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Petro Economics-2-July-Dec-14

Petro Economics-2-July-Dec-14

Section A (20 Marks)

Write short notes on any four of the following

1.      Stages of Oil Industry

2.      LNG Transportation Policy of GoI (FOB)

3.      Wheel of retailing

4.      Quick Trip Operating Model

5.      Geopolitics of Oil and Natural Gas

 

Section B (30 marks)

 

(Attempt any three)

1.      Explain the objectives of logistics and transportation of petroleum products.

2.      Highlight the features of Petroleum Retail Business.

3.      Describe the basic petroleum supply chain.

4.      Discuss OPEC’s role in price structuring in world oil market.

 

 

Section C (50 marks)

 

(Attempt all questions. Every question carries 10 marks)

 

Read the case “Hydrocarbon sector inextricably linked to nation’s progress.” and answer the following questions:

 

Case Study: Hydrocarbon sector inextricably linked to nation’s progress

 

Energy sector is a key enabler for wider economic development. And with hydrocarbons dominating the world energy scene, India's growth is inextricably linked to its exploration and production capability.

In the last 50 years, the oil and gas sector has taken massive steps to meet the growing energy needs of the Indian economy. However, despite increased exploration and production activities by both national and private companies, India imports nearly 80 per cent of its oil today. Its crude oil import bill was USD 144 billion last fiscal.

Exploration and production of oil and gas is critical for India's energy security and economic growth. India has an estimated sedimentary area of 3.14 million square kilometers, comprising 26 sedimentary basins, out of which 1.35 million square kilometers area is in deep water and 1.79 million square kilometers area is onland and shallow offshore.

According to the Petroleum Ministry, out of 205 billion barrels of prognosticated hydrocarbon resources, until now, only 73 billion barrels of oil and oil equivalent gas could be established through exploration.

The country aims to reduce its imports by 50 per cent by 2020, 75 per cent by 2025, and eventually achieve self-sufficiency by 2030.

To reduce imports, India needs to take up aggressive exploration. The liberalisation of the Indian economy and recent initiatives in oil and gas exploration, natural gas and infrastructure have resulted in massive opportunities for the private players in high growth areas. The New Exploration Licensing Policy (NELP) has made a significant impact to the upstream hydrocarbon industry.

Plans are also afoot to set up a National Data Repository for India. The proposed NDR will safeguard national E&P data asset, enhance prospects of petroleum exploration and help promote production activities. It will enable India compete effectively in the hydrocarbon exploration and production sector. The Directorate General of Hydrocarbons (DGH) now looks forward to ‘Open Acreage' approach with OALP.

Over the next two decades, the global energy consumption growth will average at around 1.7 per cent annum. Of this, non-OECD energy consumption is expected to be 68 per cent higher by 2030

Rising demands for hydrocarbon resources and depleting resources from onshore and shallow water segments has put a thrust on E&P activities in the deep water development. India, which has over 1.35 million sq.km of deep water sedimentary basins, is looking for innovative technology to promote the E&P activities in this sector.

However, there are specific challenges and uncertainty which needs to be managed safely and in a cost-effective manner throughout the life cycle. Challenges like high costs and infrastructure in deep water environment and devising an optimum development strategy are among the crucial factors here. 

Traditionally, subsea well intervention has been performed from drilling rigs. But soaring rates as a result of offshore boom have made such operations very dear, while rig availability has been limited. These factors have called for cost-effective systems to access deep water wells.

Some developments in providing low-cost subsea interventions are provision of light well intervention services from monohull vessels using riser or riserless technology.

Advanced technological intervention in surface and subsurface facilities in deep water can also minimise the challenges of the east coast of India. It can help build an optimum development plan in case of varying reservoir parameters. Independent developments and tie in into common facilities can be of interest to companies operating in the region.

To promote bidding for the deep water blocks, India's neighbour Myanmar has waived off the clause of participation of a local partner in such projects.

It is in India's best interest to go in for aggressive exploration of both oil and gas and remove the bottleneck.  The Petroleum Ministry has cleared a number of projects (around 200 management committee resolutions) earlier this year. This is expected to attract investment of more than USD 10 billion in upstream oil sector.

The Government is also keen on addressing gas pricing, allocation and royalty issues. With natural gas being projected to be the fastest growing fossil fuel globally, fresh investments in E&P sector in India is likely to boost natural gas production by end of 12th five year plan.
 
The gas pricing formula based on the recommendations made by the Rangarajan Committee (to be applicable from April 1, 2014 for a period of 5 years) will nearly double the prices to USD 8 from USD 4.2 per million British thermal unit.  The announcement has given a boost to the upstream companies and is likely to translate into better exploration and development activities.
  
The government claims that the proposed hike will lead to a USD 500 million additional revenue for the government per annum by way of royalty, taxes and profit on higher rate.
 
The International Energy Agency (IEA) also expects the E&P sector to gain from the decision, which will enhance energy security and help power plants in the country. 
Myanmar is also putting in efforts to improve upstream investment environment. The country's upstream sector is unexplored and has huge potential for offshore and onshore plays.

So far, sanctions, a lack of technical capacity, opaque regulatory policy and insufficient investment by foreign firms have significantly impeded Myanmar's efforts to realise its oil and gas production potential. However, a host of policy changes, like greater revenue incentives for global companies, led to the United States and European Union call off economic sanctions.
 
Shale oil is emerging as a significant and relatively low cost unconventional resource. The United States is witnessing a boost in production from shale formations and tight gas, coalbed methane and shale gas will have a major contribution to North American gas production in future. This is largely attributable to significant advances in the use of horizontal drilling and well stimulation technologies and refinement in the cost-effectiveness of these technologies.

Unconventional gas production is forecast to increase from 42 percent of total US gas production in 2007 to 64 percent in 2020.

The global shale oil production has the potential to reach up to 14 million barrels of oil per day by 2035; this amounts to 12 per cent of the world's total oil supply. It presents major opportunities and challenges for both the suppliers and the consumers. This will impact the GDP and large net oil importers such as India and Japan might see their GDP boosted by around 4 per cent-7 per cent by 2035.

On the lines of the United States, several countries are vying to attract investment in their domestic shale gas resources. India along with China and Argentina have raised their natural gas prices to provide an incentive to oil and gas producers to explore and develop gas blocks.

India, reeling under a huge demand-supply gap, needs to tap this new energy source. Industry-friendly regulations, a favourable pricing regime, a developed onshore oilfield services sector, an extensive gas-distribution network and market-driven gas pricing are required in this regard.

 

 

Questions:

1.      Exploration and production of oil and gas is critical for India's energy security and economic growth. Elaborate the statement.

2.      Write a brief note on the National Data Repository for India.

3.      Explain the role of Directorate General of Hydrocarbons (DGH) in the hydrocarbon exploration and production sector.

4.      Do you think that global shale oil production will actually be able to reach up to 14 million barrels of oil per day by 203? Give reasons to support your answer.

5. Highlight the role of International Energy Agency (IEA).

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