Oil and Gas Policy Issues

Oil and Gas Policy Issues
Capt Sarabjit Butalia MSc MNI

August 2009
• India’s total primary energy consumption was
433.3 million tones of oil during 2008 with an
increase of 5.6 percent over 2007.
• Only 26.5 percent of India’s oil needs are met
through domestic production with the balance
being through imports.
• During 2008-2009 India’s production of crude
oil was 33.50 tons a decline of 1.8 per cent
• Demand of gas in India has been growing
rapidly at an annual rate of 7.4 percent since
1990s.
• This is due to increase in demand for gas in
power generation and fertilizer production.
• Domestic gas availability is expected to decline
from about 28 billion cubic mtr in 1998-99 to
about 16 billion cubic mtr in 2012
• The gap between demand and supply of gas would
have to be met by imports
• Imports are either by piped gas projects through
Oman ,Bangladesh or Iran ,however progress has been
slow with all these projects.
• Hence the imports would have to be from Liquefied
natural gas(LNG).
• This in turn would require setting up port facilities and
other infrastructure support besides involving a large
outgo of foreign exchange.
• There are many policies that focus on providing a
long-term solution to the problem of oil
dependency; as far as safeguarding against short-
term disruptions is concerned, SPR is considered to
be the best policy.
• Strategic Petroleum Reserves are kept in very large
tankers or underground storage tanks, both of which
are expensive to maintain - although underground
storage facilities are significantly less expensive.
• Activities at the sector are divided asf:
• Upstream (exploration and production)
• Midstream (refining and pipeline
infrastructure)
• Downstream ( petroleum products retailing)
• Overview of India's Oil and Gas reserves:
 India’s Oil and Gas reserves are 732 million
tone and 768 billion cubic meters respectively.
 The bulk of oil and natural gas resources are
located in offshore areas where exploration
drilling and production are expensive.
 This leads to high domestic cost of oil and gas
as compared to imported oil and gas
• Presently the Oil and Natural Gas Corporation
Ltd(ONGC) and Oil India Ltd (OIL) are involved in
upstream activities such as exploration and
production (E&P)
• Indian Oil Corporation (IOC) and Bharat
Petroleum Company Ltd (BPCL) are involved
with down stream activities.
• These include refining ,marketing and
distribution
• Many private players have also now entered
into this sector.
• Reliance industry has started the largest
refinery in the country in 1999.
• Key Challenges for the Petroleum sector:
• India’s exploration and production strategies in the
Petroleum sector must focus on:
• Exploration in frontier areas.
• (Areas such as Assam ,Himalayan Foot Hills)
• Intensive exploration in the proven areas
• Strengthening overseas exploration
• The deep waters areas beyond 200m form parts of
basins off the Western and Eastern coasts of India
• Deep water exploration has now been
included under the New Exploration
Policy(NELP) and these areas were offered
through competitive bidding routes.
• India’s Petroleum Policy for the 21st century:
• India needs three pronged strategy for the upstream
sector of Petroleum industry this includes:
• 1. Intensification of exploration by National Oil
Companies selected basins.
• 2.Up gradation of the large tracts of sedimentary areas
in the country to improve the marketability of blocks.
• 3.Attracting technologically superior foreign oil
companies to India
• India’s Petroleum Policy for the 21st century:
• Enhancement of crude oil production to be
given highest priority in order to bridge the
between indigenous production and likely
demand.
• Exploitation of oil and gas in the producing
fields will have to be maximized through state
of art techniques such as 3D/4D seismic.
• Issues affecting India’s Petroleum Policy for
the 21st century:
• Inadequacy of data shall keep the large sized
block away from well reputed international
companies from bidding because of very large
front end work involvement in financial
investments.
• Issues affecting India’s Petroleum Policy for
the 21st century:
• An aggressive and planned approach
necessary to pick up business opportunities in
the international market.
• Constraints in E&P efforts:
• Indian sedimentary basins stretch over 1.78 million sq
km of which 1.46 million sq km is onshore and the
remaining offshore.
• India continues to be the least explored regions.
• Of the 26 sedimentary basins only 6 have been
explored so far.
• Capital constraints have limited exploration activity in
India ,leading to low reserve accretions in the past
years
• Energy Security remains the key issue while
considering policies for the hydrocarbon
sector.
• Growing import dependence is expected to be
of over 80 per cent by 2010 and 100 percent
by 2020 if present business-as-usual
continues.
•
• Other issues:
• Keeping in view the disturbances in oil
supplies from West Asia as result of US attack
and now occupation of Iraq ,India has taken
steps to diversify its crude oil sources so as to
ensure that shipping routes do not pass
through the conflict zones.
• Other Issues:
• Future trends in piracy, particularly in the Gulf of Aden
region, are disturbing. The steep rise in number of piracy
attacks in the Gulf of Aden has posed a serious challenge to
navies of the world.
• Elsewhere, maintaining constant vigil and security in the
Strait of Malacca has stretched the regional naval forces to
their limits. Clearly, security forces despite their robustness
cannot be omnipresent in the vast expanse of the high seas.
• The threat of terrorist groups linking up with pirates is a grim
possibility which threatens global security.
• Legal Aspects:
• The Maritime Zones of India(MZI) are governed
under the Umbrella Act of Exclusive Economic Zone
(EEZ) and Other Maritime Zones Act 1976(80 of
1976) .
• Increased poaching activities by foreign fishing
vessels in the Indian EEZ in the 70s led to the
additional enactment of the Maritime Zones of India
(Regulation of Fishing by Foreign Fishing Vessels) Act
1981
• Legal Issues:
• The MZI Act 1981 complements the MZI 1976 Act,
which protects the rights of exploitation of living
resources in the EEZ. Whilst the Acts adequately
stipulate the jurisdictional issues, they fell woefully
short when it came to enforcement of its provisions.
Whilst a much needed amendment (issued in 1984)
to MZI Act 1981 empowered both Navy and CG to
enforce its provisions, no similar amendment has
been made in respect of the Umbrella Act.
• Legal Issues:
• In any case, the requirement of previous
sanction of the GOI, under Article 14 of the
MZI Act 1976, for enforcement of its
provisions, had largely rendered the Umbrella
Act ‘toothless’. In the maritime domain,
situations develop with rapid fluidity which can
quickly transgress beyond a nation’s
jurisdiction.
• Legal Issues:
• This drawback is being exploited by
unscrupulous elements resulting in increase in
EEZ violation incidents. While the MZI Act
1981 is being expanded to include the Indian
fishing vessels as well, there is an urgent need
for suitable empowerment in respect of MZI
1976 so as to make the Acts complementary
and importantly, effective.
• Proposal of strategic crude oil storage in India and
current status.
• India currently does not maintain any strategic
reserves; however oil companies do have tank-age
to store about 15 days of crude oil requirement and
about 45 days of petroleum product production.
• For the past few years, India has been considering
the prospect of building strategic crude oil stocks.
• Proposal of strategic crude oil storage in India
and current status.
• In due course, based on detailed feasibility
reports, the Government of India has proposed
to establish strategic crude oil Reserve of 5
Million Metric Tones (MMT) at three locations,
viz. Visakhapatnam (1.0 MMT) in the state of
Andhra Pradesh, Mangalore (1.5MMT) and
Padur (2.5 MMT) in Karnataka.
and current status.
• The proposal involves a capital cost of
approximately Rs. 2,400 crore and crude oil
cost of Rs. 8,870 crore (at an average crude oil
cost of $ 55/bbl and exchange rate of 1 US$=Rs
44) besides operation and maintenance cost,
which will be required during the initial 5 years
• Proposal of strategic crude oil storage in India and
current status.
• In January 2008, India decided to begin construction
of strategic crude oil storage in Visakhapatnam,
Andhra Pradesh which was one of the three sites
selected for the establishment of crude oil reserves
of 5 million metric tons a year that is equivalent to
the country's 15 days requirement.
and current status.
• Indian Strategic Petroleum Reserves Ltd, a
subsidiary of Oil Industry Development Board.
India plans eventually to double the overall
strategic reserve capacity to 73.3 million
barrels, twice the 15 days cover planned
currently. But this has yet to be approved.
and current status.
• USA has 50% of the world’s Strategic Reserves
which is approximately 700 million barrels, the
remaining reserves of 700 million barrels are
maintained by the rest of the world - currently
the 25 other nations (besides the US) of the
International Energy Agency (IEA), including the
European Union, Japan, South Korea and Canada.
and current status.
• Further, countries including the US (which
plans to increase the SPR by an additional 300
million barrels), Australia, Asia and the EU may
be drawing up plans to increase the size of
their SPRs
Arctic Meltdown
Capt Sarabjit Butalia

MSc MNI
August 2009
Arctic Meltdown
Northwest Passage
North West Passage
• Northwest Passage (NWP)
• The NWP is a sea route through the Arctic Ocean,
connecting the Atlantic and Pacific Oceans along the
northern coast of North America via the waterways
among the Canadian Arctic Archipelago.
• It includes five to seven different seaways through
the Archipelago, including the McClure Strait, the
Prince of Wales Strait, and Baffin Bay via the Davis
Strait.
Northeast passage (NSR)
• The NSR, formerly known as the Northeast Passage, is
a waterway linking the Atlantic Ocean with the Pacific
Ocean, mostly along the Russian coast of Siberia.
• The route was formally opened for navigation in the
early 1930s and its administration was set up in 1932,
and since then it has supervised navigation and built
Arctic ports.
• The opening of the NSR gradually took on a strategic
military project complexity, and remained as a sea
• route mainly for Russian cabotage.
Arctic Meltdown
• Northwest Passage
• A study made by the Arctic Council concludes
that the navigational season (the period when
the ice at the sea level reduces by 50 percent)
are estimated to rise from current 20-30 days
in September to around 120 days by the next
century – in other words from one to four
months of the year.
Arctic Meltdown
• Northwest Passage
• This effect could reshape the entire transport
system in the world.
• International climate change experts envisage
that melting glaciers from the North Pole will
make it possible for ships to operate in the
Northwest Passage.
Arc tic Ocean meltdown
• The shipping shortcuts of the Northern Sea

route(over Europe) and the Northwest Passage
(over North America) would cut existing oceanic
transit by days ,saving shipping companies.
• The Northern sea route would reduce the sailing
distance between Rotterdam and Yokohama from
11,200 nautical miles via current route through
the Suez canal to only 6,500 nautical miles a
saving of more than 40 percent.
• Likewise the Northwest Passage would trim a

voyage from Seattle to Rotterdam by 2,000
nautical miles ,making it nearly 25 percent
shorter than the current route via the Panama
Canal.
• The saving on a single voyage by a large
container ship as much as 20 percent from
approximately $17.5 million to $ 14 million.
• Shipping Industry will save billions of US

Dollars.
• Currently some of the megaships are unable
to pass through the Suez and Panama canal
• Arctic route shall help avoid the commercial
and military ships to use Middle Eastern
waters which are politically unstable and
pirate infested.
• In 1969 SS Manhattan sailed through the

Northwest passage with the aid of the ice
breakers.
• Manhattan completed the voyage but shipping
companies found the route impractical and
prohibitively expensive and therefore opted
for Alaska pipe line.
Arctic Meltdown
• Distances
• From Tokyo to London via the Panama Canal it
is 23,000 km.
• The same journey via the Suez Canal is 21,000
km
• The route through the Northwest Passage is
• 16,000 km.
• That will save about two weeks travelling time.
Arctic Meltdown
• Lethal History
• In 1845 Sir John Franklin was ordered by the
Queen Victoria to search for the Northwest
Passage.
• He took two vessels, a crew of 134 men and
three years of supply including fine crystal, a
piano and 1,200 books on the trip. No one
returned.
Arctic Meltdown
• Lethal History
• The Royal Canadian Mounted Police schooner,
St. Roch was in 1940-42 the first ship to travel
the route in both direction
Arctic Meltdown
• Deadly Future:
• The ice expansion reaches its minimum
• in September every year. In 2007 it was one
million square kilometers less than its former
• minima reached of 2005 and 2006.
• In the 70s the ice was almost four meters
thick. Today it is just over two meters.
• But today such voyages are possible.

• Marine Insurers recalculate the risks involved
in such voyages.
• Arctic routes shall prove to cost saving of as
much as 40% and thus prompt further
competition between the Panama and Suez
Canal.
Arctic Ocean meltdown
• Choke Points such as Malacca Strait would no

longer dictate shipping patterns
• Arctic seaways would allow for greater
international economic integration.
• In order to navigate in such areas world’s
shipyards are building ice-capable ships
• In 2005 there where 262 ice class ships today
234 more are on order.
Arctic Meltdown
• Deadly Future:
• Today we have no effective way to protect the Arctic.
Admiralty laws govern the economic rights but not the
environmental destruction.
• If we exploit the oil and gas in the area we continue
the vicious circle of using fossil fuel which is the very
reason for the de-glaciation.
• Soon the mainland ice begins melting to a greater
extent and we have to face rising sea levels and some
low-laying countries will have serious problems.
Arctic Meltdown
• Deadly Future:
• When we can extend fishing further north, the
risk of over-fishing increases and it becomes
even harder for the eco-system to recover.
• Deglaciation threatens the polar bears with
extinction as they can only hunt on the ice.
• Global warming has given birth to a new scramble

for territory and resource among the five Arctic
powers.
• Russia was the first to claim stake and submitted a
claim to the United Nations for 460,000 square miles
of resource rich area.
• Canada has announced funding of new Arctic naval
patrol vessels ,a new deep water port and a cold
weather training center along the North West
Passage.
• Denmark ,Norway which control Greenland

and the Svalbard Islands respectively are also
anxious to establish their claims.
• While the Arctic powers are racing USA
remained on the side lines as US senate so far
has not ratified the UNCLOS ( Law of the Sea
Convention)
• Why is their rush by countries to stake claim?

• According to US Geological survey and the
Norwegian Statoil Hydro estimate that Arctic holds as
much as one quarter of the world’s remaining
undiscovered oil and gas deposits.
• Resources calculate that the territory claimed by
Moscow could contain as much as 586 billion barrels
of oil.
• Environmental Impact due to commercial

shipping.
• In the opinion of the IMO ‘ships operating in the
Arctic environment are exposed to a number of
unique risks’ such as adverse weather conditions
and relatively poor charts ,communication
systems and other navigational aids. In addition,
rescue or pollution clean-up operations are
difficult and costly due to their remoteness.

shipping.
• Navigating in ice-infested areas needs to be
done slowly, meaning more emission
concentration of the anti-fouling paints in a
smaller area.

shipping.
• BW may be considered one of the major
threats to the marine environment (IMO,
2005), as it introduces and spreads Invasive
Aquatic Species (IAS).
• Environmental Impact due to commercial shipping.

• These IAS may be moved from one environment to
another. BW, as well as residual water and
sediments remain in a BW tank and may include
organisms such as pathogens,phytoplanknotson,
zooplanknotson, macrophytes, mollusks,
invertebrate resting stages and fish, which most
probably when discharged into the water of another
port would establish a new population of species or
expand the existence of others
• NSR to serve cruise ships in particular, which

are expected to be operated in the areas as
the passenger ships are a major source of
black water most often combined with solid
waste.
• Spilling oil in ice-infested water could cause

severe marine pollution and a great risk for
the environment for prolonged periods of
time.
• Navigating in ice is really a risky operation due
to the harsh weather condition, poor visibility,
the ice-hull contacts and the related restricted
manoeuvrability.
• Due to climate change, it is expected that
icebergs to increase in number while
converting to calves or bergy bits .
Draft Maritime Policy
Capt Sarabjit Butalia

MSc MNI
August 2009
• The draft maritime policy sets the agenda in
development of the port for next 20 years.
• The policy is yet to be finalized although it was
drafted in August 2004.
• Policy awaiting final approval and has been
implemented in parts.
• The policy seeks to combine vision and strategy for
the maritime sector through coordinated
development of ports ,shipping and inland water
ways and ship building industry.
• The policy gives importance to the cost-effective
movement of cargoes ,transparency of decisions on
objective considerations in matters of investment
decisions ,the efficiency of operations of
infrastructure as well as the relevance of core
competent maritime personnel.
• In the port sector the policy will focus on
modernization of existing ports and
upgradation of their facilities in order to bring
them on par with leading port across the
world.
• The policy will also promote hinterland
connectivity to ensure least –distance access
of cargo to ports and to offer a choice of
terminals inside ports to trade.
• The policy also aims to encourage and foster
port specialization and to introduce inter-port
complementariness for the overall
optimization of efficiency in the port sector.
• Under the policy increased flows of
investment both domestic and foreign will be
facilitated and at the same time ,it will ensure
a competitive environment that would
preclude the prospects of emergence of
monopolies.
• According to policy ,multimodal transport will
be promoted in the interest of time and cost
efficiency.
• Under the policy various measures will be
taken to promote and strengthen ship building
ship-repair and ship breaking activities
including indigenous ship design and research.
• The policy will encourage developing and
integrating inland waterways to the national
transport network comprising maritime
outlets as well as other points of interface
with other surface transport modes.
• In last three years draft Maritime Policy has been
implemented in parts:
• Example the land policy for major ports was
finalized in 2004 while the dredging policy
became effective from 1st April 2008.
• Electronic data interchange has already been
implemented at all major ports.
• Dock labour boards have merged with the major
port trusts( Kolkata and Kandla)

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Oil and Gas Policy Issues

Capt Sarabjit Butalia MSc MNI

Capt Sarabjit Butalia

• The shipping shortcuts of the Northern Sea

• Likewise the Northwest Passage would trim a

• Shipping Industry will save billions of US

• In 1969 SS Manhattan sailed through the

• But today such voyages are possible.

• Choke Points such as Malacca Strait would no

• Global warming has given birth to a new scramble

• Denmark ,Norway which control Greenland

• Why is their rush by countries to stake claim?

• Environmental Impact due to commercial

• Environmental Impact due to commercial

• Environmental Impact due to commercial

• Environmental Impact due to commercial shipping.

• NSR to serve cruise ships in particular, which

• Spilling oil in ice-infested water could cause

Capt Sarabjit Butalia

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