India O&G 2011: Changing Dynamics in O&G Pipelines INAUGURAL ADDRESS BY Shri K.KJha Director (Pipelines) Indian Oil Corporation Limited India Mr. Pratap Vijay Padode, Managing Director, ASAPP, Mr. K.K.Sinha, CEO & ED, ESSAR Ports & Terminals Ltd, Members of the Organizing Committee of the conference, speakers and delegates... A very Good Morning to you all At the outset, | would like to thank the organizers for giving me this opportunity to share my thoughts before this august gathering The hydrocarbon energy sources are more or less concentrated in certain geographical pockets in the world. It needs no reiteration that these produces have to be transported to the actual consumption centres spread far and wide. Pipelines, aptly called the Underground Energy Highways, are the most important link from Well to Wheel in the Hydrocarbon Chain. Significant progress has been made across the world in utilising this mode for transporting bulk hydrocarbon energy to different corners The history of the first trunk pipeline dates back to 1870s. However, the use of pipelines as an important means of transportation of petroleum products began only after the Second World War when tanker shipments were disrupted in the U.S. This led to the construction of large-diameter pipelines to transport huge quantities of crude oil over long distances The extent and importance that pipelines have gained in their short history of a little over 100 years js illustrated by the fact that today there is an overwhelming network of about 20 lakh kilometers cross-country liquid and natural gas pipelines, spread across the globe. (Source: World Fact Book, 2008). In India, the first crude oil pipeline was laid from Digboi oil fields to Digboi refinery. During 1960-63, Oil India Limited laid the first trunk crude oil pipeline, 1156 km long from Naharkatiya and Moran oil fields to the refineries at Guwahati and Barauni. The first cross country product pipeline was laid during 1962-64 to transport products from GuwahatiRefinery to Siliguri, Realizing unique advantages of oil transportation through pipelines a number of product and crude oil pipelines were laid in the 60's, 70's and 80's, including sub-sea crude oil pipelines. The pipelines laid during the 60's were designed, engineered and constructed by foreign companies. However, the exposure to this technology enabled Indian engineers to gain confidence, and the pipelines which came up later, were designed and constructed with indigenous expertise. India today has over 33,000 km of major crude oil, product and Gas pipelines out of which IOCL owns & operates about 11,000 km of Pipelines. For India, sourcing and positioning of energy remains a challenge with 16% of Global population, only 0.5% of the World's petroleum reserves, 10% of Coal reserves, 8-10% GDP growth target and 4-4.5% CAGR in energy demand. Currently Oil accounts for about 31% of India’s total energy consumption while Gas accounts for around 10%. These figures are projected to change to 25% and 20% respectively by 2025. To cater to this demand, there will be huge requirement of supporting pipeline infrastructure for these energy resources to reach the consumption centres. India has now over five decades of experience in transportation of crude oil and finished petroleum products. The crude oil pipelines transport waxy indigenous crude as well as. low sulphur & high sulphur imported crude. The finished product pipelines transport primarily light and middle distillates, including aviation turbine fuel, in multi-product pipelines In the global scenario, pipelines remain the most preferred mode of transportation fo crude oil and petroleum products in USA with 71% volumes through pipelines. Rail and Road account for only 3% and 4% volumes respectively. As we all are aware, the dynamics of Indian energy sector has undergone a sea change over the previous years. Continued economic development and population growth are driving India's demand for energy at a much faster rate than its capacity to produce energy. Currently among the fastest growing economies, India’s energy demand is surging to a new scale. The compounding growth rate (CAGR) of more than 4 % in the last several years in the hydrocarbon sector, accompanied by much higher projection of growth rate at 9% targeted for XII five year plan as. India is poised to become third largest economy of world by 2025, calls for quantum leaps in our outlook for energymanagement plan as we are now the 3rd largest consumer of petroleum in Asia after China and Japan and 4th largest in the world, Optimizing the transportation cost by way of transporting through oil pipelines is an issue of high relevance, since a non-negligible component of petroleum product's price depends on its transportation cost. A pipeline system has a declining long term average cost curve which makes a pipeline system the ideal mode for transportation of high volumes over long leads. The high initial costs of a pipeline system are justifiable when the distance covered is long enough, the throughput is high enough and the economic life is also long enough. Essentially any supply chain management largely focuses on the placement of Quality product at appropriate time and at appropriate place at minimal cost. The surge in demand of crude oil linked with the unprecedented and unpredictable price behavior along with increasing dependence on the crude oil imports for meeting the ever increasing demand of the energy for growth of our economy has brought tremendous pressure on the Oil industry. Oil industry would have to adopt efficient processes in the entire value chain of the petroleum product to minimize the fuel cost at the nozzle. Pipelines are part of both inbound logistics and out bound logistics for transportation of raw materials, carrying finished products to consumption centers and also acting as transient storage for Gas and petroleum products Given that the transportation costs account for reasonably significant part of the product cost. in the current Indian decontrolled scenario and the anticipated cut throat competition, companies transporting their products through pipelines will be able to cut product costs, charge lower prices and thereby, increase market share Going forward, the growth of pipelines is poised to leap greater heights due to several reasons like increasing urbanization and increasing concern over environment and safety, dismantling of controls, leading to greater flexibility for development and utilization of pipelines, In India, presently, around 45% of the country's petroleum products in terms of volume are transported through the network of pipelines leaving huge potential for increasing pipeline share of transportation mode. Although road transportation is more expensive and less eco-friendly as compared to the pipelines, it is frequently resorted to because of the lack of adequate rail and pipeline infrastructure. The need of the hour is, therefore, to step up this percentage due to definite inherent advantage of the pipelines mode of transportationPipelines Industry in India, presently, is in transition phase from non-regulatory to regulatory era. The demand of white oil petroleum products in India is expected to reach around 240 million tonnes by 2022 at a CAGR of 6-8%, of which white oils and LPG will contribute a volume in the order of 208 MMT. A very realistic pipeline vision for Oil industry will be to have a product pipeline transportation capacity equivalent to at least 75% of the white oils volume, i.e. to have installed capacities of about 150 MMTPA. Indian-Oil has drawn up ambitious plans to achieve product pipelines capacity from the present level of 35 MMTPA to at least 65 MMTPA by 2021-22 ie. by the end of 13th 5 year plan. Industry is also realizing the importance of pipeline network in maintaining its market share and aggressively expanding its network India's rising dependency on crude oil import through the ports, and also the increasing levels of product exports, provide yet another opportunity for the pipeline industry to explore into this field. There are 12 major ports, six each on East and West coast, besides 45 non-major and private ports. The traffic at Indian ports has been growing at a CAGR of over 10% in the recent past. POL products had a major share in these trades, accounting for about 37% of the total volumes handled by the major and the minor ports taken together. Pipeline transportation plays an important role in the matrix of transportation modes of a country, not only for transportation of fluids but also for transportation of certain bulk materials. It is believed that pipeline mode will play an increasing role in freight transport in the 21st century with far-reaching implications. However, there are many challenges in the Pipelines right from the acquisition of Right of way to the maintenance of the our wide spread pipeline corridor. The third party activities in the pipelines are also on rise, beyond technical and administrative problems. With rapid urbanisation in last decade, getting ROW has become difficult. The existing regulations in this regard are proving to be grossly inadequate leading to cost overrun and time over run. This aspect has become major hurdle in timely implementation of the Pipeline projects. ROW & Crop compensation component of pipeline projects has seen maximum increase in percentage terms in last few years. The other challenge being faced by the industry is Encroachments in Pipeline RoW & Pilferage. Though encroachments used to be an old phenomena faced by Indian pipeline Industry, recent years has seen spurt in pilferage instances. Recently, the oil spillage dueto pilferage activities by miscreants has resulted in fire in mainline. Timely action by the Operation & Maintenance teams had prevented the fire from spreading and it becoming a major incident. Time has come to deliberate and decide on appropriate human and technological intervention to combat the pilferage attempts. Further, changes in the Forest Rights Act have brought Pipelines under its purview. This has resulted in conducting Gram Sabha in each of the villages falling en-route pipeline which is cumbersome and time consuming. These regulatory aspects need intervention for more effective growth in pipeline industry At horizon we clearly see the visible sign of India emerging as the developed country and @ major economic force. To back the same , the energy security calls for not only optimum utilisation of existing resources through improved efficiency but also fuel Substitution and greater emphasis on non renewable energy resources. The CBM and shale gas emerging as new resources are to be adequately harnessed. We have untapped potential of CBM as we are blessed with more than 84,000 Million tones of Proven and recoverable Coal resources. Needless to say that pipelines fall in the main frame of the entire value chain of energy and are pivotal in bringing the energy to door step. We should now be targeting in having the pipeline connectivity beyond the national boundaries through energy rich neighbours like Iran, Russian federation etc. Our self reliance in the crude oil production, which is nearly 25-28 % as of now, is expected to taper down further, thus making transnational pipelines a compulsive realty India is a vast country endowed with quite a large area. It may be better to inter link its different comers by means of pipeline networks. With the growing demand of petroleum Products & Gas throughout the country, establishment of Oil & Gas pipeline networks for Petroleum transportation is the only alternative, leaving railways to cope with the enormous task of handling ever-increasing passenger and goods traffic. !!am confident that with the experience of building a large pipeline infrastructure across the country behind our back, we should be able to place India in the league of developed nations on the energy security by provisioning viable and cost effective transportation network of oil and gas pipelines. I wish this conference a grand success. Ladies and Gentlemen, Thank you for your kind attention