Reforms in Exploration and Licensing Policy: Oil & Gas

• 08 Oct 2020

Why in News

The Cabinet Committee on Economic Affairs (CCEA) chaired by the Prime Minister has approved the Policy framework on reforms in the exploration and licensing sector for enhancing domestic exploration and production of oil and gas.

Key Points

• Objectives:
  
  • Attract new investment in Exploration and Production (E&P) Sector.
  • Intensification of exploration activities in unexplored areas.
  • Liberalizing the policy in producing basins.
• Four Focus Areas:
  
  • Increasing Exploration Activities in Unexpected Areas:
    
    • Bidding out uncommercialized basins to contractors without them having to share revenue or production with the Government and only paying royalties/levies.
    • For unallocated/unexplored areas, the bidding to be based on a revenue-sharing basis but more weightage to work programme to be given.
    • Shorter exploration period and fiscal incentives.
  • Marketing and Pricing Freedom:
    
    • To incentivize enhanced gas production, marketing and pricing freedom to be granted for those new gas discoveries whose Field Development Plan (FDP) is yet to be approved.
      
      • FDP is the evaluation document of multiple development options for a field and selecting the best option based on assessing tradeoffs.
    • Fiscal incentive on additional gas production from domestic fields over and above normal production.
  • Preparation of Enhanced Production Profile:
    
    • Public sector Undertakings like Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) will prepare an enhanced production profile to enhance production from their existing fields.
    • For production enhancement, bringing new technology, and capital, No Objection Certificates (NOCs) will be allowed to induct private sector partners.
  • Promoting Ease of Doing Business:
    
    • Measures like setting up coordination mechanism and simplification of approval, alternate dispute resolution mechanism etc. to be taken.
• Background:
  
  • Domestic production of oil and gas was declining, import dependence was rising and investment in E&P activities was reducing. Thus, policy reform in this sector was needed.
  • Earlier, the government between 2016 and 2019 had given pricing freedom for all fields except those given to state-owned ONGC and OIL on a nomination basis.
  • But, there were restrictions on marketing like a ban on affiliates of producers buying the fuel etc. This restricted competition kept prices artificially low.
  • The Hydrocarbon Exploration and Licensing Policy or HELP was approved in March 2016, aimed at increasing the transparency and decreasing the administrative discretion in granting hydrocarbon licenses. It replaced the New Exploration Licensing Policy (NELP), 1997.
  • Recently, India also launched its first gas exchange which has been named as the Indian Gas Exchange (IGX).
• Benefits:
  
  • Development of support services.
  • Employment generation.
  • Transfer of advanced technology.
  • Reducing import dependence.
  • Improve energy security of the country.
  • Save the precious foreign exchange on imports.

Petroleum

• Crude petroleum occurs in sedimentary rocks of the tertiary period.
• It consists of hydrocarbons of liquid and gaseous states varying in chemical composition, colour and specific gravity.
• It is an essential source of energy for all internal combustion engines in automobiles, railways and aircraft.
• Its numerous by-products are processed in petrochemical industries such as fertiliser, synthetic rubber, synthetic fibre, medicines, vaseline, lubricants, wax, soap and cosmetics.
• Venezuela, Saudi Arabia, Canada, Iran, Iraq, Kuwait, Russia are some major countries with the largest oil reserves.
• Digboi, Naharkatiya and Moran in Assam, Ankleshwar, Kalol, Mehsana, Navagam, Kosamba and Lunej in Gujarat; Mumbai High in Maharashtra are important oil-producing areas in India.

Natural Gas

• Natural gas is found with petroleum deposits and is released when crude oil is brought to the surface. It can be used as a domestic and industrial fuel.
• Russia, Norway, UK and the Netherlands are the major producers of natural gas.
• In India, Jaisalmer, Krishna Godavari delta, Tripura and some areas offshore in Mumbai have natural gas resources.
• The Gas Authority of India Limited was set up in 1984 as a public sector undertaking to transport and market natural gas.

Oil and Natural Gas Corporation

• Oil and Natural Gas Corporation (ONGC) is a Maharatna Public Sector Undertaking (PSU) of the Government of India.
• It was set up in 1995 and is under the Ministry of Petroleum and Natural Gas.
• It is the largest crude oil and natural gas company in India, contributing around 70% to Indian domestic production.

Way Forward

• The production enhancement scheme for the nomination field of NOCs is likely to augment production by leveraging new technology, capital and management practices through private sector participation.
• It would bring uniformity to the bidding process across various contractual regimes and policies to avoid ambiguity and contribute towards ease of doing business.
• The move is in line with India’s goal of becoming self-reliant as envisaged in the Atmanibhar Bharat initiative. It will help India develop into a gas-based economy.

Source: PIB