New Delhi: A record
hike in retail prices of transport fuels and the decision to slash
subsidies on cooking gas were the high points of India's oil
economy in 2012, as the sector awaited pricing reforms and a new
thrust in the production of hydrocarbons to attain energy
While the price hikes bothered consumers of petrol, diesel and
cooking gas, the industry awaited government policy reforms aimed
at giving a boost to exploration activity and to the search for
new fuel sources.
At Rs.5 per litre, the year saw a record hike in diesel prices and
a bold reformist step in the first-ever capping of doles on
domestic cooking gas, or liquefied petroleum gas, at six cylinders
per household per year.
The decision taken by a meeting of the federal cabinet, presided
over by Prime Minister Manmohan Singh, in September came as
state-run oil retailers had incurred a loss of a whopping
Rs.138,541 crore in 2011-12 ($258 billion) by selling the fuel at
Even after these corrective measures, such losses, called
under-recoveries, incurred by the three state-run oil firms --
Indian Oil, Bharat Petroleum and Hindustan Petroleum -- in the
current fiscal are projected at around Rs.1,67,415 crore (over
During the current fiscal, for instance, the government share of
subsidy on a cooking gas cylinder is Rs.23 (nearly half US dollar)
out of a total subsidy of Rs.504 ($9). The balance is borne by the
On the impact of under-recoveries, Indian Oil Corp chairman R.S.
Butola told mediapersons just prior to the fuel price increases:
"We have a deficit of more than Rs.5,000-6,000 crore ($900 million
to $1 billion) every month, depending on oil prices. So, our
borrowings will go up."
The last few months of the year also waited for a report of the
panel headed by Prime Minister's Economic Advisory Council
Chairman C. Rangarajan which is looking at changes in the present
regime governing oil and gas exploration contracts as well as gas
The core of the exploration mechanism is the production sharing
contract (PSC) that currently provides for explorers to first
recover all of their capital and operating expenditure from oil
and gas revenue before sharing profits with the government as per
a specific formula.
The existing system was criticised by the national auditor (CAG)
as it gave incentives to private producers and minimised the
The Rangarajan panel is expected to suggest moving to a
production-linked payment regime where explorers may be asked to
bid for a percentage of output they would share with the
government. The firm offering the maximum would win a block or
Between the consumer and explorer, the biggest news in the sector
was the decline in gas production from the KG-D6 gas blocks in
Andhra Pradesh operated by a consortium led by Reliance Industries
The petroleum ministry reported that natural gas production from
fields operated by private companies and joint ventures was around
21.6 billion cubic metres (bcm) in 2011-12 as against 26.7 bcm in
the previous fiscal. The main reason cited for the decline was
lower production from the Krishna Godavari (KG) basin blocks
operated by RIL.
The ministry informed the parliamentary Standing Committee on
Petroleum and Natural Gas that RIL have been advised to complete
and put on production more gas wells in the area as well as to
revive sick wells.
The house panel regretted that the oil ministry had not penalized
the operator for shortfall in achieving the Field Development Plan
of the KG-D6 block.
RIL has also been wrestling with the oil ministry on the price of
gas that will apply when its present $4.2 per million British
thermal unit rate for KG-D6 expires in March 2014.
India imports 83 percent of its crude oil needs, and in the search
for energy security, state oil companies are pursuing acquisitions
in hydro-carbon resources overseas.
"Hydrocarbon sector is the key to ensuring energy security in the
country, so it is important that India continues developing its
hydrocarbon sector," Petroleum Secretary G.C. Chaturvedi told
The Oil and Natural Gas Corp Videsh Ltd (OVL), the state
explorer's foreign operations arm, produced nearly 9 million
metric tones of oil and gas equivalent during the fiscal year
ending March from its assets abroad in Sudan, Vietnam, Venezuela,
Russia, Syria, Brazil, South Sudan and Colombia.
In its biggest acquisition till date, OVL in November agreed to
pay US energy giant ConocoPhillips about $5 billion for the 8.4
percent stake in Kashagan, the biggest oilfield discovery in four
Public sector oil firms have acquired assets in more than 20
Recently, shale gas has globally emerged as a new and important
source of energy. India has several shale gas formations in
sedimentary basins and the oil ministry has taken several steps to
identify prospective areas for exploration.
In September, the Gas Authority of India Ltd inked a deal to buy
20 percent stake in a shale gas area operated by Carrizo Oil and
Gas Inc in the US for $95 million.
The new year holds promise on shale gas. The government has
circulated a draft shale oil and shale gas policy and a final
document is expected soon.
(Biswajit Choudhury can be contacted at email@example.com)