas production increased marginally to 32 bcm in FY19 as compared to 31.7 bcm in FY18
• India's import dependency on crude oil and natural gas reached 83% and 46%, respectively, during 2018-19
• PNGRB granted Letters of Intent to 12 entities for 50 
• GAs under 10th CGD bidding round 
• LPG coverage in the country increased to 96.5% primarily due to Ujjwala Yojana

Key challenges

• E&P business appearing lacklustre to investors: Multiple Open Acreage Licence Policy (OALP) rounds conducted recently have seen limited interest from private and international oil & gas companies
• CGD sector needs improved ecosystem: City Gas Distribution Geographical Area (GA) licences have been allotted although gas availability, third-party access, swap operationalisation, contractual sustenance, and financing constraints seem to bottleneck take-off
• New retail regulations need other regulation support: To take advantage of long-awaited liberalisation of bulk and retail fuel marketing, investors are finding out how to succeed with restricted access to products and infrastructure
• Inadequate biofuel production capacity: Majority of biofuel projects in India are being carried out by PSUs. However, private sector participation is essential for the cost to service to come down to meet blending targets
• Gas transmission and distribution infrastructure constraints: India is missing the opportunity to benefit from low LNG prices due to delayed commissioning of LNG terminals and limited pipeline network

Industry ask

• Permitting gas trading to allow sale and purchase of gas easily and transparently. Affordable buyers would help some domestic discoveries to become commercial
• Bringing natural gas under the ambit of classical GST
• Building a road map for gas-based economy in order to achieve the vision of increasing the share of natural gas to 15% by 2030 from the existing 6% of the primary energy mix
• Promote the diversification of crude oil sources and take up the issue of Asian premium with Opec

PWC point of view 

“India's oil demand is projected to grow at a CAGR of 4% till 2030 requiring significant infrastructure augmentation. Removing any restrictions to increase utilisation of existing infrastructure is essential to reduce the high costs of servicing customers.  Transportation fuels from biomass deserve impetus to tap the potential our country so uniquely possesses and resultantly achieve emission reduction targets pledged at COP 21 in Paris”


 

Industry voice 

“In Pre-NELP contracts, cess & profit petroleum have increased significantly — cess from $3 per barrel to $13 per barrel, and profit petroleum from 20% to 50% — causing financial strain. Cess should be abolished from pre-NELP contracts, as the government will get back most of this revenue as profit petroleum. Further, this will make many projects viable and with increased production, any balance revenue gap will be more than compensated”
Source: PwC India