UNIVERSITY OF PETROLEUM & ENERGY STUDIES

(ISO 9001:2000 Certified& NAAC Accredited)

Study for Effectiveness of the exploration, transportation and Distribution of petroleum by Oil & Gas Company

Submitted by:

Akhilesh Kumar Maury R040307003 Btech Gas Engineering 4th semester

Main Campus Energy Acres, PO: Bidholi via Prem Nagar Dehradun-248007 (Uttarkhand), India Email: info@upes.ac.in, URL: www.upes.ac.in

DECLARATION

I hereby declare that this report entitled Study for Effectiveness of the

exploration, transportation and Distribution of petroleum by Oil & Gas Company has been prepared by me during the months of June -July 2009 under
the Guidance of Prof. K.V. Rao, Academic Head (COES) to fulfill the requisites for report prepared during summer holiday.

I also declare that this report is a result of my own effort and that it has not been submitted to any other University or published any time before.

Place: DEHRADUN Date:

AKHILESH KUMAR MAURYA

ACKNOWLEDGEMENT
With completion of report on Study for Effectiveness of the exploration,

transportation and Distribution of petroleum by Oil & Gas Company I would

like to express my gratitude to all of people who helped me and guided.

Firstly I would like to express my thanks to Prof. K.V. Rao sir, Academic Head, University of Petroleum and Energy studies, Regional Centre, Rajahmundry.

I would like to extend my gratitude to Mr. B. N. Singh, Senior Seismic Interpreter, Oman Petrochemicals for kind help.

I would also like to extend my thanks to Mr. K. P. Mishra, Chief Manager (MM), ONGC Mumbai for providing guidelines.

I would also like to extend my thanks to Mr. Dheerendra Narayan Singh for kind cooperation throughout my report preparation.

I would like to thank all once again.

Akhilesh Kumar Maurya

Foreword
Problem Definition / Hypothesis
The focus of this study is to understand the effectiveness of Indian oil and gas companies in India as oil and gas crisis is rising day by day. What is the role of foreign companies in India to eradicate this problem? The dissertation attempts to understand the effectiveness of their exploration and marketing & distribution strategy of oil and gas in India and overseas.

Literature relating to the problem

India is one of the top 10 oil-consuming countries in the world. Oil and gas represent over 40 per cent of the total energy consumption in India. The consumption of petroleum products in the country is on the rise and demand already far exceeds domestic supply. Therefore, the country has to depend largely on imports. The countrys existing annual crude oil production is peaked at about 32 million tones as against the demand of about 110 million tones. With inadequate crude production, the country is heavily dependent on imports. Crude is the single largest item on Indias import list. Estimates show that the demand is likely to grow at a faster pace over the next decade if India is to maintain the GDP growth target of 8 per cent. This implies larger imports unless new domestic oil reserves are found. With this in view, the government announced the New Exploration Licensing Policy (NELP) in 2000. With a view to ensure long term energy security, the government is also building oil and gas equity abroad. The report will help to understand how Indian oil and gas companies are going to meet the requirement of petroleum and petroleum products and market it maintain proper demand and supply

Introduction
Scope
This report will help to understand what and how Indian oil and gas companies are exploring and marketing oil and gas from Indian and from overseas recourses and will also help to understand the pros and cons of various sources of petroleum available in India and the overseas markets; and would help to make a comparison between the current situation of availability of petroleum and petroleum product and the future conditions which are going to prevail in the market.

Primary data:
To be collected through personal-interviews/discussions with focus on Implementation of different strategies along with its results at present and scope In future.

Secondary data:
Internet, journals, magazines, articles, etc.

Indian Oil Industry Structure

Ministry of Petroleum & Natural Gas UPSTREAM Exploration and Production MIDSTREAM Storage and Transportation DOWNSTREAM Refining and Marketing

PUBLIC SECTORS
ONGC OIL IOC

ONGC Videsh Limited (OverseasE&P) OIL

IOC

BONGAIGAON REFINARY IBP

BPCL

GAIL INDIA

GAIL

NUMALIGARH REFINARY BPCL

IOC

MRPL

GSPC

HPCL

ONGC

MRPL

GAIL INDIA

UPSTREAM Exploration and Production

MIDSTREAM Storage and Transportation

DOWNSTREAM Refining and Marketing

PRIVATE SECTORS
ESSAR OIL

RIL

RIL

VIDEOCON

PETRONET

ESSAR

TATA PETRADYNE

JUBILANE ENPRO

ESSAR OIL

MNCS
NIKO SHELL

CRAIN ENERGY

MOBIL

HARDY OIL

BP

GULF

ELF

History of oil Industry in India

Introduction

Oil was first discovered in 1859 in Pennsylvania, USA. In 1989, India joined the countries like USA, USSR, Venezuela, Burma and Germany that have completed hundred years in Oil Industry.

For a better understanding and explanation of gradual progress of Oil Industry in India, two different periods have been considered in this paper; the past (up to 1959) and present(1960-2006).

Exploration and Production

Past (Up to 1959)
Pre-independence Period (up to 1947):

As early as 1825, Lieutenant R. Wilcox recorded the occurrence of oil seepages in the Buri Dihing at Sapkhong, Upper Assam. Between 1828 and 1845, Major A. White also reported coal and oil in various areas of Upper Assam valley. In 1865, H.B. Medlicott of Geological Survey of India recommended experimental drilling in Makum-Namdang area. Based on his suggestion, Indias first hand dug well was drilled in November 1866 at Nahorpung near Jaipur, Assam. This was abandoned as dry at a depth of 102 feet. Three other wells drilled at Jaipur gave only a little gas with no oil. On March 26, 1867, Asias first mechanically drilled well was completed at Makum-Namdang near Margherita, Assam, India. The well was drilled down to a depth of 118 feet and it gave slightly over a ton of oil. Between 1868 and 1869, another 8 shallow wells were drilled and considerable amount of oil was obtained. In 1889, drilling was started by Assam Railways and Trading Company at Digboi near Borbil station. This well was completed in 1890 as a producer at a depth of 602 feet. Discovery of Digboi oil field heralded the beginning of Modern Oil Industry in India. Though this oil filed was discovered in the year 1890, production was only about 300 barrels a day until the early twenties of last century.

The year 1911 is a significant one in the history of oil in India. In that year Burmah Oil Company Limited (BOC), an organization with established petroleum activities came on Indian scene from their oil wining victories in Burma. In Surma Valley, BOC acquired rights over the Badarpur structure and developed a small but short lived oil field there (1915-1933). With the discovery of Badarpur, exploration efforts got an impetus and by the end of 1920, production was raised to about 1000 barrels per day (bpd), which however continued to decline 131 bpd in 1931. Finally Badarpur field was abandoned in 1933 after producing about 1.86 million barrels of heavy crude.

In 1921, Burmah Oil Company took over the technical and financial management of Assam Oil Company (AOC) which had drilled about 80 wells and obtained a production rate of 350 bpd by then. At this juncture, BOC with its systematic exploration of Digboi field made discovery of richer sands and also extended the already proved areas. As a result production of oil rose from 20,000 tonnes per year in 1920-21 to 250,000 tonnes per year by 1934. This was also the period in which Oil Industry in India started taking concrete shape. By then BOC was not only engaged in the development of Digboi field but had also side by side carried out exploratory drilling in exposed anticlinal structures along the foot hill belt at Shongking, Barsilla, Tiru-hills, Bandersulia, Nichuguard etc. prior to the discovery of the first concealed oil field in the alluvial tracts at Nahorkatiya. In 1922-24, the application of Geophysical methods of oil prospecting came into prominence in USA and BOC utilized the methods in 1925 by carrying out a gravity survey using a Torsion Balance in the alluvial covered Upper Assam Valley. An interesting gravity high was discovered at Bordubi. Latter seismic methods came into being and in 1938, a seismic survey revealed a seismic high at Nahorkatiya close to but not coincident with Bordubi gravity high.

Though not glorious, the pre-independence period played a pivotal role by opening the channel for the growth and expansion of oil Industry in India. Up to 1947, oil exploration in India was largely confined only to the Assam region and production from this region was about 0.25 Million Tonnes per Annum. Digboi refinery established in 1901 played the role of refining the crude with a pipeline from Digboi field to Digboi refinery and a 37 km product pipeline from Digboi to Tinsukia owned and operated by Assam Oil Company was commissioned.

Post Independence Period (1947-1959):

It was only in May 1952 after World War II, that drilling on a seismic high was started by AOC and Nahorkatiya well no. 1 was completed as an oil producer in 1953 at a depth of 3571 metres. This was the discovery well of the now famous Nahorkatiya oil field and was the first well in India to be drilled on a concealed structure. Immediately after the Nahorkatiya discovery arrangement were made for more detailed surveys of the whole of the alluvial area of the Upper Assam Valley, with gravity, aeromagnetic and seismic methods. As a result, in 1956, Moran oil field was discovered by Assam Oil Company Limited.

In October 1955, the Oil and Natural Gas Directorate was formed under the Ministry of Natural Resources and Scientific Research. Eventually the activities of petroleum exploration increased tremendously and in August 1956, the Government of India with its Industrial Policy Resolution set up Oil and Natural Gas Commission (ONGC) in Dehradun. Initially ONGC was assigned the task of planning, promoting and implementing programmes for exploration and exploitation of petroleum resources through out the country. With the formation of ONGC, Oil Industry in India

took a new turn in its path of progress. In October 1959, ONGC became an autonomous statutory body. ONGC drilled its first exploratory well near Jwalamukhi in Kangra district, Punjab in 1957 with a Rumanian Rig under the supervision and technical aid of Soviet scientists. The well was abandoned in 1959 with a small gas find at about 1700 metres. Simultaneously, the first well in Cambay Basin in Cambay was drilled and completed in 1958 as a gas producer; also the first well was drilled at Ankleswar in 1959 and completed as a producer the following year.

The success of exploration activities in Nahorkatiya and Moran by BOC inspired the Government of India to form a joint sector company to be incorporated in India with its registered office in Assam. Ultimately in February, 1959, Oil India Private Limited was incorporated with BOC holding two-third shares and Government of India one-third. The new company was to produce crude oil from licenses granted to BOC at Nahorkatiya and Moran and deliver the crude through pipelines to their Digboi refinery as well as two other refineries to be set up in public sector by the Government in Assam - Noonmati, Guahati and Barauni, Bihar. In July 1961, equalization of shares to 50% each in Oil India Limited between Government of India and BOC was signed. Finally the company became a full fledged public sector enterprise in October 1981 when the Government of Indian acquired the remaining 50% shares of Burmah Oil Company in Oil India Limited. During first twelve years of independence (1947-1959) India made a significant progress in oil exploration. This was the period when she emerged as a petroliferous region and increased her geological, geophysical and drilling activities in various prospective basins viz. Gangetic Valley, Sub-Himalayan Tertiary Basin near Hoshiarpur (Punjab), Mohand (UP), Ankleswar and Cambay (Gujarat) besides Rajasthan, Kutch, Assam and Tripura. Production went up from about

0.25 million tonnes in 1948 to about 0.39 milliom tonnes by 1959. Consequently, the Indian Refineries Ltd. and Indian Oil Company Ltd. Were set up in 1958 and 1959 to be later merged into Indian Oil Corporation (IOC) in 1964. Thus the foundations for the present day status of Oil Industry in India were laid during the period from 1947-1959.

The Present

Oil Industrys present day history in India encompasses the period from 1960 to 1990 and 1990-till date.

Period from 1960-1990:

This is the period when two major oil companies viz. ONGC and OIL operated side by side for exploration and development of different petroliferous basins in India. If the post independence period (up to 1959) is considered as the childhood of Indian Oil Industry, the present period up to 1990 can be considered as the gradual change from youth to adolescence when the industry with its indigenous technology and manpower was able to stand on its own feet. Such progress was possible only through a national endeavor based on concerted programmes and policies and by the effective coordination of the countrys technical manpower and material resources. Of course, as usual, in Oil Industry luck also played a part. After 1959, exploration activities of ONGC were carried out in the Himalayan foothills, Gujarat, Offshore basins of India while OIL had confined its activities mainly to the alluvium covered Upper

Assam region. Only during Late Seventies/Early Eighties OIL ventured into Mahanadi offshore and onshore areas of Orissa and the deserts of Rajasthan besides probing some notso-easy area in Arunachal Pradesh. In addition OIL ventured in exploration activities to Ganga Valley and Gujarat-Saurashtra. During 1960,s ONGC carried out exploratory surveys in Jammu and Kashmir, Himanchal Pradesh, Assam, Rajasthan, Punjab, Cambay Basin, Kutch and East Coast of India. Exploratory drilling was undertaken in Punjab, Assam and Gujarat. A number of oil and gas fields were discovered in Gujarat and Assam. Of these, the significant ones were Ankleshwar, Cambay, Kalol, Sanand and Nawagam in Gujarat and Rudrasagar, Lakwa and Geleki in Assam. The crowning glory of Oil Industry during late fifties and early sixties was the designing and construction of longest pipeline in south-east Asia from Duliajan, Assam to Barauni in Bihar to transport the crude produced by OIL to the eastern sector refineries. Completed in two stages during 1961-63, this pipeline spanning mighty Brahmaputra and 77 other rivers and having length of 1157 km was amongst the most technically advanced pipeline of its size in the world at that time. The first crude oil conditioning plat (COCP) in the world was established at Duliajan, Assam in 1962 for transporting the waxy crude oil through pipeline to Digboi, Guwahati and Barauni refineries during winter months. The first commercial production of oil and gas by ONGC was started from Ankleshwar on 1st September 1961 at the rate of 100 tones per day. In the same year, a contract was signed with USSR for offshore seismic survey in the Gulf of Cambay, Arabian Sea and on the East Coast. Though seismic survey was started in 1925 mainly in Assam as an effective tool for oil exploration, both OIL and ONGC used the same intensively only since the sixties in various sedimentary basins within the country. Consequently based on the evidence from surface

geological studies, geophysical surveys (gravity, Aeromagnetic, seismic) and other surveys used for oil exploration, a total of twenty six sedimentary basins were identified within the country. These basins have been divided into four categories.

Category I: Proved petroliferous basins with commercial production, e.g. Assam Shelf, Bombay Offshore, Cambay Basin, Krishna Godavary, Jaisalmer Basin and Cauvery Basin.

Category II: Sedimentary basins with known occurrence of hydrocarbons but from which no commercial production has yet been obtained. Andaman-Nicobar, Bengal basin, Himalayan foothills, Mahanadi, Bikaner-Nagaur, Kutch and Tripura-Cachar.

Category III: Sedimentary basins in which significant sources of hydrocarbons have not yet been found but which on general geological grounds are considered to be prospective, e.g. KeralaLakshadweep and Saurastra.

Category IV: Petroliferous basins which on analogy with similar hydrocarbon producing basins in the world may be prospective, e.g. Arunachal foot hills, Deccan Syneclise, Ganga Valley, Gondwana, Karewa Basin (Kashmir valley), Mizoram-Manipur, Narmada and Vindhyan.

It must be emphasized that this categorization is neither rigid nor static; basins can get promoted or demoted after exploration/development has actually been carried out. During late 1960s, the tempo of exploration was greatly intensified not only in onshore basins but in offshore area as well. On land drilling efforts resulted in discovery of oil and gas bearing

structures at Dabka, Santhal and Kalol in Gujarat, Amguri, Charali and Borholla in Assam and Baramura in Tripura. In 1964-65, surveys were undertaken in Bombay offshore region by Russian seismic ship Akadamic Arkhangelsky which first outlined the Bombay offshore basin. Indications for the presence of oil and gas in offshore areas was obtained while drilling, the Aliabet structure located in shallow waters near the mouth of Narmada river. Encouraged by the presence of oil in the offshore region, ONGC produced a Jackup rig from Japan. This jackup rig known as Sagar Samrat drilled first at Tarapur and then at the Bombay high structure which is located about 160km offshore off Bombay. Discovery of oil in large quantities in 1974 at Bombay high structure and subsequent favorable reports established the Bombay High as a Giant oilfield. Most of the oil and gas are produced from two limestone reservoirs. Production from Bombay High was started initially from two platforms at the rate of 40,000 barrels of oil per day (bopd). Later, the oil production from other platforms was also added to reach a production rate exceeding 60,000 bopd by 1977. At present, Bombay High produces about 70% of Indias total yearly oil. On the east coast of India, OIL went in for offshore exploration in Mahanadi Basin in Late Seventies and extended its activities to the north-east in the Bay of Bengal. OIL also started exploration along with ONGC in Andaman area. Subsequently OIL carried out exploratory drilling in the onland part of Mahanadi Basin. OIL,s efforts in exploratory drilling in these areas, both offshore and onland did not bring any fruitful result. The intensification in the search for oil and gas by ONGC resulted in several major oil and gas finds in last few decades. The discovery of Giant gas field of South Basin western offshore region is one such example. Gandhar discovered in 1984 emerged as one of the most promising

discoveries after Bombay High. ONGC through its extensive exploration activities discovered other oil and gas fields in Bombay Offshore Basin viz. Heera, Panna, Mukta, Neelam, Tapti, etc.

Cauvery Basin, still partly explored in Tamil Nadu has shown indications of promising oil province with the discovery of Narimanam and Kovelkallapal in Tanjore district. The recent discoveries of oil in Kaikalure near Vijaywada in Andhra Pradesh in Krishna Godavary Basin opened up new vistas for further exploration in this basin. Earlier ONGC was able to locate only gaseous hydrocarbons in Razoll, Narsapur, Tatipaka and Pasarlapudi. Oil was discovered by ONGC in Godavari offshore and production was obtained at the rate of 2500 bopd.

Commercial production of gas was established at Tripura after the discovery of several gas bearing structures like Baramura, Rokhia, Gojalia and Agartala Dome. Borholla-Champang,Namti and Demalgaon are important discoveries by ONGC in North-East India.

During the sixties and seventies OIL in its leased areas in the north-east region discovered a number of hydrocarbon structures viz. Lankasi,Bogapani, Tinali, Kusijan, Jaipur, Santi, Kathalguri, Jorajan, Nagajan, Tengakhat, Deohal, Samdang, Rajgarh, Dipling, Shalmari,Hapjan, Diroi-

Borbil,etc in Assam and Kharsang and Kumchai in Arunachal Pradesh.

Also the exploration activities of OIL in the western part of India in Jaisalmer and Bikaner Nagaur Basins resulted gas discovery in the first exploratory well drilled in 1988 near Tanot. OIL subsequently discovered Ramgarh, Dandewala, Manheratiba gasfields in Jaisalmer Basin and heavy oil in Bikaner-Nagaur Basin.

During 1980s 3D seismic survey and Interactive Interpretation Workstations came into practice in hydrocarbon exploration. The invention of these technologies brought about revolution in hydrocarbon exploration. These technologies came in use in India during 1990s by both OIL and ONGC. These helped in identification of small and more complex hydrocarbon bearing structures and sophisticated stratigraphic traps. The level of confidence of geoscientists increased and time for development of discovered fields reduced. As a result few new discoveries viz. Dikom, Kamkhat, Madar Khat, Basmatiya, Makum, Jultibari, Bhogpara, Bagjan, Chandmari, etc. were made by OIL in Upper Assam Basin. Besides the exploration and development activities by OIL and ONGC, a few foreign companies were engaged in intensive integrated exploration in different parts of the country. With assistance from Soviet Union three areas viz. North Cambay Basin, Cauvery Basin and West Bengal Basin were taken for exploration on a turn key concept. In March 1986, the Government of India offered 27 offshore blocks for exploration and exploitation of hydrocarbons by reputed international oil companies.

Period from 1990-till date:

The Government of India launched the Petroleum Sector Reforms (PSR) in 1990 and offered exploration blocks to foreign companies for bidding. Three rounds of bidding completed till 1990 but no success in finding new oil and gas reserves by foreign companies was reported. Under the PSR, the Fourth, Fifth, Sixth, Seventh and Eighth Rounds of exploration bidding were announced between 1991 and 1994. For the first time Indian companies with or without previous experience in E&P activities were permitted to bid starting with the Fourth Round. The NOCs had carried interest of upto 30% after commercial discoveries were made.

The Government then announced the Joint Venture Exploration Programme in 1995. The exploration blocks were in those areas for which the Petroleum Exploration License was with the NOCs and they were required to have a 25% to 40% Participating Interest from day one. This was viewed as a deterrent by some majors who felt that 25% to 40% of the expected profits would be lost to NOCs. The majors wanted that blocks be carved out of areas held by the NOCs with the proviso that each of these blocks should have at least one oil discovery in it and further that the NOCs should have no equity holding in the blocks. NOCs did not agree to withdraw from the areas held by them. Ultimately, blocks offered earlier and not awarded were re-offered with a few new blocks under New Exploration Licensing Policy (NELP).

Around the time the Fourth Round of Exploration Bidding was launched in September 1991, the Government also decided to offer some of the discovered but undeveloped small and medium size oil and gas fields of the two NOCs. Two rounds were announced, the first in 1992 and the second in 1993.

Most of the Indian companies joined hands with foreign companies for exploration and development ventures in India. Reliance Petroleum Ltd. had taken the first step by joining up with ONGC in bidding for exploration as well as development ventures in India and abroad. The downstream companies like IOC, GAIL entered into upstream in consort with ONGC and OIL.

Six bidding rounds for exploratory blocks have been completed under NELP and Many exploratory blocks have been awarded to Indian and foreign companies. The seventh bidding round is under preparation. The exploration activities increased many fold in recent years and significant oil and gas discoveries are made by Indian and foreign companies in exploratory blocks awarded to them under NELP. The important discoveries made recent years are the Giant gas discovery by Reliance and GSPC in KG basin. Reliance discovered gas in Mahandi, and oil in KG, Cauvery and Gujarat-Saurastra. GSPC discovered oil in Cambay Basin. Significant oil and gas discoveries have been made by Cairn energy in KG, Cambay and Rajasthan Basins viz. Ghauri, Parvati, Saraswati, Mangla, Aishwayra, Rageshwari, Bhagyam and Shakti field. Hydrocarbon has also been discovered by other Indian and foreign companies like Niko, Hardy oil and gas, HOEC, Essar, etc.

Government of India also offered blocks for exploration and exploitation of Coal Bed Methane (CBM) to different companies. Encouraging results have been reported and commercial production of CBM has been started by GECL.

Today 74 Exploration Contracts and 28 Development Contracts are in operation.The Development Contracts are likely to add about 150,000 barrels of oil per day (or about 7.5 MMT per year) and about 7 million cubic meters per day of gas production. In terms of money about 4 billion dollars are expected to be pumped into these ventures over the next 10 to 15 years.

Foreign companies were invited for the exploration and exploitation of hydrocarbons in India, at the same time Indian companies were also encouraged for bidding/farm in opportunities overseas. OVL (ONGC Videsh Limited) acquired participating interest in exploratory and development blocks in many countries. OVL has producing assets in Sudan, Russia, Vietnam, etc and exploratory assets in more than 15 countries. Other companies viz. OIL, GAIL, IOC, HPCL,BPCL, Videocon, Essar, GSPCL, Jubilant Enpro have exploratory blocks in different countries of the world in consortium with other companies.

The Oil Industry in India is not only confined to the exploration and development activities but is also engaged in multifarious downstream activities in refining and marketing of crude oil, long distance transportation of oil/gas/products, LPG extraction, gas processing, etc.

Refining
There has been an impressive increase in crude oil production during last few decades. From 0.39 million tones per annum in 1959 to about 35 million tones in current years. With the increase of crude oil production, the refining capacity has also increased. Though first refinery in country was set up more than 100 years ago, it is only after independence from 1954 onwards that a number of refineries were installed in India. As on date India has more than 15 operating refineries.

In May, Steel magnate L N Mittal was allowed to pick up 49 per cent stake in Hindustan Petroleum Corporation (HPCL) refinery in Bathinda. This could mark the beginning of several others moving in, who are also looking to tie up with Indian refiners. They include Saudi Aramco, world's largest oil producer, Cairn Energy, ExxonMobil, Petrobras, Shell, and China Petro (CNPC).

To become a major global fuel exporter, the Indian government plans to expand refining capacity by 62 per cent to 4.82 million barrels per day (mbpd) over the next five years. While state-run refiners are planning to add about 1.06 mbpd of capacity by 2012, about 50 per cent of their present capacity, private companies would undertake the rest

Indian Oil Corp (IOC) plans to spend US$ 13.8 billion over the next five years on expanding its refining capacity from 60.2 million tonnes per annum of crude oil to 76.7 million tonnes.

ONGC plans to invest more than US$ 16.5 billion in the refining business over the next four to five years to scale its refining capacity up to 45.5 million tonnes by 2009-10.

Bharat Petroleum Corp Ltd (BPCL) has lined up US$ 492.8 million at the 7.5-million-tonneper-annum Kochi refinery.

HPCL is looking for a strategic partner for the US$ 4.43 billion expansion of its Vishakhapatnam refining complex to 300,000 barrels per day by August 2010

RPL is setting up a US$ 6 billion greenfield petroleum refinery and polypropylene plant at Jamnagar, Gujarat

Upstream Activities

The upstream activities in oil sector are a term commonly used to refer to the searching for and the recovery and production of crude oil and natural gas. The upstream oil sector is also known as the exploration and production (E&P) sector. It includes following activities:-

1. Consultation
It is the initial stages of oil exploration where experts either employed by Oil companies or under contract from a private firm are involved in planning for the exploration of crude oil.

2. Rigs
Rigs form the entire setup of the drilling system to extract oil from the reserve under the surface of the earth.

3. Drilling
The process by which holes are made on the surface of the earth to extract the oil from underneath is known as drilling.

4. Reservoir
The reserve from which crude oil is pumped out is known as the reservoir.

Exploration& production

Exploration activities is of two types 1. onshore exploration 2. off shore exploration

1. Onshore Exploration
Exploration carried out on land in search of hydrocarbons is known as onshore exploration. The onshore exploration activities are carried out in India mainly in Assam, Gujarat, Rajasthan, Arunachal Pradesh, Nagaland, Tripura, Andhra, Tamil Nadu, etc. Significant oil and gas discoveries have been made in these states. Recently significant on land oil discovery is made by Cairn Energy in Rajasthan.

The onshore exploration is overall cheaper compared to offshore exploration. The seismic survey in a small onshore area will be cheaper compared to offshore seismic survey as it requires only a simple recording instrument and limited no. of ground electronics but for larger area it is costlier than offshore. Explosives are used as the main energy source which requires special permission from the Government for its storage, transportation, handling, etc. Only the license holders can handle the explosives. The production remains much lower than the offshore and involves large no. of manpower. The survey becomes further expensive in geologically complex and logistically difficult areas. The cost ranges from US$ 1000-2500 or even more per line km in land seismic depending on the requirement and the surface and geological conditions.

The onland drilling involves the acquisition of the land at the drill site and the clearance from local authorities and environment clearance from the Ministry of Environment for storage of materials and disposal of drilling waste. It involves the construction of warehouse for the storage of essential drilling related materials, construction of well plinth at the drilling location and the approach road from the nearest motorable road to the well plinth for the movement of drilling rig and the related materials. The activities continue round the clock and people work in shifts. The cost depends on the depth of the target horizon, geological complexities and the ground logistics. In simple geological and surface conditions, drilling costs about US$ 5-10 Million for a depth of 3-4 km. The cost of drilling increases in multiples with the increase of target depth. In geologically complex areas and rough terrains, the cost becomes very high. However, the onland drilling cost generally remains lower than the offshore for similar target depths and geological conditions.

The development plan of discovered fields can be implemented fast. Installation of Oil Collecting Stations (OCS) or Gas Collecting Stations (GCS) is cheaper and less time consuming. Oil can be produced with the installation of early production system. The produced oil can be transported with the help of tankers before the lay out of pipelines. Lay out of pipelines can be planned in optimum way without delaying the production. Due to cheaper costs against exploration, pipeline, and development in onshore exploration, even small sized hydrocarbon accumulations can be produced economically.

2.Offshore Exploration
Shallow water exploration: - Exploration carried out in sea in search of hydrocarbons is
known as offshore exploration. The offshore exploration requires more sophisticated technology for seismic, drilling, production and transportation of hydrocarbons. In India major oil discovery (Bombay High) made by ONGC in Arabian is the highest oil producer in India. Large gas accumulation has been discovered by Reliance, Cairn Energy and GSPC in Bay of Bengal in recent years.

The technology used for collection of seismic data is different from that of onland surveys. The offshore seismic requires a seismic vessel and more sophisticated recording equipment, navigation system, chase boats, etc. It is cheaper than onland seismic if data collection has to be done over a larger area due to collection of data round the clock. Vast area is covered in a very short time but it is costly for smaller areas due to the fixed cost involved in the mobilization and demobilization of the seismic vessel.

Offshore seismic uses airguns as the energy source which is blasted within the water which causes the data contamination with organized type of noise and special processing techniques are applied to remove the noise. The crew members, seismic vessel, chase boats, etc involved during acquisition have to take special permission from Ministry of Petroleum and Ministry of Defense and the clearance of environment from the Ministry of Environment. The crew members are required to undergo the special training Survival at Sea before on boarding the ship.

Although most of the steps in processing technique for onland and offshore data remain the same, some variation in the application of processing technique exists. The acquisition of seismic costs about US$ 500-1000 per line km depending on the requirement in offshore.

Offshore drilling can be shallow water drilling (water depth less than 400m) or deep water (water depth more than 400m). The wells in shallow water depth are drilled with specially designed Jackup drilling rigs (for water depth less than 100m) and semi-submersible rigs. Jack-up rigs are fixed leg rigs and before positioning the rig at the drill site, one special survey known as sea bad survey is conducted to know the sea bottom strength which adds extra in the cost of the well. The offshore drilling activity is also carried out round the clock and warehouse for storing drilling related materials can be near the port or on a warehouse ship. The crew members have to take the permission from defense and environment ministry. The cost of drilling will be much higher than the cost of onland drilling for the same target depth. Generally shallow water wells cost US$15-25 Million for a depth of 3.5-4 km. The cost increases with target depth and water depth.

The development of the discovered fields needs proper assessment of hydrocarbon volume, techno-economical analysis for the commerciality of the hydrocarbon discovered. The hydrocarbons in shallow water are produced on the production platforms which are fixed leg or gravity leg platforms. The designing and installation of production platforms are very costly and time consuming. The separation of oil and gas needs proper planning. The transportation of Hydrocarbon is another issue. The offshore pipelines are costly and time consuming. The cost in laying the pipeline increases with water depth. The high cost against exploration, transportation,

development and production, only large size hydrocarbon accumulations become economical in offshore exploration.

Offshore (Deep Water) Exploration: - Seismic technique in the collection and processing of
data remains the same as shallow water. The only difference is the depth of water which is more than 400 metres in case of deep water. Most of E&P companies opt for deep water exploration due to the possibility of large hydrocarbon accumulations as deep water basins are either unexplored or under explored. The reservoirs are comparatively of better quality and high expected flow rate. At the same time, deep-water

exploration also poses significant technical challenges and risks that undermine their upside potential. Key exploration issues are often tied to the unproven source rocks, prediction of sand fairways and sand-body connectivity and continuity. The hydrocarbon production from deep water is mainly from Gulf of Mexico, Niger Delta Basin. In India deep water gas discovery has been made by Reliance and Cairn Energy in KG Basin. ONGC carried out deep water exploration activities on west coast of India but no success has been achieved so far.

The wells are drilled in deep water with Floater or Submersible rigs. In case of deep water drilling, sea bed survey is not required as the drilling rigs are positioned dynamically but the cost of the well increases with water depth between US$40-50 Million for target depth of 3.5-4 km below sea bottom. Only limited number of deep water drilling rigs is available in the world. Oftenly the drilling of the well gets delay due to non availability of rigs.

High drilling and development costs raise the economic threshold to a point that only the largest prospects can be drilled. Once a discovery is made, reservoir delineation, development strategy, optimum production techniques, and the optimum number and type of wells needed to drain the reservoir all impact the bottom line of the project and are critical for smaller marginal discoveries. Transportation of hydrocarbon is another challenge in case of deep water exploration. The laying of pipeline in deep water is very costly and time consuming. It passes through the slope areas of the sea which remains unstable and can collapse with small seismic activity. The collapse of slope can damage the pipeline and cause threat to water pollution and marine life.

Problems in Onshore oil exploration

Potential hazard due to the use of explosives: - . Explosives are used as the main energy source which requires special permission from the Government for its storage, transportation, handling, etc. Only the license holders can handle the explosives.

Problems of wild animals in jungles: - Many times the seismic survey is done in the forest areas so there is always a threat of encounter with wild animals.

Problems from local people: - The local people create various problems if the exploration area comes in their living surrounding.

Political problems: - The onland drilling involves the acquisition of the land at the drill site and the clearance from local authorities and environment clearance from the Ministry of Environment for storage of materials and disposal of drilling waste.

Rough terrain: - construction of well plinth at the drilling location and the approach road from the nearest motorable road to the well plinth for the movement of drilling rig and the related materials.

Harsh climatic conditions and temperature extremes: - The exploration area varies , it may be in those area where the climatic conditions are very harsh.

Problems in Offshore oil exploration

Oil and gas accidents

The most typical causes of accidents include equipment failure, personnel mistakes, and extreme natural impacts (seismic activity, ice fields, hurricanes, and so on). Their main hazard is connected with the spills and blowouts of oil, gas, and numerous other chemical substances and compounds. The environmental consequences of accidental episodes are especially severe, sometimes dramatic, when they happen near the shore, in shallow waters, or in areas with slow water circulation.

1. Drilling accidents

Drilling accidents are usually associated with unexpected blowouts of liquid and gaseous hydrocarbons from the well as a result of encountering zones with abnormally high pressure. No other situations but tanker oil spills can compete with drilling accidents in frequency and severity.

2. Tanker transportation.

Oil extracted on the continental shelf accounts for a considerable part (probably at least 50%) of annual volumes of oil transported by tankers (the latter constitute over 1 billion tons). On some fields, the shuttle tankers are the main way of delivering hydrocarbons to the onshore terminals. The main causes of tanker accidents that lead to large oil spills include running around and into shore reefs, collisions with other vessels, and fires and explosions of the cargo.

.As the oil spread along the coastline, it covered sea animals, birds, and plants. It turned hundreds of miles of this area (unique for its cleanness and biological resources) into an area of ecological disaster.

3. Storage

Underwater reservoirs for storing liquid hydrocarbons (oil, oil-water mixtures, and gas condensate) are a necessary element of many oil and gas developments. They are often used when tankers instead of pipelines are the main means of hydrocarbon transportation. Underwater storage tanks with capacities of up to 50,000 m3 either are built near the platform foundations or are anchored in the semi submerged position in the area of developments and near the onshore terminals. Sometimes, the anchored tankers are used for this purpose as well. a risk exists of damaging the underwater storage tanks and releasing their content, especially during tanker loading operations and under severe weather conditions.

4. Pipelines.

Complex and extensive systems of underwater pipelines have a total length of thousands of kilometers. They carry oil, gas, condensate, and their mixtures. These pipelines are among the main factors of environmental risk during offshore oil developments, along with tanker transportation and drilling operations. The causes of pipeline damage can differ greatly. They range from material defects and pipe corrosion to ground erosion, tectonic movements on the bottom, and encountering ship anchors and bottom trawls. The dissolution, dilution, and transferring of the liquid and gaseous products in the marine environment can be accompanied in some cases by ice and gas hydrates formation.

Role of Public Sectors

In October 1955, the Oil and Natural Gas Directorate was formed under the Ministry of Natural Resources and Scientific Research. Eventually the activities of petroleum exploration increased tremendously and in August 1956, the Government of India with its Industrial Policy Resolution set up Oil and Natural Gas Commission (ONGC) in Dehradun. Initially ONGC was assigned the task of planning, promoting and implementing programs for exploration and exploitation of petroleum resources through out the country. With the formation of ONGC, Oil Industry in India took a new turn in its path of progress. In October 1959, ONGC became an autonomous statutory body.

ONGC drilled its first exploratory well near Jwalamukhi in Kangra district, Punjab in 1957 with a Rumanian Rig under the supervision and technical aid of Soviet scientists. Simultaneously, the first well in Cambay Basin in Cambay was drilled and completed in 1958 as a gas producer; also the first well was drilled at Ankleswar in 1959 and completed as a producer the following year.

In February, 1959, Oil India Private Limited was incorporated with BOC holding two-third shares and Government of India one-third. The new company was to produce crude oil from licenses granted to BOC at Nahorkatiya and Moran and deliver the crude through pipelines to their Digboi refinery as well as two other refineries to be set up in public sector by the Government in Assam Noonmati, Guahati and Barauni, Bihar. In July 1961, equalization of shares to 50% each in Oil India Limited between Government of India and BOC was signed. Finally the company became a full fledged public sector enterprise in October 1981 when the Government of Indian acquired the remaining 50% shares of Burmah Oil Company in Oil India Limited.

During first twelve years of independence (1947-1959) India made a significant progress in oil exploration. This was the period when she emerged as a petroliferous region and increased her geological, geophysical and drilling activities in various prospective basins viz. Gangetic Valley, Sub-Himalayan Tertiary Basin near Hoshiarpur (Punjab), Mohand (UP), Ankleswar and Cambay (Gujarat) besides Rajasthan, Kutch, Assam and Tripura. Production went up from about 0.25 million tonnes in 1948 to about 0.39 million tonnes by 1959. Consequently, the Indian Refineries Ltd. and Indian Oil Company Ltd. Were set up in 1958 and 1959 to be later merged into Indian Oil Corporation (IOC) in 1964.

During the period from 1960-1990, two major oil companies viz. ONGC and OIL operated side by side for exploration and development of different petroliferous basins in India.

After 1959, exploration activities of ONGC were carried out in the Himalayan foothills, Gujarat, Offshore basins of India while OIL had confined its activities mainly to the alluvium covered Upper Assam region. Only during Late Seventies/Early Eighties OIL ventured into Mahanadi offshore and onshore areas of Orissa and the deserts of Rajasthan besides probing some notso-easy area in Arunachal Pradesh. In addition OIL ventured in exploration activities to Ganga Valley and Gujarat-Saurashtra.

During 1960,s ONGC carried out exploratory surveys in Jammu and Kashmir, Himanchal Pradesh, Assam, Rajasthan, Punjab, Cambay Basin, Kutch and East Coast of India. Exploratory drilling was undertaken in Punjab, Assam and Gujarat. A number of oil and gas fields were

discovered in Gujarat and Assam. Of these, the significant ones were Ankleshwar, Cambay, Kalol, Sanand and Nawagam in Gujarat and Rudrasagar, Lakwa, and Geleki in Assam.

The crowning glory of Oil Industry during late fifties and early sixties was the designing and construction of longest pipeline in south-east Asia from Duliajan, Assam to Barauni in Bihar to transport the crude produced by OIL to the eastern sector refineries. Completed in two stages during 1961-63, this pipeline spanning mighty Brahmaputra and 77 other rivers and having length of 1157 km was amongst the most technically advanced pipeline of its size in the world at that time. The first crude oil conditioning plat (COCP) in the world was established at Duliajan, Assam in 1962 for transporting the waxy crude oil through pipeline to Digboi, Guwahati and Barauni refineries during winter months.

The first commercial production of oil and gas by ONGC was started from Ankleshwar on 1st September 1961 at the rate of 100 tones per day. Based on the evidence from surface geological studies, geophysical surveys (gravity, Aeromagnetic, seismic) and other surveys used for oil exploration, a total of twenty six sedimentary basins were identified within the country.

During late 1960s, the tempo of exploration was greatly intensified not only in onshore basins but in offshore area as well. On land drilling efforts resulted in discovery of oil and gas bearing structures at Dabka, Santhal and Kalol in Gujarat, Amguri, Charali and Borholla in Assam and Baramura, Agartala in Tripura.

In 1964-65, surveys were undertaken in Bombay offshore region by Russian seismic ship Akadamic Arkhangelsky which first outlined the Bombay offshore basin. Indications for the presence of oil and gas in offshore areas was obtained while drilling, the Aliabet structure located in shallow waters near the mouth of Narmada river. Encouraged by the presence of oil in the offshore region, ONGC produced a Jackup rig from Japan. This jackup rig known as Sagar Samrat drilled first at Tarapur and then at the Bombay high structure which is located about 160km offshore off Bombay. Discovery of oil in large quantities in 1974 at Bombay high structure and subsequent favorable reports established the Bombay High as a Giant oilfield.

Production from Bombay High was started initially from two platforms at the rate of 40,000 barrels of oil per day (bpd). Later, the oil production from other platforms was also added to reach a production rate exceeding 60,000 bpd by 1977. At present, Bombay High produces about 70% of Indias total yearly oil.

On the east coast of India, OIL went in for offshore exploration in Mahanadi Basin in Late Seventies and extended its activities to the north-east in the Bay of Bengal. OIL also started exploration along with ONGC in Andaman area. Subsequently OIL carried out exploratory drilling in the onland part of Mahanadi Basin. OILs efforts in exploratory drilling in these areas, both offshore and onland did not bring any fruitful result.

The intensification in the search for oil and gas by ONGC resulted inseveral major oil and gas finds in last few decades. The discovery of Giant gas field of South Basin western offshore region is one such example. Gandhar discovered in 1984 emerged as one of the most promising

discoveries after Bombay High. ONGC through its extensive exploration activities discovered other oil and gas fields in Bombay Offshore Basin viz. Heera, Panna, Mukta, Neelam, Tapti, etc.

Cauvery Basin, still partly explored in Tamil Nadu has shown indications of promising oil province with the discovery of Narimanam and Kovelkallapal in Tanjore district. ONGC also discovered Raghavpuram, PY-3, Kamalapuram fields in Cauvery basin. The discoveries of oil in Kaikalure near Vijaywada in Andhra Pradesh in Krishna Godavary Basin opened up new vistas for further exploration in this basin. Earlier ONGC was able to locate only gaseous hydrocarbons in Razoll, Narsapur, Tatipaka and Pasarlapudi. Oil was discovered by ONGC in Godavari offshore and production was obtained at the rate of 2500 bpd.

Commercial production of gas was established at Tripura after the discovery of several gas bearing structures. Borholla-Champang, Namti and Demalgaon are important discoveries by ONGC in North-East India.

Also the exploration activities of OIL in the western part of India in Jaisalmer and Bikaner Nagaur Basins resulted gas discovery in the first exploratory well drilled in 1988 near Tanot. OIL subsequently discovered Ramgarh, Dandewala, Manheratiba gasfields in Jaisalmer Basin and heavy oil in Bikaner-Nagaur Basin. After the implementation of 3D seismic and interactive work stations, few new discoveries viz. Dikom, Makum, Jultibari, Chandmari, etc. were made by OIL in Upper Assam Basin.

Foreign companies were invited for the exploration and exploitation of hydrocarbons in India, at the same time Indian companies were also encouraged for bidding/farm in opportunities overseas. OVL (ONGC Videsh Limited) acquired participating interest in exploratory and development blocks in many countries. OVL has producing assets in Sudan, Russia, Vietnam, etc and exploratory assets in more than 15 countries. Other companies viz. OIL, GAIL, IOC, HPCL, BPCL, GSPC has exploratory blocks in different countries of the world in consortium with other companies

Role of Private and MNC Companies

A few foreign companies were engaged in intensive integrated exploration in different parts of the country. With assistance from Soviet Union three areas viz. North Cambay Basin, Cauvery Basin and West Bengal Basin were taken for exploration on a turn key concept. In March 1986, the Government of India offered 27 offshore blocks for exploration and exploitation of hydrocarbons by reputed international oil companies. Later Government of India offered the exploration blocks for bidding under New Exploration Licensing Policy (NELP). Many national and international oil companies were awarded blocks based on their exploration work programme.

Six bidding rounds for exploratory blocks have been completed under NELP. The seventh bidding round is under preparation. The exploration activities increased many fold in recent years and significant oil and gas discoveries are made by Indian and foreign companies in exploratory blocks awarded to them under NELP. The important discoveries made recent years are the Giant gas discovery by Reliance and GSPC in KG basin. Reliance discovered gas in Mahandi, and oil in KG, Cauvery and Gujarat-Saurastra. GSPC discovered oil fields in Cambay Basin. Significant oil and gas discoveries have been made by Cairn energy in KG, Cambay and Rajasthan Basins Hydrocarbon has also been discovered by other Indian and foreign companies like Niko, Hardy oil and gas, HOEC, Essar, etc.

Government of India also offered blocks for exploration and exploitation of Coal Bed Methane (CBM) to different companies. Encouraging results have been reported and commercial production of CBM has been started by GEECL.

Today 74 Exploration Contracts and 28 Development Contracts are in operation. The Development Contracts are likely to add about 150,000 barrels of oil per day (or about 7.5 MMT per year) and about 7 million cubic meters per day of gas production. In terms of money about 4 billion dollars are expected to be pumped into these ventures over the next 10 to 15 years. Indian Private Companies were also encouraged for bidding/farm in opportunities overseas. Reliance, Videocon, Essar, Jubilant Enpro have exploratory blocks in different countries of the world in consortium with other companies. Oil discovery has been made in Reliance Yemen block.

Future prospects & consequences

In India the exploration was mainly confined to Bombay Offshore basin, Cambay basin and the Assam Arakan basin and up to certain extent in KG and Cauvery basins by ONGC and OIL before NELP. The exploration resources were also limited. The rate of discovery was low and many basins were neglected by these companies and rated low. The commercial hydrocarbon production was also confined in these basins only.

After NELP, the exploration activities have increased many folds not only in well explored basins but also in low rated/unexplored basins. Many discoveries have been made by private and MNC companies in areas relinquished by ONGC and OIL. The best examples are Mahandi offshore, North-East Coast and Rajasthan Onshore. Many sedimentary basins are still unexplored or very limited exploration activity has taken place. The best examples are Ganga Valley, Vindhyan basin, Bikaner-Nagaur basin, Andaman, etc. Deep water blocks were not given importance due to heavy cost involved in the exploration and unknown geology related to reservoir, source, cap, recovery factor, etc.

The future exploration in India will be carried out mainly in deep water specially in east coast. The discovery of giant gas field in KG basin by Reliance and Cairn energy has open the door for deep water exploration. The national and international companies are attracted towards the exploration in deep water.

The low rated and unexplored/partly explored basins will get attention and exploration activities will concentrate in these basins. Discovery of large quantity of oil in Rajasthan by Cairn Energy has proved the hydrocarbon potential of unexplored/partly explored basins of India. Cairn Energy has stared exploration in Ganga Valley and Vindhyan basin. The geologically and logistically difficult areas like Himalaya thrust-fold belt, Assam thrust-fold belt area, Tripura thrust-fold belt and older basins will become the focus area for the exploration. There was a heavy bid for the exploration blocks in thrust- fold belts of Assam and Tripura during NELP IV and V.

The emphasis will also be given in the exploration and exploitation of non conventional hydrocarbons like coal bed methane (CBM), gas hydrate, tight gas, shale gas, heavy oil. Reliance has started production from its CBM blocks in Madhya Pradesh. GEECL is the first company to produce and market commercial CBM gas. Blocks have been awarded and studies are in progress for the exploration and production of gas hydrates. The main companies involved in gas hydrate studies are ONGC, GAIL, OIL, and Reliance under the leadership of DGH.

Emphasis will also be given to enhance the recovery factor of the producing fields by the implementation of enhanced oil recovery (EOR) technology.

Midstream activities

The midstream sector activities are to processes, stores, markets and transports commodities such as crude oil, natural gas and natural gas liquids (NGLs) such as ethane, propane and butane. Midstream is a term often used to describe the processing, storage and transportaion sectors within the oil and gas industry. Midstream defines the industry processes that occur between the upstream and downstream sectors.

The main midstream activities are as follows:-

Transportation of Petroleum:means 1. Transportation by pipelines

the transportation of petroleum is done via following

2. Transportation by railways and road 3. Transportation by tank age system

Storage of Petroleum :- the storge of petroleum is done by following ways :1. In large takers 2. Underground caverns

Transportation of Petroleum
India is a vast country and requires the transport of petroleum products into the interiors and hinterland from ports and refinery locations. These movements are undertaken with the help of

1. Railways 2. Coastal tankers 3. Road movement. 4. Pipelines

Though there are several methods of transportation of petroleum and petroleum products but the main means is transportation through pipeline. All the oil companies in India deal the transportation through well defined network of pipelines

Pipelines:Pipeline as a mode of transportation was first developed by Samuel Van Syckel in 1870 to transport petroleum. Twenty years later, Standard Oil Company changed the face of transportation. Though petroleum was the first product transported in this manner, the pipeline became useful for several other commodities, such as coal in slurry form, iron ore fines in slurry form, chemicals, etc. The pipelines basic advantage is that it reduces operational costs, though the initial investment is high. It gained popularity in the Kudremukh project when, for the first time, iron fines were transported via the 67 km pipeline along the difficult Western Ghat.

Petroleum pipelines are the nervous system of the oil industry, as this transports crude oil from sources to refineries and petroleum products from refineries to demand points. Therefore, the efficient operation of these pipelines determines the effectiveness of the entire business. Pipeline route selection plays a major role when designing an effective pipeline system, as the health of the pipeline depends on its terrain. The present practice of route selection for petroleum pipelines is governed by factors such as the shortest distance, constructability, minimal effects on the environment, and approachability. Although this reduces capital expenditure, it often proves to be uneconomical when life cycle costing is considered. This study presents a route selection model with the application of an Analytic Hierarchy Process (AHP), a multiple attribute decision making technique. AHP considers all the above factors along with the operability and maintainability factors interactively.

Development of Pipelines in India

There was Low consumption of POL in the initial years post independence. Most of the earlier refineries in India were installed at coastal locations, thus depending on coastal movement of crude oil. Further, the refining capacities being low, the products were either consumed locally or transported to the consumption centers by rail or road. Traditionally rail network has been quite widespread in India. Pipelines relatively came into focus quite late.

After 1960, most of the refineries were installed in landlocked locations and crude and product pipelines were promptly laid. 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.

However, its inherent advantages were soon realized by users as well as government. This led to development of this industry, especially during last decade. Subsequently, a number of product and crude oil pipelines were laid in the 60s, 70s and 80s, including sub-sea crude oil pipelines. The pipelines laid during the 60s 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. The country today has about 13,000 km of major crude oil and product pipelines.

Advantages and Disadvantages of Pipelines

Advantages

1. Pipelines are the unseen carrier 2. Transport enormous quantities of petroleum, gasoline, chemicals and other products for long distances. 3. Pipeline transportation requires little labor and is relatively trouble-free 4. It provides reliable and low-cost transportation 5. Lower cost of transportation 6. Lower transit losses 7. Lower energy intensiveness 8. Economies of scale 9. Safety and Reliability - minimum disruptions 10. Environment-friendliness 11. Multi-product handling

Disadvantages

It has 2 principal drawbacks: 1. Pipelines require an enormous amount of capital to establish

2. They are seldom efficient unless large quantities are moved from a single point of origin to a single destination over a long period of time.

3. Problem of keeping vigilance to check damage of pipeline

4. Loss due to damage pipeline due to spill of oil and contamination of environment

Role of Public Sectors

The major players in the pipeline sector are:

Oil India Limited Indian Oil corporation Bharat Petroleum Corporation Limited MRPL GAIL (India)

Crude Pipeline Crude Pipeline Gas Pipeline Gas Pipeline Product Pipeline LPG Pipeline

(Onshore) (Offshore) (Onshore) (Offshore) (Onshore) (Onshore)

4923 KMS 539 KMS 5825 KMS 587 KMS 7583 KMS 1879 KMS

Future prospects in pipelines

Share of pipeline transportation in India much lower as compared to USA, in spite of its advantages Total POL pipeline length currently under operation in India 12,204 km POL pipelines under implementation 5,561 km (Investment of USD 1.5 billion) As per Hydrocarbon Vision 2025, the transportation required for the petroleum products are projected to rise significantly in the years to come. Even with 45% share for pipelines, the requirement was projected as 170 MMT in 2024-25. Taking into account the quantum increase in demand and corresponding transportation requirements, all the modes will have to grow, though their relative shares may undergo a change. Many product pipelines are being laid by the oil companies." Major ones being ChennaiMadurai, Sidhpur- Sanganer and Koyali-Dahej etc. Moreover, oil companies have already planned to lay a number of product pipelines. Taking into consideration the advantages of pipelines, it would be imperative for the country to facilitate development of the pipeline industry.

Comparison Of pipeline in U.S.& India

indian petroleum transpotation

11

43

42

rail

pipeline

coastal

road

US petroleum transpotation

5 3

34 58

rail

pipeline

coastal

road

Refining of Petroleum
Petroleum is a complex mixture of organic liquids called crude oil and natural gas, which occurs naturally in the ground and was formed millions of years ago. Crude oil varies from oilfield to oilfield in color and composition, from a pale yellow low viscosity liquid to heavy black 'treacle' consistencies.

Crude Oil
Crude oil is not a single compound like water. It is a mixture of hydrocarbon molecules, some large and some small.

Light & Heavy Crude Oil

Depending on the mixture of hydrocarbon molecules, crude oil varies in color, composition and consistency. Different oil-producing areas yield significantly different varieties of crude oil. The words "light" and "heavy" describe a crude oils density and its resistance to flow (viscosity). Some, which are low in metals and sulfur content, light in color and consistency, and flow easily, are known as "light."

Less expensive, low-grade crude oils, which are higher in metals and sulfur content, and must be heated to become fluid, are known as "heavy." The term "sweet" is used to describe crude oil that is low in malodorous sulfur compounds such as hydrogen sulfide and mercaptans, and the term "sour" is used to describe crude oil containing high malodorous sulfur compounds. If a crude oil

contains appreciable quantities of sulphur it is called sour crude; if it contains little or no sulphur it is called sweet crude.

An oil refinery is an organized and coordinated arrangement of manufacturing processes designed to produce physical and chemical changes in crude oil to convert it into everyday products like petrol, diesel, lubricating oil, fuel oil and bitumen.

The refining process

Every refinery begins with the separation of crude oil into different fractions by distillation.

The fractions are further treated to convert them into mixtures of more useful saleable products by various methods such as cracking, reforming, alkylation, polymerization and isomerisation. These mixtures of new compounds are then separated using methods such as fractionation and solvent extraction. Impurities are removed by various methods, e.g. dehydration, desalting, sulphur removal and hydro treating.

Refinery processes have developed in response to changing market demands for certain products. With the advent of the internal combustion engine the main task of refineries became the production of petrol. The quantities of petrol available from distillation alone were insufficient to satisfy consumer demand. Refineries began to look for ways to produce more and better quality petrol. Two types of processes have been developed:

breaking down large, heavy hydrocarbon molecules Reshaping or rebuilding hydrocarbon molecules.

Distillation (Fractionation)
Because crude oil is a mixture of hydrocarbons with different boiling temperatures, it can be separated by distillation into groups of hydrocarbons that boil between two specified boiling points. Two types of distillation are performed: 1. Atmospheric and 2. Vacuum.

Atmospheric distillation
It takes place in a distilling column at or near atmospheric pressure. The crude oil is heated to 350 - 400oC and the vapour and liquid are piped into the distilling column. The liquid falls to the bottom and the vapour rises, passing through a series of perforated trays (sieve trays). Heavier hydrocarbons condense more quickly and settle on lower trays and lighter hydrocarbons remain as a vapour longer and condense on higher trays.

Liquid fractions are drawn from the trays and removed. In this way the light gases, methane, ethane, propane and butane pass out the top of the column, petrol is formed in the top trays, kerosene and gas oils in the middle, and fuel oils at the bottom. Residue drawn of the bottom may be burned as fuel, processed into lubricating oils, waxes and bitumen or used as feedstock for cracking units.

Vacuum distillation
To recover additional heavy distillates from this residue, it may be piped to a second distillation column where the process is repeated under vacuum, called vacuum distillation. This allows heavy hydrocarbons with boiling points of 450oC and higher to be separated without them partly cracking into unwanted products such as coke and gas.

The heavy distillates recovered by vacuum distillation can be converted into lubricating oils by a variety of processes. The most common of these is called solvent extraction.

Reforming:- Reforming is a process which uses heat, pressure and a catalyst (usually
containing platinum) to bring about chemical reactions which upgrade naphthas into high octane petrol and petrochemical feedstock. The naphthas are hydrocarbon mixtures containing many paraffins and naphthenes. Reforming converts a portion of these compounds to isoparaffins and aromatics, which are used to blend higher octane petrol.

Cracking:- Cracking processes break down heavier hydrocarbon molecules (high boiling point
oils) into lighter products such as petrol and diesel. These processes include

1. Catalytic cracking

2. Thermal cracking and

3. Hydro cracking. Catalytic cracking:- It is used to convert heavy hydrocarbon fractions obtained by vacuum distillation into a mixture of more useful products such as petrol and light fuel oil. In this process, the feedstock undergoes a chemical breakdown, under controlled heat (450 500oC) and pressure, in the presence of a catalyst - a substance which promotes the reaction without itself being chemically changed. Small pellets of silica - alumina or silica magnesia have proved to be the most effective catalysts. The cracking reaction yields petrol, LPG, unsaturated olefin compounds, cracked gas oils, a liquid residue called cycle oil, light gases and a solid coke residue. Thermal cracking: - It uses heat to break down the residue from vacuum distillation. The lighter elements produced from this process can be made into distillate fuels and petrol. Cracked gases are converted to petrol blending components by alkylation or

polymerization. Naphtha is upgraded to high quality petrol by reforming. Gas oil can be used as diesel fuel or can be converted to petrol by hydro cracking. The heavy residue is converted into residual oil or coke which is used in the manufacture of electrodes, graphite and carbides. Hydro cracking: - It can increase the yield of petrol components, as well as being used to produce light distillates. It produces no residues. Hydro cracking is catalytic cracking in the presence of hydrogen. The extra hydrogen saturates, or hydrogenates the chemical bonds of the cracked hydrocarbons and creates isomers with the desired characteristics. Hydro cracking is also a treating process, because the hydrogen combines with contaminants such as sulphur and nitrogen, allowing them to be removed.

In addition to cracked naphtha for making petrol, hydro cracking yields light gases useful for refinery fuel, or alkylation as well as components for high quality fuel oils, lube oils and petrochemical feedstock.

Following the cracking processes it is necessary to build or rearrange some of the lighter hydrocarbon molecules into high quality petrol or jet fuel blending components or into petrochemicals. The former can be achieved by several chemical process such as alkylation and isomerisation.

Alkylation:-Olefins such as propylene and butylene are produced by catalytic and thermal
cracking. Alkylation refers to the chemical bonding of these light molecules with isobutane to form larger branched-chain molecules (isoparaffins) that make high octane petrol.

Olefins and isobutane are mixed with an acid catalyst and cooled. They react to form alkylate, plus some normal butane, isobutane and propane. The resulting liquid is neutralized and separated in a series of distillation columns. Isobutane is recycled as feed and butane and propane sold as liquid petroleum gas (LPG).

Isomerisation: - Isomerisation refers to chemical rearrangement of straight-chain

hydrocarbons (paraffins), so that they contain branches attached to the main chain (isoparaffins). This is done for two reasons:

They create extra isobutane feed for alkylation They improve the octane of straight run pentanes and hexanes and hence make them into better petrol blending components.

Isomerisation is achieved by mixing normal butane with a little hydrogen and chloride and allowed to react in the presence of a catalyst to form isobutane, plus a small amount of normal butane and some lighter gases. Products are separated in fractionators. The lighter gases are used as refinery fuel and the butane recycled as feed. Pentanes and hexanes are the lighter components of petrol. Isomerisation can be used to improve petrol quality by converting these hydrocarbons to higher octane isomers. The process is the same as for butane isomerisation.

Polymerization: - Under pressure and temperature, over an acidic catalyst, light unsaturated
hydrocarbon molecules react and combine with each other to form larger hydrocarbon molecules. Such process can be used to react butenes (olefin molecules with four carbon atoms) with isobutane (branched paraffin molecules, or isoparaffins, with four carbon atoms) to obtain a high octane olefinic petrol blending component called polymer gasoline.

Refineries in India
S.NO 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. Name of the company IOCL) IOCL IOCL IOCL IOCL IOCL IOCL (HPCL) HPCL BPCL) CPCL CPCL KRL BRPL NRL MRPL Tatipaka refinery (ONGC) RPL TOTAL Location of the Refinery Guwahati Barauni Koyali Haldia Mathura Digboi Panipat Mumbai Visakhapatnam Mumbai Manali Nagapattnam Kochi Bongaigaon Numaligarh Mangalore Andhra Pradesh Jamnagar Capacity (MMTPA)* 1.00 6.00 13.70 6.00 8.00 0.65 6.00 5.50 7.50 6.90 9.50 1.00 7.50 2.35 3.00 9.69 0.078 33.00 127.37

As of July, 2005 there are a total of 18 refineries in the country comprising 17 in the Public Sector, one in the private sector. The company-wise locations and capacity of the refineries as on 1.7.2005 are given in table above.

IOCL: Indian Oil Corporation Limited

HPCL: Hindustan Petroleum Corporation Limited

BPCL: Bharat Petroleum Corporation Limited

CPCL: Chennai Petroleum Corporation Limited

KRL: Kochi Refineries Ltd.

BRPL: Bongaigaon Refinery & Petrochemicals Ltd.

NRL: Numaligarh Refinery Ltd.

RPL: Reliance Petroleum Ltd. (Pvt. Sector )

Expansion of existing refineries

Increasing dependence upon imported petroleum and its products has also placed a heavy burden on country's foreign exchange bill. To reduce the burden on foreign exchange bill, India has followed a policy to increase its refining capacity to meet the entire demand of petroleum products. The total number of refineries has risen from a single refinery in 1947 to 18 and with a capacity of 127.37 mmpta

Under liberalization policy private sector has also been permitted to set up their own refineries and two private sector refineries under advanced stage of implementation in Western India. The first Joint Venture Refinery, MRPL on West Coast has been commissioned in 1996 and more Joint Venture Refineries are expected to materialize

Expansion plans of refining capacities of existing refineries are as under:-

(i) Expansion of Panipat Refinery of IOCL from 6 MMTPA to 12 MMTPA is under implementation at an estimated cost of Rs.4165 crore.

(ii) Expansion of Mumbai Refinery of BPCL from 6.9 MMTPA to 12 MMTPA is also under implementation at an estimated cost of Rs.1831 crore.

(iii) HPCL is expending the refining capacity of Mumbai Refinery from 5,5 MMTPA to 7.9 MMTPA with an estimated cost of Rs. 1152 crore.

(iv) Expansion of visakh refinery of HPCL from 7.5 MMTPA to 8.33 MMTPA is under implementation at an estimated cost of Rs. 1635 crore.

Following three new refineries has been planned.

Name of Refineries IOC, Paradip BPCL, Bina HPCL, Bhatinda Capacity 9 MMTPA 6 MMTPA 9 MMTPA Expenditure 8312 6354 9806 Act./Ant Compl. Date March-2010 Sept.-2009 Dece.-2006

Investment of public sectors in refining

1. In the liberalized scenario, the Government has opened the refining sector to "Joint Sector" as well as to the private sector for achieving faster growth.

2. About 27 million tones per annum additional capacity is planned to come up under PSUs

3. Under joint venture, 43 million tones per annum capacity will be added in the next 54-6 years.

4. Out of 43 million tones per annum capacity, IOCL have tied up with Kuwait Petroleum Company for one refinery.

5. HPCL with Oman Oil Company and Saudi Aramoco for two refineries and BPCL with Oman Oil Company and Shell International for two refineries.

Investment of private sectors &MNCs

In the private sector, letters of intent (LOIs) have been issued for about 41 million tones per annum refining capacity. The companies to whom LOIs have been issued are

1. Reliance (15 MTPA)

2. Essar (9MTPA)

3. Ashok Leyland (2 MTPA)

4. Nippon Denro (9MTPA) and

5. Soros Foud (6 MTPA) .

Under the EOU category, about 29 million tones per annum capacity have been approved. In sum, additional refining capacity of about 110 million tones per annum excluding EOUs is planned for implementation during the next 5-6 years.

Demand for Petroleum Products

The demand for petroleum products is expected to show a compound growth of about 7%. In absolute terms, the demand for petroleum products by the year 2006-07 is expected to increase from the present level of 80 million tones to 155 million tones per annum.

Opportunities in Refining sector

1) Creating additional refining capacity of about 110 million tones per annum during the near future will require an investment of over US $ 22 billion. 2) Most of the new refineries will be located on the coasts while the major centers of demand for the petroleum products are in the inland locations, particularly in North/North-West regions. Therefore, there are opportunities for building inland refineries in the country. 3) The refineries in the country are also allowed forward integration in the fields of petrochemicals, etc., for better value-addition, which opens up another vast area for investment. 4) The country is adopting more environmentally benign measures with regard to usage and quality of fuels. 5) Lead phasing-out & benzene reduction in gasoline, sulphur reduction and cetane improvement of diesel are amongst the prominent measures that are under

implementation/consideration. Such quality up gradation of fuels will call for adopting latest/state-of-the-art technology requiring huge investments of the order of US$ 2500 million by way of providing reformulated gasoline producing units, hydro crackers, hydrotreaters, hydrodesulphurisers etc.

Challenges in Refining sector

The challenges for the refining sector are threefold:

1. To build up adequate refining capacity; new refineries, expansion and replacements. 2. To update/implement the emerging technologies to meet the predominant demand for middle distillates. 3. To improve the quality of India's petroleum products to make them environment-friendly and globally competitive.

Future prospect of Refining sector in India

As a pivotal source of energy, stable oil supply and national oil security are important determinants for the development of the economy. In such a scenario, the country should have refining capacity that is sufficient to meet 90 per cent of the demand for middle distillates, which constitutes a major chunk of the domestic demand. Given the free market scenario in the future, investment decisions should be left to the sponsors and investors. By investing in production assets overseas, the Group feels that Indian refining companies will have a captive supply of crude, which will give them a distinct competitive advantage on a global scale. As the domestic refining industry gets increasingly developed, it becomes imperative to attract private players, both domestic and foreign, and this should be coupled with operational autonomy for the PSU refineries, since their ability to make decisions should be free from external scrutiny. Finally, lowering of trade and tariff barriers (in view of WTO) would reduce the competitive advantage for the domestic industry. In such a scenario, lowering the cost of capital by ensuring infrastructure status to the refining industry will help neutralize the situation.

Marketing System in India

At present, the marketing of petroleum products in India is being done by four major public sector oil companies, namely, 1. Indian Oil Corporation Ltd. 2. Hindustan Petroleum Corporation Ltd. 3. Bharat Petroleum Corporation Ltd., and 4. IBP Co. Ltd. The vast expanse of the country and a population of 940 million are served through an elaborate and extensive network of retail distribution by these companies with the help of 16573 retail outlets, 6280 kerosene agencies and 5165 LPG distributorships spread in every nook and corner of the country. An ambitious programme for modernizations of retail outlets to bring them at par with international standards has been taken up by the oil industry. Besides the country's retail network, the full requirements of the industrial units are being met by the marketing companies through direct supplies to them. These industries are operating in important areas like

1. Shipping & transport 2. Mining, 3. Aviation, 4. Power petrochemicals, 5. Fertilizers, 6. Steel, etc With the liberalization and the opening up of the economy, the industrial activity is bound to accelerate and thereby generate additional demand in the industrial and infrastructure sectors.

Marketing of LPG in India

LPG being an environment-friendly and clean fuel has tremendous potential as replacement for traditional fuels like coal and firewood. On account of dearth of traditional fuels, the use of LPG as cooking fuel has become unavoidable for people in both cities and rural areas. A huge waiting list of potential customers for installation of LPG connection exists.

There is unlimited scope in LPG marketing. The expected bottling capacity by 1996-97 was 4.5 MMTPA. The estimated demand by the year 2001-02 is 8.5 MMTPA, leaving a gap of approximately 4 MMTPA which will have to be met by installation of new bottling plants. By 200607, the gap will further widen with demand going up to 11 MMTPA.

Marketing of 5Kg LPG cylinders

1. PSU Oil Companies had launched 5 Kg cylinders on 16th August 2002 at Shimla, Himachal Pradesh. The scheme has been expanded to all other States as per demand of product.

2. Basic purpose for launching 5 Kg cylinder was that the small size LPG cylinder in the domestic sector will help in fulfilling the demand of low income groups in urban, semi-urban and rural pockets and also extend reach to hilly terrain and interior areas on account of convenience in transportation.

3. The LPG connection with 5 Kg domestic cylinder in terms of deposit of Rs. 350/- per cylinder and low cost of refills costing approximately Rs. 110/- is affordable for the low income groups.

4. This will also help in meeting the requirement of economically weaker sections of the society for LPG refills and help in restricting deforestation, ensuring pollution free, happy and healthy environment.

5. During the year 2004-05, OMCs had released about 1 lakh number of 5 Kg connections in 27 States and 2 UTs. Total customers of 5 kg cylinders are about 2.42 lakh with OMCs as on 1.4.2005.

Distribution Channel of LPG

Role of Public sectors in LPG marketing

Four Public Sector Oil Marketing Companies (OMCs) engaged in marketing of LPG in the country are:-

1. Indian Oil Corporation Limited, 2. Bharat Petroleum Corporation Limited, 3. Hindustan Petroleum Corporation Limited and 4. IBP Co. Limited

1. With increased availability of LPG, the number of LPG customers enrolled by them has also been increasing.

2. The number of LPG customers served by them, as on 1.4.2005, was about 845 lakh through their network of 9,001 LPG distributors.

3. Consequent upon liquidation of LPG waiting list in urban areas and availability of new LPG connections across the counter, in existing markets throughout the country, OMCs had set the target for release of about 63 lakh new LPG connections during financial year 2004-05 with a thrust on smaller towns/rural areas which were hitherto virgin markets.

4. OMCs have already commissioned 535 distributorships. During the year 2004-05, OMCs had released about 73 lakh new LPG connections and commissioned 675 LPG distributorships

Role of Private sectors and MNCs

The private sector and joint venture companies are planning to set up LPG import facilities at different locations. Foreign companies like

1. Exxon,

2. Shell,

3. Caltex,

4. Mobil,

5. Vitol SHV, etc. have shown interest in setting up LPG import facilities.

Huge investment is required for the development of these facilities. With the LPG distribution network increasing fast, investments are also required in the transportation of LPG, inland storage facilities, bottling plants and distribution network.

Private companies are welcome to invest in these areas. More than 250 proposals have been approved for construction of LPG bottling plants in the private sector.

However, due to non-availability of LPG, not much progress has been made in this regard. LPG storage terminals and import facilities at ports can be set up for supplying LPG to private sector bottling plants for mutual benefit of all concerned.

Hurdles in LPG marketing

There are a number of factors in the Indian market which forbid the potential consumers from Consumption of liquefied petroleum gas as their primary fuel for cooking both in rural as well as in urban area of the country. They are as follows:-

Lack of Knowledge Psychological Barriers Availability of cheaper fuels Resistance to change Affordability Higher product cost Lower income levels Reach Uncertainty over govt. policies subsidy removal Distribution Cost Poor Compliance of Safety Standards

Future Prospects in LPG marketing & distribution

An Estimated potential of 36 million Houses by 2007 in Rural Markets Level Playing field will enhance healthy competition and better services Level Playing field will encourage marketers to enter rural markets with greater penetration and lower business risk.

Improved infrastructure and road conditions will increase reach of distribution network. Improved IT enabled services at village level will drastically change the living standards and services.

Marketing of transportation fuels

As a consequence of dismantling the APM & allowing competition, Government have granted the authorization to market transportation fuels in favor of new entrants namely ;

1. Oil and Natural Gas Corporation Limited (ONGC)

2. Mangalore Refinery and Petrochemicals Limited (MRPL)

3. Numaligarh Refinery Limited (NRL)

4. All Public Sector Oil Companies

5. M/s. Reliance Petroleum Limited (RIL),

6. M/s. Essar Oil Limited (EOL) and

7. M/s. Shell India Pvt. Ltd (SIMPL)

Retailing
1. The Retail Outlets would be set up by these companies as per their commercial considerations subject to the condition that they would set up at least 5.6% of the retail outlets in remote areas and at least 5.3% of their retails outlets in low service areas.

2. Further they would abide by other marketing service obligations and retail service obligations as notified by the Government from time to time.

Fuel Distribution System

Lubricant Market in India

Introduction
The Indian automotive lubricant market is the sixth largest market in the world with revenues of approximately $1.30 billion in 2002. It is also one of the fastest growing retail markets in India. Until 1993, it was a highly regulated market with a clear dominance of the public sector having more than 75 percent of the market share. Companies like

1. Bharat Petroleum (BPCL), 2. Hindustan Petroleum (HPCL), and 3. Indian Oil Corporation (IOC)

In the Indian market there is a growing presence of private and multinational companies. Companies like

1. Castrol, 2. Elf Total-Fina, 3. Gulf, and 4. Shell Oil have made their presence felt in the market. Total production of automotive lubricants in India is approximately 8 to 10 percent of global lube production. Unlike other countries where lubricant demand has witnessed stagnation, the Indian market has been growing at approximately 7 percent per annum for the past 2 years. The public sector contributes to over 60 percent of the revenues for this market.MNCs have 5 percent market share and the remaining share is held by the unorganized sector.

Competitive Analysis of lubricant market

1. The first seeds of competition were sown in the early 1990s when following the liberalization of the Indian economy, the government decided to open the Indian market to foreign competition. 2. Import of base oil, the key raw material, was de-canalized with IOC losing its status as the sole canalizing agent. 3. Pricing of base oil was deregulated in a phased manner and currently it is market determined. 4. Basic custom duty on base oil stock was also reduced from a peak of 85 percent to a level of 25 percent. All quantitative restrictions were also removed. 5. These developments encouraged the entry of foreign players on Indian shores who were already facing a slowdown in demand in their local markets. 6. The coming in of foreign participants created an excess supply situation in the Indian automotive lubes market, which made it more difficult for the Indian lube manufacturers to survive. 7. Recent deregulations in the lubricant market have promised many new opportunities for the private lube manufacturers. 8. With the dismantling of Administered Price Mechanism (APM) the burden of subsidies is now being passed on to the government. 9. Private participants will also gain a presence in the Indian oil and gas sector and hence there will be competition between participants that will ensure the growth of the sector.

10. In the next couple of years, the industry is going to witness sea changes. Retail networks, logistics management, and risk management are going to be the crucial factors. 11. The stand-alone refineries will have to be merged with the marketing companies, as they do not have the distribution infrastructure to sell their products in a deregulated market. Companies like Reliance are already selling their products through petrol pumps. 12. The monopoly of the public sector holdings will no longer exist. MNCs will be able to sell their products through petrol pumps. 13. Lubes manufactured by Reliance Petroleum, Castrol, Elf, Gulf Oil etc, which are now sold at petrol pumps. In medium to long term, Frost & Sullivan expects private sector companies to have a market share of around 25 percent.

Distribution Structure of lubricants

Automotive lubricants are further divided into diesel lubes and petrol lubes. Diesel lubes comprise 70 percent of the market and petrol based lubricants cover the rest. As diesel lubes are used by commercial vehicles, which have to cover greater distances, their market share is higher. Engine oil constitutes around 83 percent of total sales volumes. Gear oils, transmission fluids, hydraulic brake fluids, and engine coolants contribute to the balance.

There are two key markets for lubricants in India. Given high levels of competition

1. Original equipment: - The original equipment market contributes almost 70 percent and 30 percent of the market is comprised by the retail sales segment.

2. Linkages: - The channel for replacement market or the retail segment is petrol pumps or retail stores. Almost 70 percent of the lubricants in India are sold through petrol pumps.

1. The distribution channel adopted by public sector units is through the petrol pumps. 2. Most of the MNCs have tied up with oil majors for marketing their lubricants like

a) Castrol with Escorts and b) Tata BP with Telco.

To compete with dominant public sector distribution, concepts like "Bazaars" and "Super Stores" have also been developed. Castrol developed the concept of "Bazaars." These are outlets meant only for lubricant sales.

The concept of "User Outlet" is another new concept developed by Castrol. In this, the consumer selects his own brand of lube after giving his vehicle for service in the same outlet. Convenient stores and highway stops for vehicles are being built from where the vehicle owners can get their vehicles repaired and get their supply of lubricants.

After the deregulation of the petrol pumps companies are keenly watching the developments in the lubes market.

Other private participants have had to set up an independent infrastructure comprising of

1. Distributors

2. Stockiest

3. Retailers through out India.

In the lube market, Indian Oil Corporation Limited is leading the market with 30 percent market share.

Castrol is next with 25 percent of the share and HPCL and BPCL are next with about 20 percent and 15 percent shares respectively. Other private companies hold the remaining market share.

Distribution Channel of Lubricants

Key Success Factors

The key factors for success in this highly fragmented and competitive industry include:

1. Brand Image
With lubricants becoming a fast moving consumer good and the brand preference of the consumers witnessing a change, brand image plays a key role in affecting the consumers decision to buy a lubricant. It was found that vehicles owners decision to buy a certain lubricant is affected by a

1. Garage mechanic, 2. Retail store owner, 3. Advertisements. Hence, it becomes important to have a good brand name in the market, which can affect the customers decision to buy a certain brand.

2. Distribution Channels
Public limited companies selling primarily through petrol pumps manage to achieve a deeper penetration. Most of the MNCs have tied up with oil majors to market their brands like

1. Castrol with Escorts, 2. Tata BP with Telco.

This will help the private companies to establish a wider access, brand awareness as well as preference.

3. Margins and Discount Schemes

Private companies mostly sell their products through

1. stockiest, 2. Dealers, 3. Distributors 4. Mechanics 5. Retail stores. Maximum sales are achieved through mechanics and retail stores. Margins and discount schemes offered to the storeowners and mechanics prompt them to sell and promote a particular brand.

4. Prices and Promotion

The transformation from the administered pricing mechanism to free pricing has increased the importance of providing cost effective product to the users. Thus product costing and competitive pricing are key factors affecting the market.

Opportunity in lubricant market

Vibrant economy and industrial policy Growing market Emission control norms Export market / market overseas Untapped rural market

Hurdles in lubricant market

Customer preference /usage Differentiation of quality and price Ever growing product /pack matrix MNC OEM endorsements Exclusive OEM specifications- products Additive specific endorsements by OEMS

Future prospects of lubricant market

In the future, growth in the automotive lubricants industry will largely depend on the overall performance of the economy. In the past one and a half years, the scenario has improved with higher sales of commercial vehicles and two-wheelers. However, in the future volume growth will be affected because of use of better quality, long drain lubes. This will increase the replacement cycle for lubes. In the shorter term, one will witness intense competition in a slow growing market marked by a consolidation activity, which has the potential to change the face of the lubricant industry. Given the rising competition, success of a product would largely depend how well it is branded and distributed.

Conclusion

The report is made with available materials collected from various industrial sources and literature. The content of the report is review work of the current scenarios in the various domains in the oil sector. Future scope of work lies in updating one of the sectors namely upstream, midstream and downstream based on the current opex and capex conditions prevailing in the market.

Hydrocarbons-crude oil and natural gas play a pivotal role in powering industrial growth and development activity. The importance of oil and gas can be gauged from the fact that it accounts for 45 per cent of India's total energy requirements, and will continue to do so until 2025. While the share of oil (which presently constitutes 35 per cent) is expected to reduce to 25 per cent by 2025, the share of gas will rise to 20 per cent (from the present level of 7 per cent) as natural gas will be a preferred fuel for many applications where pipelines exist.

Even though a developing country like India has a high energy-intensity, the per capita consumption is around 5 times lower than the world average. However, consumption is expected to increase at a faster pace in the coming years. Moreover, as the demand-supply gap widens, the import dependence of oil has risen to 65 per cent (as against 30 per cent in 1985-86) due to lower domestic production. Also, considering the worst-case outlook (India's GDP growing at 5 per cent until 2025), the demand for petroleum products is expected to rise to 280 million tones as against 90 million tones last year.

In such a scenario, it becomes imperative to have a long-term policy for the hydrocarbons sector, which would facilitate meeting the future needs of the country.

The Hydrocarbons Vision 2025 lays down the framework which would guide the policies relating to the hydrocarbons sector for the next 25 years. Issues such as E&P, refining, marketing, external policy, oil security, tariff and pricing, and restructuring and disinvestment are addressed by the Group, to ensure that an optimal mix of energy resources are made available to the consumer at the right price.

Exploration and Production

With regard to the energy sector in general and the hydrocarbon sector in particular, the E&P vision will be to undertake a total appraisal of the Indian sedimentary basins for hydrocarbon potential and to optimize production of crude oil and natural gas in the most efficient manner. This can be achieved through intensive exploration efforts endorsed by effective mobilization and infusion of technology and capital. Leveraging upon India's IT strength and highly skilled manpower, the E&P industry will have to develop a strong technology base to become globally competitive.

Due to the uncertainties of the exploration game and the dynamics of international oil prices, the mobilization of huge amounts of capital will be difficult. In such a scenario, the Group recommends that the government will have to step in and their support will be crucial, especially in the short- to medium-term, whereas in the long-term, the Group feels that market mechanism will take care of the funding as the industry may get market-oriented in the coming years.

Under the New Exploration Licensing Policy (NELP), the sub-continent has been divided into geographically distinct exploration blocks. The allotment of these blocks is done by bids in the nature of lease/mining license for a specified period. The government still retains ownership control over these areas and enters into a production-sharing contract with the successful bidder.

Transportation

As per Hydrocarbon Vision 2025, the transportation requirement for the petroleum products is projected to rise significantly in the years to come. Even with 45% share for pipelines, the requirement was projected as 170 MMT in 2024-25. Taking into account the quantum increase in demand and corresponding transportation requirements, all the modes will have to grow, though their relative shares may undergo a change. Many product pipelines are being laid by the oil companies. Major ones being Chennai-Madurai, Sidhpur- Sanganer and Koyali-Dahej etc. Moreover, oil companies have already planned to lay a number of product pipelines. Taking into consideration the advantages of pipelines, it would be imperative for the country to facilitate development of the pipeline industry.

Refining

As a pivotal source of energy, stable oil supply and national oil security are important determinants for the development of the economy. In such a scenario, the Group recommends that the country should have refining capacity that is sufficient to meet 90 per cent of the demand for middle distillates, which constitutes a major chunk of the domestic demand. Given the free market scenario in the future, investment decisions should be left to the sponsors and investors. By investing in production assets overseas, the Group feels that Indian refining companies will have a captive supply of crude, which will give them a distinct competitive advantage on a global scale. As the domestic refining industry gets increasingly developed, it becomes imperative to attract private players, both domestic and foreign, and this should be coupled with operational autonomy for the PSU refineries, since their ability to make decisions should be free from external scrutiny. Finally, according to the Group, lowering of trade and tariff barriers (in view of WTO) would reduce the competitive advantage for the domestic industry. In such a scenario, lowering the cost of capital by ensuring infrastructure status to the refining industry will help neutralize the situation.

Marketing

With the marketing deregulation expected next year, operational restrictions will have to be removed to facilitate a smooth transition into a free market scenario. The government has to go on a restructuring mode to improve the competitive advantage of the existing marketing companies, such as HPCL, BPCL, IOC and IBP. Already, these companies have acquired the government stake in the stand-alone refineries like Kochi Refineries, Chennai Petroleum, Numaligarh Refineries and Bongaigaon Refineries. These acquisitions will help them to significantly improve their refining-to-marketing ratios and make them increasingly competitive. Since it will not be possible for domestic refiners like RPL to build a distribution network overnight, they should be given suitable duty protection and, for the medium term, should continue to utilize the distribution network of the PSUs, until they have one of their own in place.

Since marketing is more remunerative than refining, the Group recommends that only those companies that are willing to invest Rs 2000 Crore either in E&P or refining or a combination thereof should have access to marketing. The other important aspects to be addressed are the prevailing price distortions - there should be a complete withdrawal of subsidy on LPG while subsidy on the more politically sensitive kerosene should be removed in a phased manner. There should also be a rationalization of sales tax across states to enable the right price to the consumer.

The country is left with a huge oil pool deficit mainly because of the large imports and the administered price mechanism of the products. Therefore, it should be the long-term goal of the government to increase oil production and reduce imports. The revival of the oil industry will, in turn, enable the recovery of the economy as a whole. The Hydrocarbons Vision 2025, no doubt, spells out the government's strategy and operational style with regard to this vital industry.

Abbreviations
MMTPA= Million Metric Ton per Annum One Ton= 1,000 Kilogram BCM = Billion Cubic Meter ADB= Asian Development Bank APM= Administered Pricing Mechanism GAIL= Gas Authority of India IOCL= Indian Oil Corporation Ltd RIL = Reliance Industries Ltd RPL= Reliance Petroleum Ltd OIL= Oil India Ltd ONGC = Oil and Natural Gas Commission ONGCL = Oil and Natural Gas Corporation Ltd PSU = Public Sector Undertakings

Bibliography

http://www.dghindia.com http://www.nic.in http://www.india-nelp2.com http://www.petroleum.nic.in Drilling Operation Manual by P.S. Bais