MARCHING TOWARDS OIL SECURITY

Ram Naik*

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Energy provides momentum to the growth of economic development and is also a vital ingredient for security. The hydrocarbon resources are the main providers of energy besides coal, water and atom. India has made significant strides in building a strong base for use of hydrocarbon resources through domestic exploration and production as well as through imports to fulfil its requirements. Ideally, a country would strive for being self-dependent for meeting its demand for hydrocarbons. However, in many cases their geographical and geological settings may not permit this. India having struck a major oil discovery in Mumbai High in 1974 had a good balance of self-dependence in this area to the extent of about 70 per cent which slowly declined to reach less than 30 per cent. This trend not only needed to be arrested but also reversed which is what appears on the horizon now as a result of the policy initiatives launched in the last five years by the Government headed by Shri Atal Bihari Vajpayee.

In the light of the declining domestic production and increasing consumption, the Vajpayee Government adopted a comprehensive approach to address the issue of oil security in the widest possible connotation. Apart from putting the search for oil and gas within India on an accelerator, significant progress was made on the side of acquiring oil equity abroad and self-reliance was achieved in the refining sector. The quality of fuels has substantially been improved, and the product distribution network increased with the service points made market savvy. Side by side superior fuels have also been introduced. The expanded contours of the oil security encompassed new and alternative sources of energy like ethanol, bio-diesel, and coal bed methane (CBM) gas.

NELP-A Success

To boost domestic production and to attract investment in oil exploration and production, the New Exploration Licensing Policy (NELP) was finalised with investor-friendly terms comparable to the best in the world. So far three rounds of international bidding have successfully been conducted. As a result, 70 blocks were awarded in the last 3 years against 22 in the previous 10 years. The investor confidence has also been given a boost as the bidding process is being completed within the time schedule. A much improved system is now in place. The contract signing is being accomplished within 3 ½ months as against 2-3 years earlier after the award of blocks. As a mark of the success of NELP, significant gas discoveries have been made in blocks from NELP-I and NELP-II. They include the world’s biggest gas discovery in 2002 by Reliance – Niko Resources joint venture in the Krishna Godavari basin deepwater block from NELP-I and also by Cairn Energy of UK in the same area from NELP-I block. These were followed by a gas discovery by Niko Resources of Canada in an onland block near Surat from NELP-II blocks within 1 ½ years of contract signing. The recent discovery by Cairn Energy in Rajasthan in a block awarded earlier and by ONGC at Vasai on the West Coast could be described as stepping stones towards oil security of the country. The gas discoveries by Reliance and Cairn Energy in Krishna-Godavari deep water are estimated to have about 10 trillion cubic feet (TCF) inplace reserves. The country could get gas of the order of about 30 million cubic metres per day(MMSCMD) from these discoveries. This will add 50 per cent to our total current availability of about 65 MMSCMD against the demand of about 150 MMSCMD. To supplement the availability of natural gas, 8 blocks have been awarded for production of Coal Bed Methane (CBM) gas. India thus become the fourth country after the USA, China and Australia to harness CBM.

Equity Oil Abroad

Significant successes have been achieved on another plank of the Government’s strategy to accomplish oil security through acquiring interests in oil fields and acreages abroad. ONGC Videsh Limited (OVL) acquired 25 per cent share in a 12 million tonne per annum oil producing field in Sudan for about Rs. 3,600 crore. This adds to the success of OVL acquiring 20 per cent stake in Sakhalin Oil Fields in Russia at a cost of about Rs.8,100 crore. The country would annually get 4 to 8 million tonnes of crude oil from 2005 and 5-8 million cubic metres of gas from 2008 onwards respectively. The Vietnam gas field where OVL has 45 per cent share at Rs. 980 crore investment in the 2 TCF reserve field began commercial supplies of gas to customers on December 18, 2002. OVL also acquired interests in attractive exploration blocks in the USA, Myanmar and Libya in 2003.

Augmenting Natural Gas Supply

Natural gas is a preferred fuel and feed stock for several industrial sectors as it reduces the cost of production and is a cleaner source of energy. There is a huge, unsatiated demand for natural gas. In addition to giving impetus for domestic production and acquisition of interest in fields abroad, efforts to import gas through pipelines and in the form of liquefied natural gas (LNG) from surplus countries were also made. Though the imports through pipeline are being pursued from sources in the east and west of the country, the LNG import project made significant progress with the First Import Terminal at Dahej in Gujarat (5 million tonnes) to receive LNG from Qatar on course for commissioning by the first quarter of 2004. The project is promoted by BPCL, ONGC, GAIL (India) and IOC through Petronet LNG. Another import terminal at Kochi (2.5 million tonnes) is also planned in the future. A 2.5 MMT import terminal is under construction by Shell (India) at Hazira in Gujarat. It may become operational by the end of 2004. Thus the security of adequate supplies of natural gas is within sight together with significant discoveries of gas in India and acquisition of interests in fields like Sakhalin, Vietnam Project and a block in Myanmar.

Revolution Ushered in Petro-Agro Sector

Blending of ethanol with petrol has been in vogue in Brazil since 1931, as also in some other countries including the United States. In India, the subject has been much debated and subjected to several studies since 1977. However, it required the Vajpayee Government to come in power for giving a practical shape to the concept in India with the launch of three pilot projects at Manmad and Hazarwadi in Maharashtra and Bareilly in Uttar Pradesh. These projects proved the sustainability of blending ethanol with petrol in Indian conditions. As a result, the Government has now ushered in a revolution in the petro-agro sector by mandating 5 per cent blending of ethanol with petrol from 1st January 2003 in 9 sugarcane producing States and 4 contiguous Union Territories (UTs) in the first phase. All areas of these States and UTs would be fully supplied with 5 per cent ethanol-blended petrol by 30th June 2003. These States are Uttar Pradesh, Punjab, Haryana, Maharashtra, Gujarat, Goa, Andhra Pradesh, Karnataka and Tamil Nadu while the contiguous Union Territories are Chandigarh, Dadra and Nagar Haveli, Daman and Diu and Pondicherry. Out of about 7 million tonnes of petrol consumption in the country, 4.6 million tonnes is accounted for by the first phase States/UTs. At this level, about 32 to 35 crore litres of ethanol would be required for blending, providing useful utilisation of sugarcane molasses otherwise going waste. The use of ethanol would be expanded to the entire country in the second phase and the blending percentage would be raised to 10 per cent in the third phase. The R & D studies have begun to evaluate blending of ethanol with diesel. The programme to blend ethanol with transport fuels would bring better returns to sugarcane farmers, supplement scarce resources of hydrocarbons and bring environmental benefits by reducing pollutants with its properties of helping better combustion. It is also a renewal source of energy.

Reforms

The Administered Price Mechanism (APM) which governed the prices of transportation fuels, LPG and kerosene since 1975 was dismantled with effect from April 1, 2002 to foster competition by allowing private entities in the field of marketing. The prices of petrol, diesel, kerosene, LPG and aviation turbine fuel (ATF) would now move in line with international price trends. LPG and kerosene would continue to be subsidized with a fixed subsidy from the Government for 3 to 5 years more. Marketing rights have been granted to Reliance Industries (5849 pumps), Essar Oil (1700 pumps), ONGC (600 pumps) and Numaligarh Refinery (510 pumps). This will lead to an addition of 40 per cent to the existing strength of retail outlets.

The Government has proposed to set up a Petroleum Regulatory Board to oversee the petroleum sector in the country. To facilitate the setting up of the Board, the Government introduced the Petroleum Regulatory Board Bill 2002 in Lok Sabha on May 06, 2002. The main functions of the proposed Board are to protect the interests of consumers and entities, ensure uninterrupted and to ensure adequate supply of petroleum and petroleum products in all parts of the country. Till the Bill is passed, this work is being done by the Petroleum Ministry.

Strategic disinvestment of IBP - a standalone marketing company - was carried out through international competitive bidding for the Government equity of 33.58 per cent fetching Rs.1,153 crore to the exchequer. The Government also decided to disinvest its shares in HPCL through strategic sale and BPCL through Initial Public Offering. Employees would be offered 5 per cent shares at 1/3rd price.

LPG on Demand

The oil security does not merely mean to produce enough. It also entails making better quality products available easily. In this area the Government registered one of its biggest successes during the last five years by eliminating the 4-5 years waiting period for getting an LPG connection, making it available on demand throughout the country. As many as 3.50 crore new LPG connections were released during the last five years against 3.37 crore in the previous 40 years before March 31, 1998.

As LPG connections became easily available across the country, a new and innovative strategy was evolved for further expansion and use of LPG in households. To reach out to new areas, smaller 5-kg LPG cylinders for use in the households were launched on August 16,2002 in Shimla. The smaller cylinders have been introduced with a view to making the LPG connections affordable to the economically weaker strata and ensure smooth transportation in the hilly and remote areas. The new strategy would serve the Government well in achieving its target of taking LPG to 50 per cent households in the country over the next two years from the current level of about 37 per cent. Making steady progress, so far the 5-kg cylinders have been introduced in 16 States. A 5 kg. cylinder refill costs less than Rs. 100 as against about Rs. 250 per cylinder for a 14.2 kg. cylinder. Incidentally, the deposit on 14.2 kg conventional LPG cylinders was reduced to Rs. 650 from Rs. 900 as the Government initiated the system to procure cylinders through tenders instead of the earlier cost plus system. The encouragement thus provided for domestic use of LPG brings to society the twin benefits of smoke-free and convenient cooking and protection of environment by replacing firewood with LPG as cooking fuel. This is also part of the Government’s policy of women empowerment.

Self Sufficiency In Refining

One of the legacies of the colonial rule ‘Export of raw materials and import of finished products’ was undone during the Vajpayee Government’s tenure in refining crude oil within the country. The country is self-sufficient in refining crude oil and the capacity now stands at 116.5 million tonnes per annum (MMTPA) against the annual consumption of about 100 million tonnes at the 2001-02 level. The refining capacity was almost doubled from about 62.2 MMTPA as of April 1, 1998. This benefits the country by not importing expensive products like petrol and diesel and local value addition to crude by converting to more expensive products within the country. In addition to commissioning two new grass root refineries at Jamnagar (27 MMTPA) and Numaligarh, Assam (3 MMTPA), three new refineries are being constructed at Paradip (Orissa) by Indian Oil Corporation Limited (9 million tonnes), Bhatinda (Punjab) by Hindustan Petroleum Corporation Ltd. (9 million tonnes) and Bina (Madhya Pradesh) by Bharat Petroleum Corporation Limited (6 million tonnes). The total investment in these 3 new refineries would be about Rs. 25,000 crore. Further, refining sector was de-licensed and 100 per cent Foreign Direct Investment (FDI) permitted.

Supply of Clean Fuels

From the consumers’ point of view oil secruity not only means adequate and uninterrupted supply of fuels but also entails supply of quality fuels. Efforts to achieve both these objectives in the last 5 years have obviously resulted in supply of cleaner fuels. The sale of world standard petrol and diesel with 0.05 per cent sulphur maximum content in the metro cities of Delhi, Mumbai, Kolkata and Chennai and, more recently, Hyderabad/Secunderabad was accomplished. These fuels are also being supplied in Ahmedabad, Bangalore, Kanpur and Pune, which also have a high number of vehicles causing air pollution, from April 1, 2003. The supply of superior grade diesel (0.05 per cent sulphur) is comparable with the USA, Canada, Japan and Singapore. Unleaded petrol and 0.25 per cent sulphur petrol/diesel are already on sale throughout the country since February 2000 and January 2000 respectively. To bring India at par with the developed world, about Rs. 10,000 crore was invested in refineries for improvements in the quality of fuels. An additional investment of Rs. 18,000 crore is envisaged to improve fuel quality in rest of the country to Bharat Stage-II Level and to Euro-III Level in 7 mega cities. For a holistic approach to address environmental concerns arising out of hydrocarbon fuels a National Auto Fuel Policy is on the anvil. The policy would be based on the recommendations of experts of national repute from relevant fields under the chairmanship of Dr. R.A. Mashelkar, Director General, CSIR. In addition to the above investments to achieve the road map for improving fuel quality, an incremental amount of Rs. 12,000 crore would be required to supply EURO-III quality fuel in the entire country by 2010.

The Government has to its credit a very large CNG supply infrastructure commissioned in Delhi within a very short span of time to boost CNG supply. This ended the times of long queues following the Supreme Court’s directions in March 2001. As part of a plan to maintain the supply line to CNG stations, a 23 km CNG pipeline to complete a circular loop was commissioned Today 101 CNG stations against 68 in March 2001 cater to the largest CNG bus fleet in a city the world over. Delhi boasts of 7,200 buses and 4,000 mini buses forming part of about 75,000 CNG vehicles in the city. Next comes Beijing with 1,600 and Seoul with 1,000 buses. CNG supply is also being augmented in Mumbai with plans for increasing CNG dispensing points. As part of making available multiple choice to consumers for cleaner fuels alongside better petrol, diesel and CNG, Auto LPG Dispensing Stations (ALDSs) are being commissioned in the country for facilitating the use of LPG, also a clean fuel, in the automobile sector. There are plans to commission 228 ALDSs in the first phase. So far 54 stations have been commissioned in different cities and 97 are in various stages of commissioning.

Rehabilitation of Martyrs’Families

One of the greatest duties that befalls on a society is to honour those who give their lives for the nation, and take care of their dependants. The oil sector has been in the forefront of discharging its social duties — be it super cyclone in Orissa, earthquake in Gujarat or drought in Rajasthan. As part of serving the nation’s cause, retail outlet (RO) dealerships and LPG distributorships were allotted to 439 widows or next-of-kin of martyrs killed in action in Kargil. Oil companies are investing Rs. 40 lakh per RO and Rs.20 lakh per LPG distributorship to provide dealerships in a ready-to-operate status. In addition, 9 RO dealerships were allotted on December13, 2002 to the families of martyrs who saved Parliament from terrorists’ attack a year before. These are the first allotments by the present Government under its discretionary quota scheme. This scheme was formulated for discretionary allotment of retail outlets/LPG distributorships to the wives or next-of-kin of armed forces, para military forces, Government servants killed in action in the course of performance of their duties.

One could, therefore, conclude that the era in the oil sector that the country has witnessed in the past five years is historic in more than one way. Some of the initiatives have brought results for all of us to see while some others have just given us a glimpse of the things to come. For instance, the world’s biggest discovery of gas in 2002 under the umbrella of NELP, release of 3.50 crore new LPG connections in five years which is more than 3.37 crore released in the previous 40 years and attaining self-sufficiency in refining crude oil are nothing short of landmarks. As the projects and initiatives in the oil sector have a longer gestation period, the real benefits of policies, programmes and initiatives initiated by the Government under the dynamic leadership of Shri Atal Bihari Vajpayee would be visible in the years not very far away.(PIB Features)

*Minister, Petroleum & Natural Gas