Presentation - Luthra & Luthra

Presentation to Association of
International Petroleum
Negotiators
Reference Presentation for
Circulation
Platforms, Pipelines and Plants:
Energy Infrastructure in India
Mr. Rajiv Luthra
Managing Partner
Luthra & Luthra
Law Offices
March 30, 2006
1

Some Questions…
! Locating India
! Oil and Gas Supply and Demand
! Present and Future Energy Needs
! Present Infrastructure and the Scenario of Deficit
! Meeting the Demand: Exploring the Options
! A Few Issues
! Proposed Expansion and Evolving Regulations
! A Vision for the Future
! Why India
2

Locating India……
One of the lowest per capita energy consumption in the world-
479Kgoe
Accounts for 5% of total world demand and 5 th in terms of
energy consumption
3

Oil & Gas Supply
100
90
80
78.71
OIL SUPPLY (MMT)
81.99
90.43
95.86
100
90
80
GAS SUPPLY (MMT)
70
70
60
60
50
50
40
30
14
40
30
23 24 24
20
10
0
32.03 33.04 33.37 33.98
2001-02 2002-03 2003-04 2004-05
20
10
0
10
2001-02 2002-03 2003-04 2004-05
Domestic
Imports
! India a net energy importer, currently imports ~70% of oil, 20% of gas
consumption
! Domestic oil & gas production stagnant since 2000-01. 01. Decline attributable
to maturing field
! Domestic gas new discoveries and imports to play significant role e in
Country’s s energy security
4

Oil & Gas – Demand
400
350
OIL DEMAND (MMT)
364
400
350
GAS DEMAND (MMT)
300
300
250
250
200
150
100
50
173
190
'06-07 '11-12 '24-25
200
150
100
50
88
110
65
'06-07 '11-12 '24-25
! Demand growing due to
increase in economic activities
and size of population
! India’s s oil demand expected to
grow at 3% annually
Source : Hydrocarbon Vision 2025
! Growth phase with first LNG
import
! Natural gas - the fuel of 21st
century
! Government projects share of
natural gas to go up currently
from 8% to 20% in 2025
5

Where we stand…
Growth Potential
Energy Consumption per capita Kwh
6

Future Energy Needs
4500
4000
3500
3000
2500
2000
1500
1000
500
0
1454
India a huge
upside potential for
growth…
479
688
264
3962 3856
World India China Pakistan Japan U.K.
Per Capita Consumption of Energy
! GDP Growth of 8% translates
into energy demand of 5.2%
!The consumption levels to
increase considering high
economic activities and growing
population - Forecasted 8%
growth in the near future and a
double digit growth in the long
term
!By 2024-25, India’s demand for
energy is expected to quadruple
ENERGY DEFICITS + FUTURE ENERGY NEEDS=
DEFICITS / MEETING THE VAST ENERGY
NEEDS
7

Crude & Product
Pipelines
Presently, we have…
!IOC owns and operates
8, 952 kms of crude oil
and product pipelines
LNG Terminals
"Petronet LNG is the
first LNG receiving
terminal commissioned
on April 2004 at Dahej in
Gujarat. (5 MMTPA)
"Shell Hazira is India’s
first merchant LNG
Terminal. (2.5MMTPA
in Phase I and 5
MMTPA in Phase II)
New Delhi
Dahej
Hazira
Mumbai
Bangalore
Kolkata
State owned Pipelines
Product
Proposed Product
Crude Oil
Proposed Crude
Other Companies’ Pipelines
Product
Proposed Product
Crude Oil
8

Also…
Gas Pipelines
!Total network – 5733 Km.
of Natural Gas Pipelines
MATHANIA
DELHI
KOTA
! 2,800 kms HBJ pipeline
which traverses from
Hazira to Delhi, Gujarat,
Madhya Pradesh, Uttar
Pradesh and Rajasthan
MUMBAI
KOLKATA
!433 kms of GSPL pipeline
which traverses from
Hazira to Kalol in Gujarat
KOCHI
CHENNAI
KAKINADA
!1,240 kms LPG pipeline
from Jamnagar to Loni
(Delhi)
!Offshore pipeline network
in excess of 3,700 kms,
including 1,000 kms of gas
trunkline network
9

AND….
Refineries in the Country
(Capacity in MMT)
BHATINDA
(9.0)
PANIPAT
(6.0)
(6.0)
MATHURA
(8.0)
BONGAIGAON
(2.4)
DIGBOI
(0.7)
BARAUNI
(6.0)
GUWAHATI
(1.0)
NUMALIGARH
(3.0)
JAMNAGAR
(33.0)
BARODA
(13.7)
BOMBAY
(6.9,5.5)
(5.1, 2.4)
MANGLORE
(9.7)
COCHIN
(7.5)
BINA
(6.0)
VISAKH
(7.5)
(0.8)
TATIPAKA
(0.1)
CHENNAI
(9.5)
NARIMANAM
(1.0)
HALDIA
(6)
PARADEEP
(9.0)
Likely to be achieved by 2006-07 07 = 140.30 MMT
Existing
New / Additions
Refineries No. MMTPA
IOC Group 10 54.20
BPCL group 3 17.40
HPCL 2 13.00
ONGC/MRPL 2 9.77
RIL (Pvt.) 1 33.00
Total 18 127.37
10

so in Refining,
200
150
100
50
0
115 117 127 127
174
2001-02 2002-03 2003-04 2004-05 2007
HPCL
BPCL
ONGC
9.768
13
17.4
Reliance
54.2
SHARE OF CURRENT REFINING
CAPACITY (MMTPA)
33
Indian Oil
Refining Capacity
!India has been self sufficient in
refining capacity since 2004
!18 refineries in the country
(dominated by PSUs, who
together own 74% of total
installed capacity)
!Current refining capacity stands
at 127 MMtpa (2.6 MMbpd)
!Refining throughput has surged
due to commissioning of Reliance
Jamnagar complex refinery in
April 2000
!The average capacity utilization
has been around 94%
11

From..
•India India is heavily dependent on oil imports
(over 70 % dependence)
•Till Till the introduction of NELP, India
remained the most poorly explored region
with well density per thousand kms being
amongst the lowest in the world
•Cosmic Cosmic amount of capital investments
needed to augment domestic production
1000
800
854
732 763 741 751 733 739
923
600
400
200
0
2001-02 2002-03 2003-04 2004-05
Crude Oil(MMT)
Natural gas (BCM
BUT STILL ENERGY DEFICITS !
India’s Balance Recoverable Reserves
12

Source: MoP&NG, BMR Research
Meeting the Demand
Option 1 : DOMESTIC PRODUCTION
!NELP was formulated in 1997-98 98 to
provide a level playing field in which
all the parties may compete on equal
terms for the award of exploration
acreage. 33 spectacular series of
discoveries have been made so far
both in Pre-NELP and NELP blocks
!India’s s largest gas find of over 20
trillion cubic feet (TCF) in the
Krishna Godavari basin in July 2005
by the Gujarat State Petroleum
Corporation (GSPC)
!Acreages offered in the NELP rounds is over 3 times the acreages offered during
Pre-NELP rounds
!Success ratio of private players has been as high as 100%
!Significant discoveries demonstrate potential of India’s sedimentary basins
13

New Exploration Licensing Policy
! Participation through unincorporated JVs.
! No minimum expenditure commitments
! Progressive regime with biddable profit sharing.
! No OID Cess or Customs duty.
! Freedom to contractor for marketing oil and gas.
! 7 year tax holiday for commercial production.
! No signature/discovery and production bonus.
! No upfront payments.
! NELP : The Sixth Round
! Largest single tranche of 55 exploration blocks, and largest area a being offered
covering 300,000 sq km
! Will open up ultra deepwater blocks with depths of 1,500-3,000 kms
! Efforts on for opening up Krishna - Godavari basin, Konkan and Saurashtra
offshore and Andaman regions
! A two-pronged
Government strategy for dividing the acreages-high prospectivity /
low risk, low prospectivity / high risk.
! Two stage evaluation system, stage I –technical evaluation and stage II-
commercial evaluation.
14
! Different bidding and evaluation criteria for different category block.

Meeting the Demand
Option 2 : IMPORTS
! India strategically located with proximity to Middle East Countries,
Myanmar and south-east Asian countries.
! LNG import opens challenges in light of subsidized prices for
domestic gas.
! For LNG, imports have been placed in the OGL category and 100%
FDI is permitted in LNG related projects.
! Main focus is on transnational pipelines. However, the main
hindrance is reservations over on-land transit by neighbors and
resistance to allowing their country to be used as a transit corridor ridor to
India.
! Providing incentives such as Tax Incentives and funding incentives.
es.
! Mitigating Risks
! Underwriters/Government Guarantees
! Interdependence i.e. give the transit countries a stake in another
project where you have leverage
! Better cooperation between governments realizing their joint
15
needs

# Nuclear
$ Limited Source of Fuel
# Coal
Meeting the Demand
$ Environment Issues. Quantity Efficiency and Quality
# Coal Bed Methane
Option 3 : ALTERNATIVE FUELS
% New CBM Policy
- no upfront payment & no signature bonus
- no participating interest of government
- award of blocks through global competitive bidding
- provision for bidding in more than one block
- royalty @ 10% payable to the relevant state government on the value of
CBM, as per Oilfields (Regulation and Development) Act, 1948.
- no customs duty on imports required for CBM operations
- Tax Holiday
- Freedom to market gas in domestic market at market determined
prices.
16

# Upstream
A Few Issues…
! Service tax leviable on almost 80-90% of exploration costs increasing the
cost of exploration.
! Significant time delays in getting State Government / environmental/
defense approvals for exploration activities (even after PSC’s are a
signed)
# LNG Terminals
! Currently not eligible for infrastructure status and tax holiday.
! Major consumers are power and fertilizers –both sectors are largely
government dominated and subject to subsidization-this this significantly
impairs the ability of domestic consumers of gas to pay international tional prices
for LNG.
! Lack of adequate pipeline infrastructure to transport gas from LNG
terminals.
! Inadequate regulatory framework for gas markets – absence of a gas
regulator.
# Pipelines
! Laying pipelines attracts legal issues and host of other clearances
ces
! No contractual framework
! Lack of a regulator and regulatory framework
17

Proposed….
NATIONAL GAS GRID
•Three phase implementation plan
•Length
- 8,400 km
•Investment
– US$ 4 billion
DELHI
MATHANIA
LNG TERMINALS
KOTA
•Kochi (South West Coast)
–2.5 MMTPA, expandable to 5
MMTPA
•Dhabol LNG terminal -55 MMTPA,
Under completion
MUMBAI
Dabhol
KAKINADA
KOLKATA
Kochi
CHENNAI
KOCHI
18

Evolving Regulations
Draft Policy for
Development of Natural
Gas Pipelines
“…the objective of the policy is
to secure equitable access to and
equitable distribution, broad
basing the networks, promoting
competition and securing the
consumer interest”.
Petroleum and
Natural Gas
Regulatory Board
Bill
Passed by the Parliament.
Envisages setting up of a
statutory downstream
petroleum and natural gas
regulator.
19

Integrated Energy Policy
A Vision for the Future
! The broad vision behind the energy policy is to reliably meet the e demand
for energy services of all sectors … with safe and convenient energy at
the least cost in a technically efficient, economically viable and a
environmentally sustainable manner.
! Recommendations:
(i) Markets that promote competition.
(ii) Pricing and resource allocation to take place under market forces
under an effective and credible regulatory oversight, as far as
possible.
(iii) Subsidies to be transparent and targeted.
(iv) Improved efficiencies across the energy chain.
(v) Policies that reflect externalities of energy consumption.
(vi) Policies that rely on incentives and which are implementable.
e.
20

FDI Policy initiatives
Upstream
India because….
! 100% participation allowed within the policy framework in:
! exploration; and
! discovered fields of national oil companies
Midstream
! 100% participation allowed for pipeline within the policy framework
Downstream
! Marketing
! 100% participation allowed for petroleum products marketing
! Fuels Marketing rights are granted if investment exceeds ~ US$ 5005
million in
exploration & production, refining, pipelines or terminals
Refining
! 26% participation allowed in state-owned refinery subject to approvals
! 100% participation allowed in private refinery
21

Luthra & Luthra Law Offices
! One of India’s s largest full-service law firms.
! India’s s first ISO 9001 certified law firm
! Winner of the ALB Hong Kong Law 2005 OIL Project Finance &
Infrastructure Super Deal of the Year award for Petronet LNG
Limited (India) Project.
! Firm has been identified as ‘Highly Recommended’ in India and
some of its partners have been identified as the ‘Leading
Individuals’ among law practitioners in India by Legal 500 and
Global Counsel 3000 of the Practical Law Company.
! One of the Partners of the Firm has been nominated by ‘The
International Who’s s Who of Project Finance Lawyers 2005’ as
one of the world’s s leading practitioner in the field of project
finance by the Who’s s Who Legal – The International Who’s s Who
of Business Lawyers, Official Research Partners of the
International Bar Association.
22

Thank You
23