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|Outlook for Hydrocarbon Sector in India||By U. N. Bose, Director (T&FS), ONGC Limited|
Overview - Global Energy
The Global Oil & Gas business is undergoing a turbulent phase with the traditionally volatile energy business facing changes and uncertainty ahead. Global consumption patterns have shown a steady upward trend over the last few decades with increasing production and improvement in the health and stability of economies around the world. It is estimated that world energy demand will continue to grow for the foreseeable future with growth of around two percent a year to 2020. Demand in developing countries would rise at 3-4 times the rate of that of industrialized countries. In absolute numbers, world commercial energy demand is forecast to rise to more than 15 billion toe in 2020.
Population and income growth are the two most powerful driving forces behind the demand for energy. Since 1900 world population has more than quadrupled. Over the last 20 years world population has increased by 1.6 billion, and it is projected to rise by 1.4 billion over the next 20 years. Primary energy consumption has also increased by a factor of 22.5.
The future energy mix seems to clearly indicate a continued dependence on oil with the role of oil in the energy mix reducing. Gas, it is expected, will largely fuel the exponential increase in demand that is forecast and could play a prominent role going forward in supporting ever-increasing consumption requirements. Newer technologies for tapping gas resources and the promotion of gas as a 'clean' fuel are likely to translate into an increased role for gas in the future international energy mix.
In reality India’s gas demand is limited by its access to gas supplies based on domestic production and imports availability. If India can produce more gas then it can reduce its coal imports which is environmentally more unfriendly, its gasoline consumption through the use of compressed natural gas, and its demand for LPG through piped natural gas to meet residential cooking and heating requirements.
Role of Energy in Economic Development
Energy has been universally recognized as one of the most important inputs for economic growth and human development. Next 20 years are likely to see continued global integration, and rapid growth of low and medium income economies. There is a strong two-way relationship between economic development and energy consumption. At the global level, the most fundamental relationship in energy economics remains robust – more people with more income means that the production and consumption of energy will rise.
On one hand, the growth of Indian economy, with its global competitiveness, hinges on the availability of cost-effective and environmentally benign energy sources, and on the other hand, the level of economic development has been observed to be reliant on energy demand. Because of the possibility of inter-fuel substitution in end-use applications, the optimal long-term energy supply requirements of a country necessitates examination of all energy resources available both indigenously and globally.
Today, the amount of energy used to produce a unit of GDP (“energy intensity”) is declining steadily in most countries. Energy intensity increases as countries industrialise and the share of energy intensive industry in GDP rises relative to other sectors. Peaks usually coincides with a peak in the share of the industrial sector in GDP. Also the nature of industry changes (from heavy and energy intensive to lighter and high value added) and industry becomes more energy efficient.
As one would expect, regional peak levels decline over time (as energy efficiency improves) and are higher in countries with abundant energy resources. Global competition and open markets drive convergence.
The increase in oil price as a result of the turmoil in the Middle East has been substantial. With uncertainty still surrounding the situation, the price is expected to remain high, averaging $100 a barrel in 2011. But how much price rise can the global economy absorb still remains a big question. It is expected that oil price would average $150 a barrel for 2011 and $90 a barrel in 2012. Though it's unlikely that the price will rise so high, but if it does happen this could drag many advanced economies back into recession. At the same time, inflation would rise, increasing pressures in already heated emerging markets.
A rise in price to $150 a barrel would slow world growth by 0.4% in 2011 and 2012. Among the BRIC countries, China and India's (the world's second- and fifth-largest oil consumers, respectively) economic growth would fall to 7.2% and 6.3%, respectively in 2012.
Given the plans for rapid economic growth, it is evident that the India’s requirements for energy and supporting infrastructure would increase rapidly as well. In view of the rising energy prices and other geo-political considerations regarding energy imports, it is important to identify and adopt policies and measures that enhance energy security and help reduce the final energy requirements of the economy. An integrated assessment of all the technological options available to the economy is therefore crucial to examine possible energy pathways and their impacts in terms of costs, infrastructure requirements, and fuel-mix patterns over time.
Hydrocarbon Sector & Economic Development - India
India is currently fifth largest energy consumer in the world. However, due to its high population of approximately 1.1 billion, the per-capita consumption of most energy related products is extremely low, about 25 percent of the world average.
Over the last decade buoyed by the country’s economic growth, energy consumption in India has been growing at a compounded annual growth rate (CAGR) of 5.9 percent during the last decade. The Government of India plans to achieve a GDP (gross domestic product) growth rate of 10% in the Eleventh Five Year Plan and maintain an average growth of about 8% in the next 15 years.
The main energy sources consumed in India are primary electricity, oil, coal, biomass and gas. Oil is mostly used in the transport sector with freight being the largest user (18%), followed by equal shares of public and personal transport (9%) and finally air travel which represents 3% of total oil used in India. Unlike in developed countries, oil remains an important source of energy for cooking in India, through the use of kerosene. Its consumption represents 14% of total oil use. Kerosene is also used as a source of lighting, representing 6% of total oil use. Oil is also used in the agriculture sector for farming (4%) and pumping water (3%). Finally oil is a source of energy for the commercial and industrial sectors, which use it in many cases to run generators in order to supplement shortages of electricity.
Energy Consumption Detail in India by Fuel Type
Thus, hydrocarbons sector would play vital role in the economic growth. Hence, it is necessary to have a Iong-term policy for the hydrocarbons sector, which would facilitate meeting the future needs of the country. The Hydrocarbons Vision - 2025 formulated in the year 1999 lays down the framework which would guide the policies relating to the hydrocarbons sector in India for the next 25 years in India.
India has recorded impressive rates of economic growth in recent years and if there is one sector that can truly claim to be 'fuelling' its growth, is the oil and gas sector. Beyond semantics, the oil & gas industry has embraced the winds of change that have swept through it in the recent past. Liberalization has implied global competition and the need for constant change and innovation. With the dismantling of government controls - the sector has transformed into one of the most exciting sectors in the country. Record breaking discoveries, innovative technologies and global ventures; all this and more have put the Indian Industry on the global map. While, there's no doubt that the progress made by Indian hydrocarbon sector has been remarkable, there's still a long way to go in realizing the goals set therein.
China alone accounts for 25% of the incremental increase in world primary energy, which surging is the biggest on a country basis. China is currently the world's biggest energy consumer after the United States, and it would reach near the U.S. consumption level by 2030. India also explains 11% of the world primary energy increase, equal growth to USA, which primary energy in 2030 eventually achieves almost double of current Japan’s energy demand. However, energy consumption per person of China and India in 2030, each 1.9 toe and 0.7 toe per capita, remains well under the level of developed countries. As India has large potential of energy demand expansion even after 2030 and its presence in the global energy market would become even larger.
However, a healthy rate of economic growth equaling or exceeding the current rate of 8% per annum would require major provision of infrastructure and enhanced supply of inputs such as energy. High economic growth would create much larger demand for energy and this would present the country with a variety of choices in terms of supply possibilities. Technology would be an important element of future energy strategy for the country, because related to a range of future demand and supply scenario would be issues of technological choices both on the supply and demand sides, which need to be understood at this stage, if they are to become an important part of India’s energy solution in the future.
A need to quickly adapt systems to reduce risk and costs; increase visibility and transparency; improve response time, cash flow and productivity; optimize resource utilization and increase profitability. India also offers a huge and growing market for hydrocarbons. For several hydrocarbon companies across the world, finding markets for selling their products is a big concern. India will continue to be an attractive market as demand for oil and gas is expected to grow exponentially.
Role of Unconventional Hydrocarbon Resources in Energy Basket
Unconventional sources are generally more difficult to exploit with the existing technology or are more expensive to exploit. However, technological advancement can make them economically viable. If we look at global Energy Basket we would see that percentage of Coal and Oil in the basket constitute more than 60 percent of energy basket . Efforts have to be made to reduce composition of coal and oil in the basket. This can be done by replacing coal and oil with cleaner sources like gas, renewable sources and unconventional sources.
Imports constitute a substantial part of the oil and gas consumed and it is only going up. Diversifying Supply sources will improve security by reducing the impact of a short-term disruption in the normal source of supply. Hence, we have to look at tapping alternate modes of energy, such as renewable energy, Coal Bed Methane (CBM), Underground Coal Gasification (UGC), Gas hydrates, Oil shale, Coal to Liquid (CTL).
The field of unconventional gas sources has caught the attention of hydrocarbon companies worldwide. E&P from these sources is still in nascent stage in India.
Shale gas has become a source of intense interest because there are more shale gas reservoirs than conventional gas reservoirs in the world. A massive 32,500 trillion cubic feet of gas has been identified worldwide from gas reservoirs. ONGC has tied up with Schlumberger for a pilot project and recent discovery of Shale gas in Damodar valley has come as a ray of hope for energy security.
Driven by a new understanding of the size and availability of gas shales and unconventional gas, a “paradigm shift” is underway on world natural gas supplies. This “paradigm shift” began a decade ago in North America with exploitation of low cost coal bed methane. Next was the introduction of highly productive tight gas development followed by emergence of the Barnett Shale and other great gas shale basins/plays of North America. The worldwide pursuit of gas shales and unconventional gas has only just begun. Gas shale geology is challenging, but its resource endowment and potential are large.
Perspective locations with shale gas deposits
Low rates of gas production from shallow, fractured shale formations in basins of the U.S. have been underway for decades. What “changed the game” was the recognition that one could “create a permeable reservoir” and high rates of gas production by using intensively stimulated horizontal wells. This break-through in knowledge and technology enabled the deep, low permeability gas shale formations to become highly productive.
India also has huge organic rich (TOC=0.5-14.3%) shale deposits in formations like Cambay Shale, Barren Measures, Baisakhi-Bhadasar, Bhuvanagiri & Raghavpuram shales in KG Basin and Mandapeta, Andimadam & Sattapadi shales in Cauvery Basins. India can emerge as a prolific player when a Shale Gas policy, involving identification and allocation of shale blocks, is put in place. Given the nature of global enthusiasm in the form of participation of large companies in shale gas exploration and exploitation, vast shale deposits of Indian Sedimentary Basins, with high TOC and maturity value, together with increasing oil/gas price, larger Demand Vs Supply ratio and availability of improved modern technologies, can bring India in the top bracket of Shale Gas producers in world.
Shale Gas Basins in India
Coalbed methane (CBM) production has long been touted as one of the most promising source of natural gas for meeting future energy demands. Estimates of gas-in-place in CBM provinces show some truly staggering statistics. Worldwide CBM resources are reported as between 3,500 Tcf and 9,500 Tcf, with more than 450 TCF in India. India is the third largest coal producer in the world with a proved coal reserve of about 87 billion tonne has tremendous potential to produce substantial amount of CBM.
In most places, gas demand for power generation will drive CBM development that means the gas and power system, with the help of CBM, will grow from a local supply-demand market to “a more integrated and dynamic, semi-national energy market.”
Another driver for CBM and Shale gas growth is the increasing transportation and distribution infrastructure in the country. The present natural gas transportation infrastructure comprises of around 11,000- km pipeline with a capacity of 270 standard cubic meters per day. This is expected to almost double within the next three to five years. The ambitious national gas grid is also being developed which would link any source to any market.
In the year 1985, ONGC was the first organization to identify presence of gas hydrate in Andaman Offshore. Under the Petroleum Ministry, Government of India , National Gas Hydrate Programme (NGHP) has been formulated. As per rough estimates the amount of gas hydrates in Indian deep waters, is 1894 trillion cu.m. Hence, an aggressive program to harness this vast source of energy needs to be put in action at the earliest.
To supplement the efforts of National oil companies in India and to augment the energy supplies in the country, Wholly owned subsidiary ONGC Videsh Limited (OVL) is engaged in exploration and production of oil and gas with second largest holding of proven oil and gas reserves (1P) by any Indian Company, next only to ONGC. Out of its total 39 oil and gas projects spread over 16 countries, OVL has at present nine producing assets in six countries namely, Sudan, Russia, Vietnam, Syria, Brazil and Colombia.
OVL has been the flagship Indian company for global acquisition of hydrocarbon resources by India. In contrast with China, OVL follows a different strategy and continues to acquire comparatively newer oil and gas assets that are less costly as against matured fields that are available at higher costs. Funding is not a constraint for OVL and ONGC projects, however it should justify the investment to increase the value of stakeholders.
Overseas acquisitions of hydrocarbon sources would prove very beneficial in long run to address rising demand for hydrocarbon energy sources.
The Road Ahead
Issues such as energy security, use of alternative fuels, interchangeability of technology are vital to ensure that the mix of energy sources used in the economy is optimal and sustainable and that adequate quantities of economically priced clean and green fuels are made available to the Indian consumers. Cutting-edge technology has dramatically reduced costs of finding, developing, and producing reserves, improved operating efficiencies, and enabled the production of safer, cleaner, and better products. Technology is helping free companies from the constraints of distance time, and organizational structure, allowing them to innovate effectively and efficiently and technology is going to be the key for success. Information technology innovations have facilitated E&P companies to operate in remote & harsh locations with enhancing speed and efficiency.
Increasing pressure of population and increasing use of energy in agriculture, industry and the domestic and public sectors is an area of concern. At the same time, the need to meet energy demand has created huge capital requirements needed for setting up power plants, pipelines, ports, terminals, railway tracks to move fuel etc.
As India continues to grow at the rate of 7-8 percent, energy security has become a core focus. In the recent years, the government has rightly recognized the energy security concerns of the nation and more importance is being placed on energy independence. On the eve of the 59th Independence Day (on 14 August 2005), the President of India emphasized that energy independence has to be the nation’s first and highest priority, and India must be determined to achieve this within the next 25 years.
Renewable energy sources offer viable option to address the energy security concerns of a country. Today, India has one of the highest potentials for the effective use of renewable energy. There is a significant potential in India for generation of power from renewable energy sources - wind, small hydro, biomass, and solar energy. Greater reliance on renewable energy sources offers enormous economic, social, and environmental benefits.
The energy needs of the country are expected to increase at a rapid rate in the coming decades. Therefore, it is imperative to take steps to increase the indigenously available energy resources so as to avoid excessive reliance on external sources. Non-conventional sources of energy may come to play an increasing role in meeting energy needs, particularly of the rural population, which depends mostly on non-commercial sources of energy today.
However, availability of capital and environmental considerations is appearing as serious constraints to the efforts of generating more capacity to meet the growing demand. Prudent management of the indigenous energy resources; judicious approach to energy imports; and progressive shift in favour of environmentally benign sources of energy, including non-renewable sources and demand-side management, are some of the solutions to the problems and can, therefore, be the guiding principles for hydrocarbon sector of the country for next decade.
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