New Delhi: The past year has not been too kind to the oil and gas sector, where it has been impacted by price volatility, inflationary pressures, and of course the geo-political repercussions. In these difficult times, India has had to look at alternate crude suppliers outside and also to look within for alternate energy options (more on the new energy side – RE, EV, H2). The good news is that the Indian economy continues to grow in these troubling times and India has become the fifth-largest economy, while it is already the third-largest energy consumer in the world. And this is when India's per capita energy consumption is lower than the world average, indicating significant growth potential in the Indian energy sector; such that Indian energy consumption is expected to grow to 12 percent of the global consumption by 2050. With such potential, the oil and gas industry will play a critical role in fueling the energy demand for the growing economy and will account for >35 percent of India's primary energy consumption till 2030.
A key aspect for India's energy security is the presence of oil and gas resources. Unfortunately, India is not as endowed here, with >85 percent of oil and >50 percent of natural gas being imported. To address this, the government is focusing on four strategies for energy security: diversification of supplies, increasing E&P footprint, increase of alternate energy sources like biofuels, ethanol, CBG, addressing decarbonisation and energy targets through EVs and hydrogen, and energy efficiency through initiatives such as Surya Nutan, Ujala.
On the E&P side, we have seen measures such as Discovered Small Fields (DSF) policy, the setting up of National Data Repository (NDR), the exemption of operators from revenue-sharing with the government in the unexplored category II and III basins, and recently, the offer of mega offshore bid round under which ~2.2 lakh sq kms is on offer for exploration and production. In addition, the ministry has also reduced the prohibited/no-go areas in EEZ spanning around 2.3 million sq kms, which is now available for exploration. These are all fillips to increase the net area under exploration from 8 percent (0.25 million sq km) to 15 percent (0.5 million sq km) by 2025 and along with an expected E&P investment of $58 billion.
While these measures have improved the ease of doing business in the sector, but more can be done to improve sector health. Reforms that both incentivise and streamline business operations are desired: bringing crude and gas production within the GST ambit, reducing relevant tax, levies from government share of petroleum profit, providing adequate incentives for high-pressure/ high-temperature/ deep-water explorations and addressing price caps for finds in these areas and leveraging big data analytics tools on sedimentary and geophysical data in NDR for pre-processing exploration basins, initiatives such as this will further attract E&P majors to invest in India.
Even in the gas domain, India has plans to leverage gas as a key transition fuel for the economy, by introducing special bid rounds for CBM blocks, marketing, and pricing freedom for natural gas and ensuring wider access across geographical areas. Still there are some challenges that need to be addressed, namely gas availability and distribution, inadequate pipeline connectivity, and some inconsistencies in tariffs. The PSUs have initiated many pipeline additions and enhancements to the grid and the government has provided viability funding support, however, this needs to be enabled further with mechanisms for facilitating state bodies' collaboration for energy infrastructure which span across states, including single window clearances, and leveraging alternate financing means such as Invit, existing asset monetisation structures, which improve project viability and sustainability.
Finally, even amongst the volatility of last year, we should not forget the long-term decarbonisation agenda of the government. For this, the SATAT initiative to increase Compressed Biogas (CBG) production is a key measure to enhance gas usage (as it can be blended with natural gas), while reducing carbon emission, reusing biomass, enabling waste management, and boosting the rural economy. In addition, further enablers on volume offtakes, transparent pricing frameworks and robust biomass feedstock collation mechanism would support the CBG initiative. Similarly for decarbonising fuels, the government has brought forward the 20 percent ethanol-blending target closer to 2025 itself. This target can be pragmatically achieved through enhanced global availability of feedstock and with enablers such as Global Biofuels Alliance and supporting development of hybrid/flex vehicles for mobility.
So, while the oil and gas sector has benefited from key reforms so far, specific initiatives of fiscal and infrastructural enablement would help in furthering growth and making India a shining beacon for investments. Especially in a year where India holds the G20 presidency, ringing in the right reform roadmap can help to net investments of ~$250 billion over this decade, out of which ~$120 billion is expected in E&P and gas infrastructure and around $130 billion in refining and petrochemical infrastructure. With a poised mix of realignment and rejuvenation reforms, strong growth in oil and gas sector can be realised which, in turn, will cascade as a multiplier for India's economic growth.
The author is Partner and Lead – Oil & Gas and Chemicals, KPMG, in India.
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