1 Oil Industry Future Challenges by Shri. B.K. Bakhshi

2 Oil - Price Peaks & Effect on Indian Economy Sr No YearGDP Growth (+/-) InflationEvent %20 %Yom Kippur War oct %17 %Iranian Revolution %14 %1 st Gulf War From expected 9% to less than 8% 12 % +From Katrina Onwards

3 CRUDE OIL PRICES (Indian Basket) Peak – July 08 - $142/BBL Sr No.YearPrice ($/BBL) 1.March (avg 1 st 6 months)110.52

4 VERTICAL INTEGRATION HELPS OIL MAJORS Integrated International Majors profits go down when crude price go down and profits go up when crude price are up. Examples: The slump in crude prices to less than $15 per bbl in 1998 led to mergers – such as Exxon Mobil, Philips Conoco, etc. When crude prices rose from $33 per bbl in April 2004 to per bbl in Aug 2005 – 2 weeks after Katrina Hurricane. Gasoline prices in USA peaked to $3.06 per USG. The combined net income of Exxon Mobil, BP, Royal Dutch, Shell & Conoco Philips totaled $ 32.8 Billion during the quarter ending Sept 2005 on a revenue of $ 378 Billion. * Source Black Gold by George Orwell, page 147

5 Government’s liberalization drive hastened the pace of hydrocarbon market development in India. Journey so far Comments 1Population (bn) nd most populous country 2GDP Growth Rate 5.58 $ Around 9>8% for last four years 3 Crude Production (MMT) Almost stagnant since NG Prodn (MMSCMD)NA49.391Bulk production from Mumbai High field 5 Refining Capacity (MMT) th largest refining capacity in world 6Crude import (MMT)3.05* % & 44% of total import & export in value 7Pipelines (kM)37^9,94531,061World’s longest operating LPG pipeline 8 Product Consumption (MMT) >11% growth in MS/HSD & 14% in ATF last yr 9Product Export (MMT) % growth in POL export over (32.7 MMT) 10Retail OutletsNA14,26434,696 # Catering to more than 80 mn motor vehicles * Avg # As on $ Avg ^ Product pipeline

6 Upstream sector in India is a relatively unexplored market with reserves estimated in only 15 of the 26 sedimentary basins. 26 sedimentary basins: 3.14 mn sq kM (44% onland and 56% offshore) Prognosticated Hydrocarbon reserves: 28 BTOE (<25% established) ~ 200 bn barrels Crude oil production - 34 MMT Upstream NOCs dominate production/acreage Directorate General of Hydrocarbons (DGH) vested with upstream regulatory functions New Exploration Licensing Policy (NELP) Sectoral Overview – Upstream Key Facts

7 NELP rounds have opened up large sedimentary areas for exploration to private and JV companies leading to decrease in unexplored or poorly explored areas from 67 to less than 37% Out of total 205 bn bbl of prognosticated resources in 15 basins, 66 bn bbls have been established since bn bbl in-place reserves were added during last 7 years Exploration Acreage – April ’96 Exploration Acreage – April ‘07 Source: Directorate General of Hydrocarbon Sedimentary Area Sectoral Overview – Upstream

8 Overall Demand-Supply Gap (MMSCMD) Natural Gas Supply Domestic LNG Total Demand GAPMMSCMD MMT

9 LNG Terminals Rated Capacity Company/Location Petronet-Dahej Shell-Hazira RGPPL-Dabhol Total

10 Expected Share of Natural Gas in the Energy Basket in India (Hydrocarbon Vision 2025) Year Coal Oil Gas Nuclear 113 Hydel

11 India’s downstream sector is dominated by NOCs. 19 refineries with 149 MMTPA installed capacity 105% capacity utilization in Refined product consumption – 129 MMT Refined product consumption: 7% annual growth Refined product net exports – 39 MMT, Gross exports $26.8 bn (50% growth over ) Product pipelines stretch over 9,500 km New entrants in the oil marketing business include RIL, Shell, EOL, MRPL and NRL Domestic auto sales 14.1% CAGR (’06-07 over ’01- 02); petroleum products consumption jumped by 7% from last year Over 34,000 retail outlets Major Downstream Players as on April 1, 2008 Refining capacity (MMTPA) Market Share of sale of Petroleum Products (in Vol sales excl. CNG & LNG) Source: MoPNG Source: Monthly IPR Sectoral Overview – Downstream Key Facts

12 Refining industry in India is poised for rapid growth with additional investments planned over the next decade supported by GoI’s intention to promote India as an integrated refining and petrochemical export hub. Developments Investments 241 MMTPA refining capacity by MMTPA addition in the Pvt sector Private investments from Chevron/Mittal RIL/Essar/IOC venturing abroad (Kuwait, Africa, Turkey etc.) Crude import and product exports expected to jump Investment of over $22 bn estimated for creating new refining capacity Refinery upgradation projects to require investments of the order of $2.5 bn Refining Capacity Vs. Crude Import in MMT as on April 1 Source: XI FYP, MoPNG Sectoral Overview – Downstream

13 Oil Companies Under Recoveries – On price controlled products Sr. No Under- Recovery (Rs Crs) 1.LPG15,000 2.MS7,000 3.SKO19,000 4.HSD35,000 Total77,000 This is BORNE By Sr. No. Agency(Rs Crs) 1Upstream Companies 26,000 2.OIL Bonds35,000 3.OIL Companies 16,000 Total77,000

14 High Taxes on Transport Fuel Sr. No ItemMSPercentageHSDPercentage 1.Basic Price (Rs/KL) 23, %23, % 2.Custom/Exchange Sales/Other Taxes (Rs/KL) 22, % % 3.Total Retail Price Rs/KL 45, % %

15 SHARE OF OIL REVENUE IN TOTAL REVENUE IN YearAccrued toOil Revenue (Rs. Crs) Total Revenue (Rs. Crs.)* Share of Oil Revenue in Total Revenue (%) Centre States Total Centre States Total Centre States Total *Centre’s revenue is taken as net of transfers to States. States’ revenue is the total receipts of own tax and non- tax revenue. Source: Report of the Standing Committee on Petroleum & Natural Gas in Parliament, Government of India; State Finances, A study of Budget of , RBI, Government of India; Budget documents, Government of India.

16 Renewable Energy Sources Potential Source/ Technology UnitsPotential/ Availability Potential Exploited UnitsPercentage Biogas PlantsMillion Biomass- based Power. MW19, Efficient wood stoves. Million Solar Energy.MW/Sq. Km Small HydroMW15,0001, Wind Energy.MW45,0001, Energy Recovery from Wastes. MW1, Hydel.MW148,70016, * Table 7.3.3/ th plan document

17 Biofuels Activities JV under formation with Chhattisgarh Government to produce 30,000 MTPA Biodiesel 2000 ha revenue wasteland allotted by Government of M.P. In Jhabua district for energy crop plantation. Investment approval being obtained 10% ethanol blends in MS by 2012 (The end of the 11 th plan) Discussions with U.P. and Rajasthan Government for creating Biodiesel units.

18 Status - Hydrogen Activities of IOC  IOC R&D had set up the India’s first Hydrogen Dispensing Station in October, 2005 which is being used for fueling test vehicles.  A similar Hydrogen-CNG Dispensing Station is being set up at Delhi in Dwarka by IndianOil which will be commissioned by end of  IOC R&D working closely with SIAM members under an MNRE project for optimisation of various vehicles to Hydrogen-CNG.  IOC R&D planning further projects related to Hydrogen production, development of codes & standards etc.

19 Planning Cycle – Key Corporate Activity Vision Perspective Plan Long Term Plan 5 Year PlanAnnual Plan

20 Knowledge Explosion Knowledge Doubling itself every 5-7 years The importance of R&D escalating exponentially Rate of Change of Everything is Hyperbolic Years

21 Formula for Organisational Perpetuity 1.Creativity – Without which no new Technologies products goods & services can emerge. 2.Continuity – Without which in a changing environment the sense of purpose and/or directions may get lost and develop aberrations. 3. Discontinuity – The essence of discontinuity / change is to discard the irrelevant / obsolete on a continuous basis. Without it no forward progress can take place.