OIL & GAS May 2018
Table of Content Executive Summary...3 Advantage India......4 Market Overview and Trends....6 Porters Five Forces Analysis.......28 Strategies Adopted.... 30 Growth Drivers...33 Opportunities...... 40 Success Stories...........43 Useful Information.....46
EXECUTIVE SUMMARY Second largest refiner in Asia As of May 1, 2018, the oil refining capacity of India stood at 247.6 million tonnes, making it the second largest refiner in Asia. Private companies own about 35.62 per cent of the total refining capacity. World s fourth-largest energy consumer India s energy demand is expected to double to 1,516 Mtoe by 2035 from 723.9 Mtoe in 2016. Moreover, the country s share in global primary energy consumption is projected to increase by 2-folds by 2035 Fourth-largest consumer of oil and petroleum products India s consumption of petroleum products grew 5.31 per cent to 204.992 MMT in 2017-18 from 194.597 MMT in FY17. India was 3rd largest consumer of crude oil and petroleum products in the world in 2016. Fourth-largest LNG importer in 2016 LNG imports into the country accounted for about one-fourth of total gas demand, which is estimated to further increase by two times, over next five years. To meet this rising demand the country plans to increase its LNG import capacity to 50 million tonnes in the coming years. India increasingly relies on imported LNG; the country is the fourth largest LNG importer and accounted for 5.68 per cent of global imports. India imported 18.63 MMT of LNG during 2016-17, in comparison to 16.14 MMT in 2015-16. LNG imports during 2017-18, reached 18.05 MMT. Notes: MMTPA - Million Metric Tonnes Per Annum, Mtoe Million Tonnes of Oil Equivalent; mbpd Million Barrels Per Day; Figures mentioned in this slide is as per latest data available Source: US Energy Information Administration (EIA), Ministry of Petroleum and Natural Gas 3
ADVANTAGE INDIA Oil and Gas
ADVANTAGE INDIA India is the world s 3rd largest energy consumer; oil and gas account for 35.61 per cent of total energy consumption in India Demand for primary energy in India is to increase 3-fold by 2035 to 1,516 million tonnes of oil The University of Petroleum and Energy Studies in Dehradun, Uttarakhand, is Asia s 1st and only energy university Indian Oil is going to invest Rs 1.8 trillion over the next five to seven years to expand its refining capacity. ADVANTAGE INDIA The government allows 100 per cent Foreign Direct Investment (FDI) in upstream and private sector refining projects The FDI limit for public sector refining projects has been raised to 49 per cent without any disinvestment or dilution of domestic equity in the existing PSUs Government has enacted various policies such as the Open Acreage Licensing Policy (OALP) and Coal Bed Methane (CBM) policy to encourage investments In 2017, the government launched National Data Repository (NDR) to make E&P data available for commercial exploitation and R&D. Note: mbpd Million Barrels Per Day, bcm Billion Cubic Metres, F Forecast; Figures mentioned in this slide is as per latest data available Source: Business Monitor International (BMI), World Oil Outlook 2012, Ministry of Petroleum and Natural Gas, BP Statistical Review 2015, 5
MARKET OVERVIEW AND TRENDS Oil and Gas
STATE-OWNED COMPANIES DOMINATE OIL AND GAS IN INDIA India became the 3rd largest energy consumer in 2015 and continued to remain so in 2016. India s oil production reached 35.68 Mt in 2017-18. As of 2016, the country had 600 million metric tonnes (MMT) of proven oil reserves India had 1.2 million cubic metres of proven gas reserves at the end of 2016 and produced 31.83 bcm of gas in FY18 which is expected to rise and reach 36 bcm^ by 2021. Upstream segment - exploration and production State-owned ONGC dominate the upstream segment. It is the largest upstream company in Exploration and Production (E&P) segment, accounting for approximately 58.26 per cent of the country s total oil output (FY18). Indian Oil and Gas sector Midstream segment storage and transportation IOCL operates a 13,391 km network of crude, gas and product pipelines, with a capacity of 1.896 mbpd of oil and 9.5 mmscmd of gas This is around 30 per cent of the nation s total pipeline network Downstream segment refining, processing and marketing IOCL is the largest company, controls 10 out of 22 Indian refineries, with a combined capacity of 1.31 mbpd Reliance launched India s 1st privately owned refinery in 1999 and has gained considerable market share (30 per cent) Essar s Vadinar refinery has a capacity of 20 mmtpa, currently accounting for around 10 per cent of total refining capacity Notes: bcm Billion Cubic Metres, tcf Trillion Cubic Feet, mbpd Million Barrels Per Day, mmscmd - Million Metric Standard Cubic Metre Per Day, tcm -- trillions of cubic meters, mmtpa - - million metric tons per annum, ^AS per IEA Source: BP Statistical Review 2015, US Energy Information Administration, Ministry of Petroleum and Natural Gas, Aranca Research 7
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P 2.74 2.94 3.08 3.24 3.32 3.49 3.69 3.73 3.85 3.92 4.33 4.43 OIL SUPPLY AND DEMAND IN INDIA (1/2) Oil consumption has expanded at a CAGR of 2.98 per cent during FY2008 17P to reach 4.43 mbpd by 2017. Oil consumption in India (2008-17) (mbpd) Due to the expected strong growth in demand, India s dependency on oil imports is likely to increase further Rapid economic growth is leading to greater outputs, which in turn is increasing the demand of oil for production and transportation 5.00 4.50 4.00 With rising income levels, demand for automobile is estimated to increase, in turn leading to augmented demand for oil and gas 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Note: CAGR Compound Annual Growth Rate, mbpd Million Barrels Per Day, P - Provisional, Figures for 2015-2017 are from Ministry of Petroleum and Natural Gas, others from BP Source: Ministry of Petroleum and Natural Gas, BP Statistical Review 2017, Aranca Research 8
0.67 0.75 0.76 0.76 0.76 0.75 0.74 0.72 0.64 3.18 3.27 3.43 3.69 3.78 3.79 4.05 4.27 4.41 OIL SUPPLY AND DEMAND IN INDIA (2/2) In FY18, total crude oil imports were valued at US$ 87.37 billion as compared to US$ 70.71 billion in FY17. In FY18, crude oil imports increased to 4.41 mbpd from 4.27 mbpd in FY17. India s crude oil production reached 0.64 mbpd in 2017-18. 6.00 Imports Visakhapatnam and domestic port oil traffic production (million in India tonnes) (mbpd) In March 2017, the Indian Strategic Petroleum Reserve Ltd (ISPRL) and Abu Dhabi National Oil Company (ADNOC) of UAE signed an agreement, to fill up 0.81 MMT or 5,860,000 million barrels of crude oil at ISPRL storage facility at Mangalore, Karnataka. In May 2018, India received the first shipment of 2 million barrels of crude oil from ADNOC. 5.00 4.00 3.00 2.00 1.00 0.00 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY18 Oil Production (mbpd) Oil imports(mbpd) Note: F Forecast, mbpd Million Barrels Per Day Source: Ministry of Oil and Natural Gas, BMI forecasts, Aranca Research 9
40.32 41.55 50.70 60.31 61.09 71.07 49.30 48.82 45.74 50.09 1,055.00 1,090.00 1,115.26 1,148.57 1,278.06 1,330.24 1,354.76 1,251.89 1,227.20 1,427.15 GAS SUPPLY AND DEMAND IN INDIA (1/2) India s gas consumption has increased at a CAGR of 2.44 per cent between 2007 and 2016. Proven reserves Visakhapatnam and total gas port consumption traffic (million in tonnes) the country (bcm) Demand is not likely to simmer down anytime soon, given strong economic growth and rising urbanisation. Gas consumption is projected to reach 216 bcm by 2021-22. 1600.00 1400.00 1200.00 1000.00 800.00 600.00 400.00 200.00 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Gas Consumption Proven Gas Reserves Note: F Forecast, bcm Billion Cubic Metres, CAGR Compound Annual Growth Rate Figures mentioned in this slide is as per latest data available Source: PPAC, BP Statistical Review 2017, Aranca Research; 10
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18* 32.42 32.85 34.64 32.79 31.24 30.92 31.83 10.84 39.78 10.46 47.49 46.48 52.22 17.05 21.6 22.7 11.72 17.19 24.48 26.11 12.78 17.44 GAS SUPPLY AND DEMAND IN INDIA (2/2) India s LNG imports increased at a CAGR of 8.14 per cent during FY08 FY18. Domestic gas production and imports (bcm) Domestic gas production in India during 2017-18 increased to 31.83 bcm from 30.92 bcm in 2016-17. Auto LPG consumption advanced 0.1 per cent or about 20 MT in April 2018. 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 Gas production Gas Imports Note: bcm Billion Cubic Metres, TMT Thousand Metric Tonnes, Estimated Figures Source: Ministry of Petroleum and Natural Gas, BP Statistical Review 2016, Aranca Research 11
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 8576.29 9080.21 8876.55 9011.73 8796.80 9237.48 9858.47 9042.47 22.5 21.8 20.5 20.4 20.8 21.1 20.9 19.1 17590.64 17564.96 18102.42 17967.54 17271.76 16406.33 16882.85 20159.84 9.00 9.50 10.30 11.50 12.00 11.70 11.20 10.40 UPSTREAM SEGMENT: CRUDE OIL AND GAS PRODUCTION (1/2) Annual crude oil production (in MMSCM) Crude Oil Production (in MMT)^ 35000.00 40 30000.00 35 25000.00 30 20000.00 15000.00 10000.00 25 20 15 10 3.60 3.80 3.70 3.50 3.40 3.20 3.30 3.10 5000.00 5 0.00 0 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18* Onshore Offshore ONGC OIL Pvt/JV In 2017-18, crude oil production stood at 35.68 million tonnes. ONGC accounted for around 58.26 per cent of total crude oil production in India. Notes: mmt Million Metric Tonne, JV Joint Venture P Provisional, FY18* - up to February 2018, ^Data up to FY17 includes condensates Source: Ministry of Petroleum and Natural Gas, Aranca Research 12
23095 23316 23549 23284 22023 21177 8,576.29 22088 21416 9,080.21 8,876.55 9,011.73 8,796.80 9,237.48 9,858.47 10,638.69 9497 8912 8235 6872 5806 14491 21609 17,590.64 17,564.96 18,102.42 17,967.54 17,271.76 16,406.33 16,882.85 17,791.16 26054 UPSTREAM SEGMENT: CRUDE OIL AND GAS PRODUCTION (2/2) Annual gas production (million metric standard cubic meter) 20000.00 Annual gas production (million metric standard cubic meter) 60000 18000.00 16000.00 50000 2350 2633 14000.00 12000.00 10000.00 40000 30000 2639 2626 2722 2838 2937 2645 8000.00 6000.00 20000 4000.00 10000 2000.00 0.00 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 0 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18^ Onshore Offshore ONGC Pvt/JV OIL Note: bcm Billion Cubic Metres, mmscmd-- Million Metric Standard Cubic Meter Per Day, JV Joint Venture Source: Ministry of Petroleum and Natural Gas; Aranca Research 13
UPSTREAM SEGMENT: EXPLORATION AND DEVELOPMENT ACTIVITIES Development drilling activities (FY17 (1) ) Exploration activities (FY17 (1) ) 1000 350 900 800 700 628 300 250 227 600 500 400 200 150 119 300 200 100 0 222 86 Offshore 312 Onshore 100 50 0 40 Offshore 102 Onshore Wells Meterage ('000 metres) Wells Meterage ('000 metres) During FY17 (1), 1,245,000 metres of wells were explored and developed and 540 wells were drilled in the country. State-owned oil companies undertake most of the upstream drilling and exploration work. In January 2018, after a gap of eight years, the Central Government auctioned 55 exploration blocks which offered a record area for prospecting of oil and gas. This was the first auction under OALP* that allows companies to carve out blocks of their choice with a view to bringing about 2.8 million square kilometres of unexplored area in the country under exploration. Notes: FY17 (1) Provisional, *OALP Open Acreage Licensing Policy Source: Ministry of Petroleum and Natural Gas, Aranca Research, BMI 14
PIPELINES: CRUDE PIPELINE NETWORK Shares in crude pipeline network by length (out of 10,327 km) Shares in crude pipeline network by capacity (out of 141.2 (May 1, 2018) 1 MMTPA) (May 1, 2018) 1 25.58% IOCL 18.20% ONGC OIL 5.95% 41.43% IOC 51.33% 11.53% ONGC OIL 11.55% Others 34.42% Others As of May 1, 2018, India had a network of 10,327 km of crude pipeline having a capacity of 141.2 mmtpa (1). In terms of length, IOCL accounts for 51.33 per cent (5,301 km) of India s crude pipeline network. In terms of actual capacities, ONGC leads the pack with a share of 41.43 per cent, followed by IOCL at 34.42 per cent. Note: km Kilometre, mmtpa Million Metric Tonnes Per Annum, (1) Approximate Source: Ministry of Petroleum and Natural Gas, Aranca Research 15
Pipelines: Existing Pipelines in India Company-wise length and capacity of products pipeline and crude oil pipeline (as of May 1, 2018) Length (Kms) IOCL BPCL (1) HPCL (2) OIL ONGC Cairn HMEL Others (GAIL and Petronet India.) Total industry Product Pipeline Crude oil Pipeline 7,950 1,948 3,371 654 - - - 2,688 16,611 5,301 937-1,193 1,191 688 1,017-10,327 Total 13,251 2,885 3,371 1,847 1,191 688 1,017 2,688 26,938 Capacity of Crude Oil Pipelines (MMTPA) Product Pipeline Crude oil Pipeline 46.2 16.2 38.1 1.7 - - - 9.3 111.4 48.6 6.0-8.4 58.5 10.7 9.0-141.2 Total 94.8 22.2 38.1 10.1 58.5 10.7 9.0 9.3 252.6 Note: kms Kilometres, mmtpa Million Metric Tonnes Per Annum, (1) Includes Petronet Cochin-Coimbatore-Karur Product pipeline, (2) Includes Petronet Mangalore-Hassan-Bangalore Product Pipeline Source: Ministry of Petroleum and Natural Gas, Aranca Research 16
PIPELINES: REFINED PRODUCTS AND LPG PIPELINE NETWORK Shares in products pipeline network under operation by length (out of 16,611 km, FY18 2 ) Shares in Natural Gas pipeline network by length (out of 16,793 km) (FY18 3 ) 0.83% IOC 4.87% GAIL 3.94% 16.18% HPCL 15.59% Reliance GSPL 11.73% 47.86% BPCL 10.62% ARN OIL 67.94% Others 4 20.29% Others 1 With 16,611 km of refined products pipeline network (capacity of 111.4 mmtpa) in India, Indian Oil Corporation (IOC) leads the segment with 47.86 per cent of the total length of product pipeline network, as of May 1, 2018. Top 3 companies IOC, HPCL and BPCL contribute 79.88 per cent of the total length of product pipeline network in the country. As of April 1, 2018, Gas Authority of India Ltd. (GAIL) has largest share (67.94 per cent or 11,410 km) of the country s natural gas pipeline network (16,793 km) Note: km - Kilometre, mmtpa Million Metric Tonnes Per Annum, LPG - Liquefied Petroleum Gas, IOC - Indian Oil Corporation, HPCL - Hindustan Petroleum Corporation Ltd, BPCL - Bharat Petroleum Corporation Ltd, OIL - Oil India Limited, (1) Others include GAIL and Petronet India, (2) As of May 1, 2018, (3) As of April 1, 2018, (4) Others includes IOCL and ONGC Source: Ministry of Petroleum and Natural Gas, Aranca Research 17
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 108.03 112.51 112.17 112.13 115.11 122.58 33.43 130.57 134.22 134.73 38.29 144.20 48.54 154.3 160.77 74.44 81.38 81.18 88.27 88.23 88.53 88.66 91.09 91.16 DOWNSTREAM SEGMENT: REFINERY CRUDE THROUGHPUT (1/2) State-controlled entities dominate the downstream segment as well India has 19 refineries in the public sector and 3 in the private sector Private companies such as Reliance Industries Ltd. and Essar Oil have become major refiners 300 Visakhapatnam Refinery crude port throughput traffic (million (mmt)* tonnes) Crude oil throughput of public sector refineries has grown at a CAGR of 3.68 per cent from 108.03 mmt in FY07 to 160.77 mmt in FY18. During the same time, crude oil throughput of private sector refineries has grown at a CAGR of 9.55 per cent from 33.43 mmt to 91.16 mmt. 250 200 The share of private sector refineries throughput in total crude throughput has grown from 29.99 per cent in FY07 to 36.18 per cent in FY18. 150 100 50 0 Public sector Private sector Note: mmt Million Metric Tonne, Public Sector includes IOCL,BPCL,HPCL, CPCL and ONGC, Private sector includes RIL and Essar Source: Ministry of Petroleum and Natural Gas, Aranca Research 18
116.89 120.07 120.07 120.07 120.07 135.07 139.00 142.10 142.10 76.50 93.00 95.00 95.00 95.00 95.00 95.00 105.50 105.50 DOWNSTREAM SEGMENT: REFINERY CRUDE THROUGHPUT (2/2) Shares in India's total refining capacity (May 1, 2018) Total installed refinery capacity (mmt) 300.00 6.10% 4.64% IOC 250.00 8.08% 27.95% RIL 200.00 BPCL 150.00 10.95% 247.6 MMT HPCL 100.00 Essar 50.00 14.74% 27.54% ONGC CPCL 0.00 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19* Public sector Private sector (incl JV) As of May 1, 2018, the sector s total installed provisional refinery capacity was 247.6 mmt. IOC emerged as the largest domestic refiner with a capacity of 69.2 mmt Top three companies - RIL, IOC and BPCL contribute around 70.23 per cent of India's total refining capacity Note: mmt Million Metric Tonne; HPCL - Hindustan Petroleum Corporation Ltd, BPCL - Bharat Petroleum Corporation Ltd, OIL - Oil India Limited, ONGC - Oil and Natural Gas Corporation, IOCL - Indian Oil Corporation Ltd, CPCL - Chennai Petroleum Corporation Limited, FY 19* - As of May 1, 2018 Source: Ministry of Petroleum and Natural Gas, PPAC, Aranca Research 19
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY18 3,996 4,084 4,191 4,363 4,169 4,175 4,089 3,872 3,657 3,377 3,458 4,608 62.8 66.4 71.1 75.0 79.4 82.7 81.8 82.8 81.9 88.9 DOWNSTREAM SEGMENT: PETROLEUM PRODUCTS Consumption of petroleum products in India increased to 204.92 mmt in FY18(P) from 194.60 mmt in FY17. Petroleum products derived from crude oil include light distillates such as LPG, naphtha; middle distillates such as kerosene; and heavy ends such as furnace, lube oils, bitumen, petroleum coke and paraffin wax Light distillates with the highest growth rate grew at CAGR of 4.78 per cent, while middle distillates and heavy end segment witnessed a CAGR of 3.93 per cent and 5.89 per cent respectively, during the year FY08-17. Production of petroleum products increased from 3,996 tmt in FY 07 to 4,608 tmt in FY 18. 250.0 200.0 150.0 100.0 50.0 0.0 Consumption of Petroleum Products (mmt) 46.4 27.7 27.5 27.7 24.6 24.9 28.1 29.0 31.4 31.6 38.4 39.7 39.0 41.4 43.9 46.3 47.6 50.9 54.7 58.5 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Light Distillates Middle Distillates Heavy Ends Production of Petroleum Products by Fractionators (tmt) 5000.00 4000.00 3000.00 2000.00 1000.00 0.00 Note: mmt Million Metric Tonne, tmt thousand metric tonne, P Provisional Source: Ministry of Petroleum and Natural Gas, Aranca Research 20
DOWNSTREAM SEGMENT: DISTRIBUTION AND MARKETING The total number of OMC retail outlets increased to 62,670 at the start of May 2018 1 from 59,595 at the end of FY17. Downstream distribution statistics (MMT) IOC, as of May 01, 2018, owned the maximum number of retail outlets in the country (27,712 or 43.26 per cent of total), followed by HPCL (15,077 or 24.06 per cent), BPCL (14,453 or 23.06 per cent) and MRPL (6 or 0.01 per cent); the remaining being owned by private firms. As of May 2018 1, there were 20,221 LPG distributors (of PSUs) in India. 250.0 200.0 150.0 100.0 109.72 97.36 97.36 96.61 107.58 50.0 85.10 89.57 97.70 104.50 110.50 0.0 FY14 FY15 FY16 FY17 FY18 Product pipeline Natural Gas Pipeline Pipeline Capacity (mmtpa) As of May 1, 2018 Length (km) As of May 1, 2018 Crude Pipeline 141.2 10,327 Product Pipeline 111.4 16,661 Natural Gas Pipeline 2 104.08 16,793 Note: MMT Million Metric Tonne, mmtpa Million Metric Tonnes Per Annum, OMC Oil Marketing Companies, 1 As of 1 st May 2018, 2 As of April 1, 2018 Source: Ministry of Petroleum and Natural Gas, Aranca Research 21
INDIA S ENERGY CONSUMPTION MIX (1/2) Energy demand in the Asia-Pacific region is estimated to be around 5,579.7 Mtoe at the end of 2016 and is expected to reach 5,627 Mtoe by 2020 and 6,861 Mtoe by 2035 India s energy demand is projected to double to 48.7 quadrillion BTU by 2035 The primary energy consumption of India rose by 5.66 per cent in 2016 and 3.24 per cent in 2015. In 2016, coal maintained its dominancy and accounted for 56.9 per cent of total primary energy demand. According to the International Energy Agency (IEA), India is expected to account for almost one-third of the global growth in energy demand by 2040. Note: Mtoe Million Tonne of Oil Equivalent, BTU British Thermal Unit; Figures mentioned in this slide is as per latest data available Source: US Energy Information Administration (EIA), BP Statistical Review 2015, Asia-Pacific Economic Cooperation (APEC), Aranca Research 22
INDIA S ENERGY CONSUMPTION MIX (2/2) Over the next few years, dependence on gas, hydro power and nuclear power is expected to increase relative to oil and coal Consumption pattern expected in 2035 The government aims to quadruple India s nuclear power generation capacity to 20 GW by 2020; currently, 7 nuclear power reactors of 4,930 MW capacity are under construction 8.00% Coal In coming decades, a major portion of consumption dependability of energy mix is expected to shift from coal and petroleum to other resources like natural gas, solid biomass and waste and nuclear and other renewable sources 15.00% 11.00% 42.00% Petroleum Solid Biomass and Waste Natural Gas 24.00% Nuclear and other renewables Source: International Energy Agency (IEA), Aranca Research 23
STATE-WISE CRUDE RESERVE, CAPACITY AND THROUGHPUT State Balance recoverable reserves of crude oil, April 1, 2017 (MMT) State Installed capacity, as of April 2017 (mt) Crude throughput for FY 2017 (mmt) Assam 159.96 Gujarat 118.61 Rajasthan 24.55 Tamil Nadu 9.00 Andhra Pradesh 8.15 Nagaland 2.38 Arunachal Pradesh 1.52 Tripura 0.07 Total Onshore 324.24 Western Offshore 239.20 Eastern Offshore 40.67 Total Offshore 279.87 Gujarat 93.7 105.01 Maharashtra 19.5 22.05 Haryana 15.0 15.64 Karnataka 15.0 15.97 Tamil Nadu 1.5 0.53 Kerala 12.4 11.82 Andhra Pradesh 8.396 9.42 Uttar Pradesh 8.0 9.23 West Bengal 7.5 7.69 Assam 7.0 6.57 Bihar 6.0 6.53 Punjab 9.0 10.52 Madhya Pradesh 6.0 6.36 Odisha 15 8.23 Himachal Pradesh 10.5 9.76 Total 234.496 245.33 Note: Mmt Million Metric Tonne, mt Million Tonne Source: Ministry of Petroleum and Natural Gas, Aranca Research 24
KEY DOMESTIC OIL AND GAS COMPANIES Company Indian Oil Corporation Limited Ownership (per cent) as on FY17-18 56.98% state-owned FY18 Total Income from Operations (US$ billion) 65.79 Reliance Industries Public Listed 60.77 Bharat Petroleum Corporation Limited Hindustan Petroleum Corporation Limited ONGC GAIL India Limited 54.31% state-owned 51.11% state-owned (through ONGC) 68.07% state-owned 53.59% state-owned 31.13* 34.06 11.99* 8.46 Oil India Limited 66.13% state-owned 1.69* Note: : FY Indian Financial Year from April March, *for FY17 Source: Bloomberg, Aranca Research 25
KEY INTERNATIONAL OIL and GAS COMPANIES OPERATING IN INDIA Company Ownership (per cent) Global turnover (2017) ( US$ billion) Shell Private Sector 305.179 BP Private Sector 240.208 Source: Indian counterpart, Bloomberg, Aranca Research, Company websites 26
NOTABLE TRENDS IN THE OIL AND GAS SECTOR Coal Bed Methane (CBM) Government approved the CBM policy in 1997 to boost the development of clean and renewable energy resources The CBM policy was designed to be liberal and investor friendly; the 1st commercial production of CBM was initiated in July 2007 at about 72,000 cubic metres per day. Production in 2017-18 stood at 2.01 million cubic metres per day. Underground Coal Gasification (UCG) The technology was first widely used in the US in the 1800s and in India (Kolkata and Mumbai) in the early 1900s UCG is currently the only feasible technology available to harness energy from deep unmineable coal seams economically in an eco-friendly manner and it reduces capital outlay, operating costs and output gas expenses by 25 50 per cent vis-à-vis surface gasification Gas hydrates and biofuels The government initiated the National Gas Hydrate Programme (NGHP), a consortium of national E and P companies and research institutions, to map gas hydrates for use as an alternate source of energy Bio-fuels (bio-ethanol and bio-diesel) are alternate sources of energy from domestic renewable resources; these have lower emissions compared to petroleum or diesel Open Acreage Licensing Policy The Open Acreage Licensing Policy (OALP), which allows an explorer to study the data available and bid for blocks of his choice has been initiated to increase foreign participation by global E & P companies like Shell, BP, Conoco Phillips etc 27
PORTERS FIVE FORCES ANALYSIS Oil and Gas
Porter s Five Forces Framework Analysis Threat of Substitutes Low - Threat is low, as other sources of energy like solar, wind, coal and hydro electric power are less developed. Pressure from alternative sources might rise in future Bargaining Power of Suppliers Medium - Bargaining power is medium as despite few players operating, government at times delays subsidy payment to oil companies, thereby increasing losses Competitive Rivalry Low - Competitive rivalry is low as just one-two players operate in Upstream, Midstream and Downstream segments Although a few private operators have entered the industry in the last couple of years, they do not pose any major threat as of now Bargaining Power of Buyers Low - Customers have low/non existent bargaining power Customers are price-taker not a price maker Positive Impact Neutral Impact Negative Impact Threat of New Entrants Low - Threat of new entrants continues to be low, due to the capital intensive nature of the industry and economies of scale Source: Aranca Research 29
STRATEGIES ADOPTED Oil and Gas
STRATEGIES ADOPTED (1/2) Oil and Natural Gas Corporation (ONGC) is going to invest Rs 17,615 crore (US$ 2.73 billion) on drilling oil and gas wells in 2018-19. Essar Oil and Gas will undertake investments to the tune of Rs 900 crore (US$ 130.64 million) for drilling more wells in its Raniganj CBM block to increase gas output to 2.3 MMSCMD by 2021. H-Energy is planning to invest Rs 3,500 crore (US$ 540.62 million) to build Liquified Natural Gas (LNG) terminals and lay down a 60 km pipeline which is expected to be operational by May 2018. State run energy firms Bharat Petroleum, Hindustan Petroleum and Indian Oil Corp plan to spend US$ 20 billion on refinery expansions to add units, by 2022 Expansions The country s state owned oil companies aim to sustain spending at a 3 year high due to increasing demand and declining oil services costs. Indian Oil plans to expand its refining capacity and build new businesses, for which it will be spending US$ 27.94 billion over the next 5-7 years. Open Acreage Licensing Policy Indian Oil Corp plans to make an investment of US$22.91 billion, including US$7.64 billion for expanding its existing brownfield refineries, in the next 5 to 7 years. Moreover, the company plans to lay the nation's longest LPG pipeline of 1987 km, from Gujarat coast to Gorakhpur in eastern Uttar Pradesh, to cater to growing demand for cooking gas in the country. In FY18, the company is planning to invest US$ 3.5 billion to expand and enhance its refinery capability and marketing infrastructure. India targets US$ 100 billion worth investments in gas infrastructure by 2022, including an addition of another 228 cities to city gas distribution (CGD) network. This would include setting up of RLNG terminals, pipeline projects, completion of the gas grid and setting up of CGD network in more cities. Diversification Oil companies are focusing on vertical integration for next stage of growth. For instance, oil producer Oil India Ltd is planning to build and operate refineries, while Indian Oil is planning to enter oil and gas exploration As of March 2017, Bharat Petroleum Corp. Ltd. (BPCL), an Indian state-controlled oil and gas company, plans to enter the country s travel business with the launch of its startup named as Happy Roads. The application, which is available on Android Play Store, documents itineraries and assists the users in planning a fun-filled trip Source: Aranca Research 31
STRATEGIES ADOPTED (2/2) Move to nonconventional energy resources Companies are looking forward to developing JVs and technical partnership with foreign companies to improve capabilities to develop shale reserves Investments to enhance production Indian companies are enhancing production through redevelopment plans to increase recovery rates of hydrocarbon from oil wells; ONGC in Mumbai High achieved success in implementing this. Indian Oil Company (IOC) is planning to invest Rs 1.43 lakh crore (US$ 22.19 billion) to nearly double its oil refining capacity to 150 million tonnes by 2030. More focus upon small companies Private sector units like Adani, Sun Petrochemicals and few new entrants have bagged 1/3rd of small oil and gas fields. In February 2017, Genesis, London, bagged a contract from RIL s (Reliance Industries) to design deep water field front end engineering at KG Basin in West India. Pilot project Initiated for Shale Gas Production in India Oil and Natural Gas Corp (ONGC) has started Shale Gas exploration by spudding the first Shale Gas well RNSG-1 in Burdwan District of West Bengal. Piped Cooking Gas Notes: ATM - Automated Teller Machine, FIP Financial Inclusion Plan, RBI Reserve Bank of India Source: India Banking Association, Reserve Bank of India, Aranca Research ONGC has started supply of Piped Natural Gas in Bhubaneswar from October 2017 and is currently laying down natural gas pipeline in Varanasi. In May 2018, India launched its biggest auction of City Gas Distribution (CGD) networks. The successful companies will be permitted to sell Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) in 86 geographical areas. The auctions are expected to lead to investments worth Rs 70,000 crore (US$ 10.86 billion). 32
GROWTH DRIVERS Oil and Gas
GROWTH DRIVERS (1/2) Robust domestic market; expected to expand India is the world s 3rd largest energy consumer Oil consumption is expected to grow 129 per cent during 2016-2040 The country is the 4th largest importer of LNG Increasing demand for natural gas Several industries are increasing the usage of natural gas in operations; this has boosted natural gas demand in India Some of the main industries that use natural gas are pulp, paper, metals, chemicals, glass, plastic and food processing Abundant raw material The nation has large coal, crude oil and natural gas reserves Proven Oil reserves amounted to 600MMT in 2016 Proved reserves of natural gas stood at 1.2 tcm in 2016 Favourable policies The government has allowed 100 per cent FDI in E and P projects/companies; and 49 per cent in refining under the automatic route from the earlier approval route It has also introduced policies to promote investments in the industry such as Hydrocarbon Exploration Licensing Policy (HELP) and Coal Bed Methane (CBM) Huge investments India is expected to attract over US$ 25 billion of investments in Exploration and Production (E&P) by 2022. Indian Oil is going to invest Rs 70,000 crore (US$ 10.81 billion) by 2030 to boost its oil refining capacity. Notes: TCM - Trillion Cubic Metres, EandP - Exploration and Production Source: Ministry of Petroleum and Natural Gas, US Energy Information Administration, BP Statistical Review of World 2015 Energy, June 2012; BMI, Aranca Research 34
GROWTH DRIVERS (2/2) Skilled labour The nation offers abundant skilled labour at much competitive wages compared to other countries The University of Petroleum and Energy Studies in Dehradun, Uttarakhand, is Asia s first and only energy university Massive gas pipeline network As of April 1, 2018, the country s natural gas pipeline network spanned over 16,793 km in length and proposed expansion of 30,000 kms is envisaged by 2018-19 Several domestic companies (such as ONGC, Reliance and Gujarat State Petroleum) have reportedly found natural gas in deep waters Natural gas discoveries In March, ONGC started production at two oil wells located in Jorhat, Assam. These oil wells were discovered in 2016-17, and are producing 50 tonnes per day, which increased the overall production of Jorhat asset from 350 tonnes per day to 400 tonnes per day. In April 2017, ONGC claimed to have made 23 new gas and oil discoveries in the fiscal 2016-17 and the company has set new record in exploring and production activities. In June 2017, Oil India Ltd. has made a oil discovery in the Baghjan area of upper Assam basin. The discovery was made by Baghjan Petroleum Mining Lease (PML). Notes: Kms- Kilometres Source: Ministry of Petroleum and Natural Gas, BMI, Aranca Research 35
REGULATORY OVERVIEW OF THE INDUSTRY (1/2) Pricing of CNG and PNG by CGD Entities (2014) In 2014, the pricing for CNG (transport) and PNG (domestic) were examined by the Ministry of Petroleum and Natural Gas while the disclosure of prices of the CNG and PNG commodities were made compulsory The Policy on Shale Gas and Oil, 2013 Allows companies to apply for shale gas and oil rights in their petroleum exploration licenses and petroleum mining leases Open Acreage Licensing Launched in June 2017, it allows companies to carve out area for petroleum exploration and production. The policy, launched under Hydrocarbon Exploration and Licensing Policy (HELP), has replaced New Exploration and Licensing Policy under which bidders did not have the freedom of carving out areas for E&P The National Biofuel Policy, 2009 Promotes bio-fuel usage, the Government of India has provided a 12.36 per cent concession on excise duty on bio-ethanol and exempted bio-diesel from excise duty Integrated Energy Policy (IEP), 2006 Outlines goals to deal with challenges faced by India s energy sector Source: Ministry of Petroleum and Natural Gas, Aranca Research 36
REGULATORY OVERVIEW OF THE INDUSTRY (2/2) Petroleum and Natural Gas Regulatory Board (PNGRB) Act, 2006 Regulate refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas Auto Fuel Policy, 2003 Provide a roadmap to comply with various vehicular emission norms and corresponding fuel quality upgrading requirements over a period of time Freight Subsidy (for farflung areas) Scheme, 2002 Compensate public sector Oil Marketing Companies (OMCs) for the freight incurred to distribute subsidised products in farflung areas Domestic Natural Gas Pricing Formula, 2014 New domestic natural gas pricing formula has been formed, which will be revised on an half yearly basis. Marginal Field Policy Monetise discovered small oil and gas fields to augment domestic production Improved fiscal terms viz. no oil cess applicable on crude oil production, no upfront signature bonus, pricing and marketing freedom for oil and gas and no carried interest by NOCs Note: NOCs - National Oil Companies Source: Ministry of Petroleum and Natural Gas, Aranca Research 37
2.70 3.20 3.30 5.40 5.50 6.60 6.67 6.85 6.88 FDI INVESTMENTS IN PETROLEUM AND GAS IN INDIA Cumulative FDI inflows into petroleum and natural gas (US$ billion) 8.00 # CAGR 14.22% 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18* Cumulative FDI inflows in India s petroleum and natural gas sector stood at US$ 6,879.69 million (1.87 per cent of total FDI) during April 2000 December 2017. Between FY10 and FY17 (April 2009 March 2017), FDI inflows into petroleum and natural gas sector grew at CAGR 14.22 per cent. Note: FY18* - Up to December 2017, # CAGR is up to FY17 Source: : Department of Industrial Policy and Promotion, Aranca Research 38
M&A ACTIVITIES IN THE INDIAN OIL AND GAS SECTOR Date announced Acquirer name Target name Value of deal (US$ million) Feb 2018 ONGC HPCL (51.11 per cent stake) 57,020.39 Feb 2018 ONGC Videsh Abu Dhabi National Oil Co (10 per cent stake in offshore oilfield) 600 Aug 2017 Rosneft Essar Oil (49 per cent stake) 1,290 Dec 2016 Oil and Natural Gas Corp's Gujarat State Petroleum Co's 1200 Dec 2015 ONGC Videsh Ltd (OVL) Vankor oil field 1260 Jan 2015 Bharat Forge Mecanique Generale Langroise 12.82 Jun 2014 Gulf Petrochem Ltd Sah Petroleums Limited 7.13 Mar 2014 IOCL Progress Energy Canada Ltd Not disclosed Oct 2013 ONGC Videsh Ltd Parque das Conchas, Brazilian Oilfield 529 Jun 2013 ONGC Videsh Ltd (in partnership with Oil India Ltd) Rovuma Area 1 Offshore Block 2640 Nov 2012 ONGC Videsh ConocoPhillips (Kashagan Field) 5,000.0 Nov 2012 Inpex Corp Oil and Natural Gas Corp s exploration block KG-DWN-2004/6 Not disclosed Sep 2012 ONGC Videsh Hess Corp (Azrei oilfield) 1,000.0 Apr 2012 Trafigura Pte Ltd Nagarjuna Oil Co Ltd 130.0 Apr 2011 Sesa Goa Ltd Calm India Ltd 1,492.0 Feb 2011 BP PLC Reliance Industries Ltd 9,000.0 Aug 2010 BPRL EP413 13.4 Aug 2010 Sesa Goa Ltd Cairn India Ltd 1,180.8 Aug 2010 Vedanta Resources PLC Cairn India Ltd 6,568.5 Aug 2010 Reliance Industries Ltd Marcellus Shale Natural Gas 391.6 Source: Thomson Banker, News Articles 39
OPPORTUNITIES Oil and Gas
OPPORTUNITIES Locating new fields for exploration: 78 per cent of the country s sedimentary area is yet to be explored Upstream segment Development of unconventional resources: CBM fields in the deep sea Opportunities for secondary/tertiary oil producing techniques Higher demand for skilled labour and oilfield services and equipment Expansion in the transmission network of gas pipelines Midstream segment LNG imports have increased significantly; this provides an opportunity to boost production capacity In light of mounting LNG production, huge opportunity lies for LNG terminal operation, engineering, procurement and construction services Downstream segment India is already a refining hub with 21 refineries and expansions planned for tapping foreign investment in export-oriented infrastructure, including product pipelines and export terminals Development of City Gas Distribution (CGD) networks, which are similar to Delhi and Mumbai s CGDs Expansion of the country s petroleum product distribution network 41
SHALE GAS PROSPECTS OF INDIA India has technically recoverable shale gas resources of nearly 96 tcf. The Cambay, Krishna Godavari, Cauvery and the Damodar Valley are the most prospective sedimentary basins for carrying out shale gas activities in the country Around 20 tcf of gas has been classified as technically recoverable reserves in the Cambay basin in Gujarat (the largest basin in the country) spread across 20,000 gross square miles with a prospective area of 1,940 square miles It is estimated that the Krishna Godavari (KG) basin encloses a series of organically rich shales, containing around 27 tcf of technically recoverable gas. KG basin, located in Eastern India, holds the country s largest shale gas reserves, extending over 7,800 gross square miles with a prospective area of around 4,340 square miles In April 2013, the Directorate General of Hydrocarbons (DGH) submitted its policy on exploitation of shale gas to the Ministry of Petroleum and Natural Gas India launched its policy on shale gas exploration to tap the non-conventional energy resource in order to boost output. Notes: tcf Trillion Cubic Feet Source: EandY; Ministry of Petroleum and Natural Gas, Aranca Research 42
SUCCESS STORIES Oil and Gas
IOCL: FLAGSHIP OF INDIAN REFINING Indian Oil Group of Companies owns and operates 10 of India s 22 refineries with a capacity of 1.614 mbpd As of May 1, 2018, its network of crude oil and product pipelines reached about 13,251 Km Subsidiary CPCL accounts for 49 per cent of market share in petroleum products During April-December 2017, the gross refining margin (GRM) was estimated to be US$ 8.28 per bbl as compared to US$ 7.77 per bbl in FY17 FY 18 FY 17 Second-largest player in India s petrochemical Total Income US$ 79.11 billion US$ 67.02 billion market Has interests in 13 domestic and 11 overseas PBT US$ 5.05 billion US$ 3.92 billion blocks Foraying into alternative sources of energy like wind and solar Net profit US$ 3.31 billion US$ 2.85 billion Notes: bbl - barrel Source: Company reports, Aranca Research 44
RELIANCE INDUSTRIES: WELL POSITIONED FOR GROWTH Reliance Industries has the biggest petrochemical refining complex in the world It contributes 14 per cent to India's exports and is going to invest around US$ 30 billion to improve its businesses in the next 3 years For FY18, Reliance Industries recorded net profit of US$ 5.60 billion. FY 18 FY 17 Exports reached 10.7 MMT in the fourth quarter of Turnover US$ 66.83 billion US$ 47.39 billion FY18 Record crude throughput at 69.8 million tonnes in FY18 EBITDA US$ 11.05 billion US$ 6.34 billion US shale: Shale Gas Production in FY18 reached 139.7 BCFe. Net profit US$ 5.60 billion US$ 4.64 billion Source: Company reports, Aranca Research 45
USEFUL INFORMATION Oil and Gas
CONTACT INFORMATION Name Address Contact person Telephone E-mail Oil Industry Development Board (OIDB) 3rd Floor, Tower C, Plot No. 2, Sector 73, Noida, Uttar Pradesh - 201301 Mr Ajay Srivastava, Financial Adviser and Chief Accounts Officer 0120-2594630 0120-2594603 facao.oidb@nic.in Petroleum Conservation Research Association (PCRA) Sanrakshan Bhavan, 10 Bhikaji Cama Place, New Delhi 110066 Mr Alok Tripathi, ED 91-11- 26198799 Ext.301 pcra@pcra.org Bureau of Energy Efficiency (BEE) Ministry of Power, 4th floor, SEWA Bhawan, RK Puram, New Delhi 110066 Mr Abhay Bakre, Director General 91-11- 26178316, 91-11- 26179699 dg-bee@nic.in, Oil Industry Safety Directorate Ministry of Petroleum & Natural Gas, 8th Floor, OIDB Bhawan, Plot No 2, Sector-73, Noida, Uttar Pradesh- 201301 Mr Varanasi Janardhana Rao, ED 0120-2593800 rao.vj@gov.in Petroleum Planning and Analysis Cell (PPAC) Ministry of Petroleum and Natural Gas, 2nd floor, Core-8, SCOPE Complex, 7 Institutional Area, Lodhi Road, New Delhi 110003 Mr Vinod Kumar, Deputy Director Information Technology 011-24306153 webadm@ppac.gov.in Directorate General of Hydrocarbons Ministry of Petroleum and Natural Gas, OIDB Bhawan, Plot No 2, Sector 73, Noida Mr Atanu Chakraborty, Director General 0120-2472001 dg@dghindia.org 47
GLOSSARY B/D (or bpd): Barrels Per Day MBPD (or mbpd): Million Barrels Per Day BCM (or bcm): Billion Cubic Metres CBM: Coal Bed Methane CGD: City Gas Distribution EandP: Exploration and Production FDI: Foreign Direct Investment FY: Indian Financial Year (April to March) FY17 implies April 2016 to March 2017 GoI: Government of India INR: Indian Rupee LNG: Liquefied Natural Gas MMT (or mmt): Million Metric Tonne MMTPA (or mmtpa): Million Metric Tonnes Per Annum EBITDA: Earning Before Interest Taxes Depreciation Amortisation NRL: Numaligarh Refinery Limited CPCL: Chennai Petroleum Corporation Limited HPCL: Hindustan Petroleum Corporation Limited BPCL: Bharat Petroleum Corporation Limited 48
GLOSSARY IOC: Indian Oil Corporation Ltd EOL: Essar Oil Ltd RPL: Reliance Petroleum Limited MRPL: Mangalore Refinery and Petrochemicals Limited PCCK: Petronet Cochin-Coimbatore-Karur PMHB: Petronet Mangalore-Hassan-Bangalore OALP: Open Acreage Licensing Policy TOE (or toe): Tonnes of Oil Equivalent US$ : US Dollar ONGC: Oil and Natural Gas Corporation of India IOCL: Indian Oil Corporation Limited mn bbl: Million Barrels CAGR: Compound Annual Growth Rate JV: Joint Venture UCG: Underground Coal Gasification NGL: Natural Gas Liquids OMCs: Oil Marketing Companies NHGP: National Gas Hydrate Programme Wherever applicable, numbers have been rounded off to the nearest whole number 49
EXCHANGE RATES Exchange Rates (Fiscal Year) Exchange Rates (Calendar Year) Year INR INR Equivalent of one US$ Year INR Equivalent of one US$ 2004 05 44.95 2005 06 44.28 2006 07 45.29 2007 08 40.24 2008 09 45.91 2009 10 47.42 2010 11 45.58 2011 12 47.95 2012 13 54.45 2013 14 60.50 2014-15 61.15 2015-16 65.46 2016-17 67.09 2017-18 64.45 2005 44.11 2006 45.33 2007 41.29 2008 43.42 2009 48.35 2010 45.74 2011 46.67 2012 53.49 2013 58.63 2014 61.03 2015 64.15 2016 67.21 2017 65.12 Source: Reserve Bank of India, Average for the year 50
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