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National Editors’ Conference - 23-24 th March, 2013 Speech of Dr. M. Veerappa Moily Union Minister for Petroleum & Natural Gas

Friends from the Media, my colleague in the Ministry, Smt. Lakshmi Panabaka, Secretary, Shri Vivek Rae and other senior officials. A background note on the key initiatives and achievements in the petroleum and natural gas sector has been circulated for your perusal.

Global Energy Scenario and position of India As you all are aware, the world economy is not yet recovered fully from 2008 slump and the EURO Zone challenges still continue. The demand for energy and more so hydrocarbons has nevertheless been increasing steadily. The Shale gas exploration and production in USA has had its impact on global availability of energy sources. The Indian economy is at a critical juncture.

Indigenous Exploration & Production Activities As you will agree with me, increased domestic production of both oil and gas will go a long way in securing our nation’s energy supplies. For our nation, this is particularly important given that last financial year we imported crude oil for more than Rs 6.70 lakh crores. What this means is that we have transferred significant amount of our nation’s wealth to oil exporting countries.

According to the Twelfth Five Year Plan, even though domestic production of energy resources is projected to increase during the plan period, import dependence will continue at a high level. The main area of import will be crude oil, where nearly 80 per cent of the demand will have to be met through imports by the end of the Twelfth Plan period. Our government will make every effort to reduce our nation’s dependence on imported oil and work towards securing Energy Independence for India.

Let me now briefly reflect how, in the current context, our government is trying to enhance domestic hydrocarbon production.

Recently, Ministry of Petroleum & Natural Gas has allowed exploration in mining lease areas, even after the completion of exploration period. This clarity & policy direction will attract significant investments in the Indian E&P sector and result in higher domestic production of hydrocarbons. This is expected to add substantial volume of oil and gas production in the existing Mining Lease areas.

I have rolled out New Vision and set ambitious targets that aims to reduce our crude oil imports by 50 per cent by 2020; 75 per cent by 2025 and eventually achieve self- sufficiency and Energy Independence for India by 2030.

Moving towards self-sufficiency goal will be a very significant step in the history of our nation. Over the years, our nation’s dependence on oil imports has only increased. Numerous forecasts also portend that over the next many years, our dependence on imported oil will increase further. Given all the forecasts, we are taking every possible initiative to work towards our goal of attaining self-sufficiency in petroleum.

China has seen a doubling of gas production in the last six years (2005-2011). The US has seen a tenfold increase in shale gas production over the last six years. Thus, like China and US, we too can change our energy landscape in short span.

Is this achievable? Yes it is - so far only 73 billion barrels of oil and oil equivalent gas could be established through exploration, out of 205 billion barrels of prognosticated hydrocarbon resources. Thus, about 133 billion barrels of prognosticated resources remain to be unlocked through exploration. As you will appreciate, this will be possible only by speedy implementation of new exploration programmes across the country.

To this end, the Ministry of Petroleum & Natural Gas recently constituted a Committee, under the Chairmanship of Dr. Vijay Kelkar, to prepare a roadmap for enhancing domestic production of oil & gas and sustainable reduction in import dependency by 2030. In addition, the committee will also examine:

1. Institutional mechanism for appraisal of the Indian sedimentary basins to the extent of 75 per cent by 2015 and 100 per cent by 2025

2. Utilization of Oil Industry Development Board cess and other innovative resource mobilization approaches for appraising the unexplored/partly explored acreages

3. Development and promotion of indigenous service industry in E&P sector

4. Review of institutional mechanism to acquire acreages abroad for exploration and production as well as pursuing diplomatic and political initiatives for import of gas from neighbouring and other countries with emphasis on transnational gas pipelines

5. Steps to be taken for ensuring adequacy of finances for R & D required for building knowledge infrastructure in E & P activities

6. Steps to be taken for development of gas transportation infrastructure for establishing countrywide marketplace

The Committee will submit its report in six months.

Even as we are trying to enhance domestic production through numerous policy measures, we are working to create enabling and conducive environment to promote investments, by making fiscal terms that are simple to administer.

Towards this direction, last year, under the direction of Hon’ble Prime Minister of India, a committee was constituted under the Chairmanship of Dr. C Rangarajan to look into the mechanism of Production Sharing Contracts.

The Committee Report is under active consideration and very soon the government will work towards implementing the recommendations. This will improve the overall governance mechanism of the upstream oil & gas industry and will act as a confidence building measure to attract the much needed risk capital and newer technologies.

Way back in 1999, GOI adopted NELP and we have successfully held 9 bid rounds. The NELP regime has increased the E&P activities in the nation. Prior to adoption of the NELP, only 11 per cent of Indian sedimentary basins were under exploration. Since the operationalization of the NELP in 1999, the government has awarded 47.3 per cent of Indian sedimentary basin area for exploration. Similarly, 100% Foreign Direct Investment (FDI) has been permitted in exploration and production of oil and gas. All these policy measures have resulted in significant investments in the E&P sector.

The domestic Crude oil production is expected to reach 42.31 MMT during 2012-13, which would be 11.08% higher than previous year. The increase in production is mainly on account of higher crude oil production from Barmer fields, Rajasthan where current oil production is 1,70,000 bbl/day. The production of natural gas during 2012-13 is expected to be 117.8 MMSCMD which is about 9% lower than the previous year mainly due to lower production from KG D6 deepwater block.

I may mention that during visit of the Prime Minister of UK on 01-02-2013, BP Group and RIL announced combined investments in excess of US $5 billion for the development of KG D6 block over the next 3-5 years.

Co-Existence of National and Energy Security Operations As you all are aware, that there were numerous oil & gas blocks where exploration and development activities were not permitted due to restrictions from the MoD.

Ministry of Petroleum & Natural Gas ensured that the very first meeting of the Cabinet Committee on Investments (CCI) – a committee to fast-track large, delayed projects – consider oil & gas projects. We have had series of meetings between the Ministry and the MoD, and we are very close to resolution based on the principle of co- existence of both National and Energy Security requirements. In fact the cabinet committee has already given clearance for five out 7 exploration blocks in the No Go area. Due to these clearances, the investment already made to the extent of $ 10.71 Billion will be put to use and further investment to the extent of $ 0.6 billion is envisaged in the next few years. Further, after the discovery in these blocks much higher investment is likely to be made. Another 31 Blocks are also being considered for approval very soon.

Clearance from the CCI will enable these blocks to conduct exploration and development activities and thereby further enhance our attempts to enhance domestic crude oil production.

It is well accepted globally that natural gas is cheaper, cleaner and in abundance. Thus, GOI will make all efforts to develop our nation as a gas-based economy. This will help to reduce our overall import bill and also help to reduce oil marketing companies’ financial burden given the substitution effect.

Currently, natural gas share in our nation’s primary energy basket is significantly below the world average. We shall make all efforts to augment our domestic natural gas supplies.

There are examples to show that how through extensive development of pipeline infrastructure, LNG regasification terminals, a state can have a gas-based development model and as a result increase the share of natural gas in the primary energy basket.

Ushering Shale Gas Revolution Much like the United States of America, Shale Gas can emerge as an important new source of energy for our nation. India has several shale formations which seem to hold shale gas. The shale gas formations are spread over several sedimentary basins such as Cambay, Gondwana, Krishna-Godawari on-land, and Cauvery. To explore and exploit the shale formations, the DGH has initiated steps. It will identify prospective areas for shale gas exploration. Very soon, we will finalize the Shale Gas policy, which will provide necessary impetus to the exploration activities and eventually pave way for increased domestic supplies of natural gas.

Coal Bed Methane There are significant prospects for exploration of CBM as India is having the fourth largest proven coal reserves in the world. We are also pursuing gas production from the CBM Blocks. Under the CBM policy, 33 exploration blocks have been awarded. The estimated CBM resources in the country are about 92 trillion cubic feet (TCF), out of which less than 10 percent has so far been established. Commercial production of CBM in India has now become a reality with current CBM gas production of about 0.30 MMSCMD. A revised CBM Policy is under active consideration of the Government to enable expeditious commencement of production in case of captive blocks.

Natural Gas Infrastructure The demand for natural gas has been increasing exponentially and estimated to cross 400 MMSCMD by the end of the 12 th Five year plan. In order to cater to the country’s growing gas demand, a provision has been made to increase LNG import facilities.

Capacity of Dahej is expected to reach 12.5 MMTPA by 2013 and 15 MMTPA by 2015-16 after expansion. The capacity of HLPL Hazira is also likely to be expanded to 5 MMTPA in next 3-4 years. Beyond this, PLL has added another 5 MMTPA terminal at Kochi that is expected to be operationalised in next 2-3 months. Further, a 5 MMTPA capacity LNG Regasification plant at Dabol has been commissioned in January 2013. A MoU has been signed on 18 th March 2013 between ONGC, BPCL and Japan based Mitsui & Company Limited to examine the feasibility of setting up a LNG terminal at New Mangalore port. The work of the consortium is significant in context of the expected availability of Mozambique gas to the country.

The total Gas pipeline network in the country has increased from 6837 km in 2004 to around 15,400 km with commissioning of the Dabol-Bangalore pipeline in January 2013.

We are also working on a phased implementation of City Gas Distribution network through Petroleum & Natural Gas Regulatory Board (PNGRB). PNGRB is a regulatory body set-up under PNGRB Act, 2006 to authorize and monitor the development of pipeline infrastructure and CGD network in the country. The Board is enabling network development in several Geographical Area covering more than 300 cities / towns in various States. This is done through Expressions of Interest (EOI) submitted to the Board and on suo-moto basis.

Recently, the Ministry of Petroleum & Natural Gas notified rules on Eligibility conditions for Registration of Liquefied Natural Gas Terminals. This would promote setting up of LNG Terminals in an environment of equitable access and commercial transparency, which in turn will foster higher availability of imported LNG for the nation.

National and International Gas Highways Similarly, we are also working towards securing natural gas through cross-country pipelines. Last month, the Union Cabinet gave its approval for the formation of a Special Purpose Vehicle (SPV) for the Turkmenistan-Afghanistan-Pakistan-India (TAPI) Pipeline Project and permitted GAIL India Ltd. to join the SPV. GAIL has agreed to make an investment up to 25 crores in the proposed SPV that is TAPI Ltd. The Ministry is actively engaged with ADB and other participating countries to expedite this project which will lead to supply of 38 MMSCMD of gas to India from 2017-18.

Overseas E&P Activities India is engaged in bilateral and multi lateral cooperation with various countries for oil & gas security. The government is encouraging national oil companies to aggressively pursue equity oil and gas opportunities overseas. Oil & Natural Gas Corporation Videsh Limited (OVL) has produced about 8.753 Million Metric Tonnes (MMT) of oil and equivalent gas during the year 2011-12 from its assets abroad with estimated 6.865 MMTOE in 2012-13. Recently, the GOI has authorized OVL to acquire Participating Interest (PI) owned by Hess Corporation’s wholly owned subsidiaries in the upstream and midstream oil and gas assets in Azerbaijan with an investment of US $ 1001 Million.

Refining capacity You would appreciate that Indian refining industry has done exceedingly well in establishing itself as a major player globally. India is emerging as a refinery hub. Our refining capacity has witnessed 3.5 times increase from 62 MMTPA in 1998 to 215.07

MMTPA at present. It is projected to increase to over 300 MMTPA by 2016-17.

Paradip refinery with capacity of 15 MMTPA is at advanced stage of construction and is likely to be completed by November 2013. Expansion of Kochi Refinery, Kerala from 9.5 MMTPA to 15.5 MMTPA through Integrated Refinery Expansion Project has been planned with an investment of Rs.20,000 crore. A state of the art 9 MMTPA green-field refinery along with petrochemical complex is also being set up with an investment of Rs. 37,229 crore at Barmer, Rajasthan, which will accelerate economic development of the region.

Our refining capacity is not only sufficient for meeting the domestic demand but also leaving a substantial surplus for export of petroleum products. Since 2001-02 India has been continuing to be a net exporter of petroleum products which now constitute the largest merchandise exports. During 2011-12, the country exported 60 MMT of Petroleum products worth more than 58 billion US Dollars.

Implementation of BS-III/IV Fuels The oil industry has undertaken the massive task of upgrading quality of auto fuels to Bharat Stage –III and IV grades in the country, with an investment of over Rs.30,000

crore from their internally generated resources. Today, we are supplying BS IV quality of fuels in 30 cities including NCR region (which itself comprise of 17 class I cities) and BS

III fuels in the rest of the country. Introduction of these fuels have reduced vehicular

pollution significantly and improved the ambient air quality.

Efforts are being made to progressively expand coverage of BS IV fuels to total 65 cities by 2015. We have recently constituted an Expert Group under the chairmanship of Shri Soumitra Choudhury, Member, Planning Commission to suggest Auto Fuel Policy and Vision - 2025.

Energy Conservation

In order to promote conservation of energy, the Government has decided on 22-11-2012

that 5% mandatory ethanol blending with petrol should be implemented across the country. The target is set to be achieved by 30-06-2013. A Gazette notification has been issued on 02-01-2013 directing OMCs to implement the EBP Programme.

Pricing and subsidy issues

The Government is committed to make available essential fuels, particularly cooking fuels

to the common man at affordable prices. Accordingly, the retail selling price of Diesel,

PDS-Kerosene and Domestic LPG are being modulated to insulate the common man from the impact of rise in international oil prices and domestic inflationary condition. The under-recoveries incurred by OMCs as a result are being subsidized by the Government, with the support of upstream companies. In order to reduce under-recovery and at the same time restrict the impact on the consumers, the Government has taken the following reform measures:

a) Price of Petrol has been made market determined effective 26.06.2010

b) OMCs have been advised to stagger the increase of price of Diesel in the range of 40 to 50 paise per litre per month;

c) OMCs have been authorized to sell diesel to Bulk Consumers at non-subsidized market determined price; and

d) Supply of subsidized domestic LPG cylinders has been capped at 9 per consumer per annum.

I do earnestly hope that these concrete steps would help to contain the fiscal deficit and make scarce resources available to the priority sectors.

I would also like to mention that while keeping interests of the common man in mind, we

have not increased the price of PDS Kerosene & Domestic LPG since 25 th June 2011. Subsidized LPG for cooking purposes has been extended to non-domestic exempted LPG customers.

The OMC are at present incurring under-recovery at the rate of Rs. 8.64 per litre for Diesel, Rs. 33.43 per litre for Kerosene and Rs. 439 per cylinder for Domestic LPG and their daily under-recovery is Rs 423 crore. Out of the total projected under recovery of Rs 1,61,343 crore of the Public Sector Oil Marketing Companies (OMCs) on sale of sensitive petroleum products during 2012-13, under recovery on sale of diesel alone accounts for 57 per cent.

Direct Benefit Transfer to LPG (DBTL):

Direct cash transfer of subsidy to Domestic LPG and PDS Kerosene consumers will be introduced in 2013-14. Direct Subsidy Transfer is proposed to be implemented in three phases. In Phase-I, Direct Subsidy Transfer will be implemented in 51 districts identified by Planning Commission where substantial Aadhaar penetration has already been achieved. In Phase-II, entire 18 states shall be covered where UIDAI is currently enrolling customers. In Phase-III, the coverage will be for 17 states where National Population Registry under Home Ministry is conducting enrolment.

LPG Transparency Portal To empower the LPG consumer, the Government of India has launched new initiatives, Project “Lakshya”, in the LPG business focusing on greater customer empowerment, better subsidy administration, enhanced transparency in the distribution chain; along with a slew of IT-based customer service initiatives. Recently, the Ministry launched new IT / web enabled initiatives to make distribution of domestic LPG more customer friendly and enhance transparency. With the launch of “Transparency portal”, customers have already been empowered to know their consumption and there also are provisions to flag anomalies in the distribution of LPG cylinders.

Conclusion Our Ministry will continue to strive towards evolving effective policy measures to enhance energy security to the nation. In this regard, the media has a vital role in informing the public on the challenges faced by the oil and gas sector and the significance of the measures taken by the Government to ensure growth of the Oil Sector. *****