AN OVERVIEW OF INDIAS OIL AND GAS MARKET

Western Australia Trade Office India

Mumbai 93, Jolly Maker Chambers 2 Nariman Point Mumbai - 400 021 Phone: 91-22- 6630 3973 76 Fax: 91-22- 6630 3977

April 2011

Contents Page EXECUTIVE SUMMARY........................................................................................................3 INTRODUCTION ....................................................................................................................4 INDIAN ECONOMY ...............................................................................................................4 INDIAN ENERGY SECTOR ...................................................................................................5 Role of Oil & Gas in India's Energy Mix ............................................................................. 5 Demand-Supply Imbalance ............................................................................................... 6 UPSTREAM AND DOWNSTREAM SEGMENTS...................................................................7 The New Exploration Licensing Policy (NELP) .................................................................. 8 Pricing Regime in India ...................................................................................................... 9 Oil Field Services............................................................................................................... 9 Outlook for E&P activity in India......................................................................................... 9 Refining in India and Key Players .....................................................................................10 GAS INDUSTRY IN INDIA ...................................................................................................11 Coal Bed Methane (CBM).................................................................................................12 Gas Transportation and Distribution .................................................................................12 City Gas Distribution ........................................................................................................13 Liquiefied Natural gas ( LNG) ...........................................................................................14 Petroleum Product Pipelines ............................................................................................14 FUEL RETAILING................................................................................................................15 OVERVIEW OF THE INDIAN TAXATION SYSTEM ............................................................16 I. Direct Tax ......................................................................................................................16 II. Indirect Tax...................................................................................................................16 III. Regulatory and Tax Regime for the Upstream Sector ..................................................17 INVESTMENTS IN INDIAN OIL AND GAS SECTOR ..........................................................17 WESTERN AUSTRALIAN CAPABILITY/ LEVEL OF INTEREST IN THE MARKET ...........17 OPPORTUNITIES FOR WESTERN AUSTRALIA IN INDIAN OIL & GAS INDUSTRY ........18 INTERNATIONAL SUCCESSES .........................................................................................19 KEY INTERNATIONAL CONFERENCES ............................................................................20 KEY INDIAN REPRESENTATIVES SUITABLE TO BE INVITED TO VISIT AND/OR LEAD BUSINESS DELEGATIONS TO WA SHOWCASES WA CAPABILITY AND INTRODUCE POTENTIAL PARTNERS ....................................................................................................20 CONCLUSIONS ...................................................................................................................22 ACKNOWLEDGEMENTS ....................................................................................................23 REFERENCES .....................................................................................................................23

EXECUTIVE SUMMARY
India has one of the fastest growing economies in the world, and the demand for oil and gas is rising at a matching rate. Not only is Indias market potential huge, but in recent years India has emerged as one of the most prospective regions in the world with major oil and gas discoveries, both onshore and offshore. India has total reserves (proved & indicated) of 1,201 million metric tonnes (MMT) of crude oil and 1,437 billion cubic metres (BCM) of natural gas as on April 1, 2010, according to the basic statistics released by the Ministry of Petroleum and Natural Gas. Against a crude oil production of about 37 million tonnes per annum (MTPA), Indias consumption currently exceeds 138 million tonnes. In 2010, 194 MMT of crude oil was refined and actual natural gas production was 31.0 BCM. By the end of 2012, the refinery capacity is expected to reach 240.96 million metric tonnes per annum (MMTPA). The refining capacity of the oil refineries in India has undergone nearly a three-fold increase in 2010. The country exported 50.974 MMT of petroleum products during 2009-10. To provide energy security, the Government of India is seeking private and foreign investments in excess of $250 billion in both the upstream and the downstream sectors during the next 10 years. Indias petroleum product consumption has grown by 4-5% over the past 10 years and the oil demand in India is expected to rise to 368 MMTPA by 2025. With widening gap between demand and supply, both for oil and gas, the outlook for the upstream sector is extremely positive. While oil and gas will continue to play a substantial role in the total energy mix, the need for harnessing alternate energy sources like Coal Bed Methane (CBM), Underground Coal Gasification (UCG) and Shale Gas (gas locked in sedimentary rocks) will become crucial to balance the demand and supply. The Government of India approved the New Exploration Licensing Policy (NELP) on April 9, 2009, to tackle the increasing demand supply gap of energy in India. In the eighth round of the NELP-VIII, 1.62 km2 areas will be covered comprising of 70 oil and gas blocks and 10 areas for the extraction of coal bed methane (CBM) gas from below the coal fields under CBM-IV. Petroleum & Natural Gas Ministry launched the ninth round of NELP (NELP-IX) in New Delhi on October 15, 2010. NELP-IX offered 34 exploration blocks comprising of 8 deepwater blocks, 7 shallow water blocks and 19 on land blocks. Moreover, the government is planning its first ever offer of shale gas exploration permits in 2012. Shale gas (gas locked in sedimentary rocks) is an emerging area and has become an important source of energy in a few countries which have been able to commercially exploit this resource. In this report an attempt has been made to provide the broad understanding of the oil and gas sector in India across the industries. The upstream and downstream processing sectors, key players, key market, transportation and distribution network, fuel retailing, Indian taxation systems have been presented. The Western Australian capability/ level of interest in the market have also been described.

INTRODUCTION
Indian oil and gas sector offers a considerable opportunity for investors and shows healthy development in conformity with the escalation of the Indian economy. The New Exploration Licensing Policy (NELP), which was envisaged to deal with the increasing demand-supply gap of energy in India, has confirmed to be successful in attracting the interest of both domestic and some overseas players. The prosperity of Cairn India and Reliance Industries Limited in their Indian operations has emphasized this. Other sectors such as Refining, LNG, and City Gas Distribution etc. are also getting sufficient attention. India has now an excess refining capacity and aspires to prove itself as a major refining centre. This report outlines the oil and gas sector in India and how companies can go about achieving their business goals in the sector. It aims to provide a basic understanding of the players, size, major developments, and dynamics of India's oil and gas sector across the industries. Further, the report includes sections that provide summary of India's economy, its energy sector, the Indian upstream sector, coal bed methane, refining, gas transportation and distribution, LNG, petroleum product pipelines, fuel retailing, and India's taxation regime. A brief note on the Western Australian oil and gas industry has also been presented. Opportunities for Western Australia in the Indian oil and gas sectors have also been described.

INDIAN ECONOMY
India is presently the world's fifth biggest energy consumer in the world. However, due to its high population of roughly 1.2 billion the per-capita consumption of most energy associated products is exceedingly low. The per capita energy consumption is assessed to be a very small 530 kg of oil equivalent (kgoe), while the world average is in the order of 1800 kgoe. The Indian economy is assumed to display sound growth, which is evaluated to be in the region of 6.6 percent in 2009-10. Confidence regarding the provision of India's future growth potential arises from its comparatively high levels of internal need and its advantageous demographic dividend-the median age stood at 25.3 years in 2008 with only 5.3 percent of the population being above 65 years of age. This healthy internal need is best exhibited by the fact that the months of January and February 2010 saw telecom wireless subscriber additions at an amazing 15.41 and 13.44 million respectively. When equated with other countries, India's GDP is expected to continue to grow at rates above 5 percent and higher in the short term. As China's development becomes modest, as the chart below demonstrates, India is expected to develop at a rate in excess of its eastern neighbour. Also Indias foreign exchange reserves valued to be around US$250 billion in March 2009.

INDIAN ENERGY SECTOR

India's per capita consumption of energy is really small as compared to other countries and the world average. There is a huge potential in India for the escalation of energy consumption, should the supply grow to meet the demand as it fosters. The start of production of natural gas from Reliance Industries Ltd's (RIL) Krishna Godavari (KG) fields and the planned initiation of production of crude oil from Cairn India Ltd's fields later this year have provided a main expansion to the Indian oil and gas sector and company intends upstream activities to receive greater consideration over the past years. India's fuel requirements are likely to increase at a considerable pace. India already imports over 70 percent of its crude oil needs, with its oil import bill being close to US$ 90 billion in 2009-10. In addition, some of the existing oil and gas fields are facing a drop in production. Which have already been in production for several years, and reached their peak. The issue of energy security was brought to the forefront of strategic decision making and an urgent need was felt to enhance the internal supplies of oil and gas. In addition to NELP, other endeavours were made to look into the requirement for attaining energy security, such as: Procurement of Oil and Gas assets abroad, the latest being ONGC Videsh's acquisition of Imperial Energy Establishing strategic storage facilities at known locations Exploring alternate sources of Energy, including Coal Bed Methane, gas hydrates, etc Enhancing the recovery of oil and gas from existing fields through methods such as Enhanced Oil Recovery (EOR) and Increased Oil Recovery (IOR).

Role of Oil & Gas in India's Energy Mix Oil is a highly important energy source in India and accounts for 36 percent of the Primary Energy Mix. Taken with natural gas, this percentage rises to 45 percent. Nevertheless, the amount of natural gas is in the region of one-third that of the world average, once again representing the potential for rapid growth. It may be noted in

this context, that a heavy reliance on coal in India is not the best, given that coal is a far more polluting fossil fuel as compared to natural gas.

Demand-Supply Imbalance Declining crude-oil production and fast economic growth have assisted to increase the demand-supply disparity for crude oil and gas in India. The gas deficiency is likely to be reduced to some extent though RIL's KG Basin gas production. Utilization in India grew by 6.8 percent in 2008, the third largest volumetric rise after China and United States on a yearly basis. This growth in demand is likely to be persistent over time, creating an ever-growing need for imports. Similarly, natural gas demand in the country has far surpassed supply and deficits before RIL's production evaluated at close to 100 million metric standard cubic metres per day (mmscmd). This in turn, eventuated in the insufficient or below standard use of infrastructure: both gas-based power plants and fertilizer units were allowed to remain inactive, or forced to operate using expensive liquid fuels, such as naphtha, resulting in higher a subsidy burden on the Government, which was forced to subsidize urea manufacture or import fertilizer from abroad.

UPSTREAM AND DOWNSTREAM SEGMENTS

The upstream segment comprises exploration and production (E&P) activities. The downstream segment comprises the refining and production of petroleum products, processing, storage, marketing and the transportation of commodities such as crude oil and natural gas. In India, oil was first explored in Digboi, Assam, but it remains an extensively unexplored territory by far, with only a small percentage of its sedimentary basins under exploration and development. Exploration activity, previous to NELP, was governed by public sector firms such as Oil and Natural Gas Corporation Ltd. (ONGC) and Oil India Ltd. (OIL). The sector got a major boost in 1974, when the huge Mumbai High fields were discovered off India's west coast. Even after three decades, these fields keep on to be the backbone of India's domestic production. Recognizing that these fields would gradually exhaust over time and no major discoveries were carried out, the Government instituted the NELP, with an objective to encourage private sector participation in the oil and gas sector. Furthermore, the efforts to discover new fields, ONGC, in particular at present, has been trying to turn-back or decrease the decline in its existing old fields through Improved Oil Recovery (IOR) or Enhanced Oil Recovery (EOR) techniques. Besides, new technologies such as Underground Coal Gasification (UCG), harnessing Coal Bed Methane and the exploration of Gas Hydrates are some of the drives taken up to improve internal production.

The New Exploration Licensing Policy (NELP) Latest rounds of NELP have attracted the interests of Indian private sector and overseas companies, with the private sector giant, RIL, winning the maximum number of blocks after the state-owned ONGC. A number of overseas players such as Cairn, BHP Billiton etc have also participated in the bidding rounds, forming consortiums with domestic and other foreign players. On the other hand, some of the super-majors, such as ExxonMobil, Shell etc continued to watch from the sidelines, rather than make their presence felt in the bidding rounds. The NELP was devised by the Government during 1997-98 to provide a level playing field to both the Public and the Private sector, through assigning acreages on the basis of open competitive bidding as against to the nomination basis as in past. Companies are anticipated to bid on the following variables: The Work Programme committed to be commenced Percentage of value of annual production sought to be billed towards cost recovery Profit petroleum share offered to the Government at various levels of Investment Multiples.

The importance of the above three variables has changed from one round to the other over the seven rounds of NELP. Eight rounds of NELP have been carried out so far. The outcome of the rounds can be gauged in the enhanced exploration activities in the country. The share of unexplored acreages has seen a substantial drop, from 40 to 15 percent, according to the upstream regulator, the Directorate General of Hydrocarbons (DGH). Similarly, there are at present 14 producing basins, as opposed to just three in 1990. Several new operators too have entered the fray as against to just the Government owned ONGC and OIL as previously. Currently, the Ministry of Petroleum and Gas (MoPNG) has been providing more blocks of smaller sizes based on feedback received from earlier rounds. NELP VIII will see 70 blocks on offer in the first phase, comprising 24 deepwater blocks, 28 shallow water blocks and 18 on-land blocks. These 70 blocks cover a sedimentary area of about 164,000 square kms, which is roughly 5.2 percent of Indian sedimentary basin area. The major discoveries in the last decade have been that of Reliance in the KG Basin and Mahanadi fields, ONGC and Gujarat State Petronet Corporation's (GSPC) claimed finds also in the KG Basin and the discovery of oil in Barmer, Rajasthan, by Cairn in 2002-03. RIL is expected to be able to produce over 80 mmscmd of gas by 2010-11, thus doubling domestic availability and improving the large-scale shortages currently common in the country (the company has currently started production of gas and the first 40 mmscmd of gas volumes have been allotted by the Government to fertilizer, City Gas Distribution 4 (CGD), petrochemical and power units). Cairn, in turn, is anticipated to produce close to 175,000 barrels of oil by 2010-11 from its Mangala, Bhagyam and Aishwarya fields, helping to deal with energy security issues to some extent.

Pricing Regime in India The Government of India fixed the end-consumer prices of fuel sold at retail pumps under the Administered Pricing Mechanism (APM), and upstream companies such as ONGC and OIL were asked to partially bear the burden of under-recoveries of the Oil Marketing Companies. APM prices are amended from time-to-time, but are currently well below current market prices. In the case of NELP blocks, the PSC provides for marketing freedom for the contractor; however, the recently announced allocation policy hinders this to some extent. The gas from domestic Joint Venture (JV) fields and imported LNG is also sold at non-APM prices; and some customers have given the consent to pay relatively high prices for spot Liquefied Natural Gas (LNG) imported by Petronet LNG or Shell at their Dahej and Hazira terminals respectively.
Snapshot of Previous Rounds of NELP

Oil Field Services With the augmented exploration activity in India post NELP, the future is expected to demonstrate improved demand for oil and gas related services in India, particularly on deepwater blocks and frontier basins. Services such as 2-D and 3-D seismic surveys, processing and interpretation, drilling rigs, well-logging, etc. are all anticipated to confirm healthy growth. Besides, shipping and supply related activities such as the use of tug-boats, Off-Shore Supply Vessels (OSVs), catering etc. are also likely to see an increased demand. For example, the DGH has estimated that USD 1.9 billion worth of investments could be made for onshore seismic surveys alone in the next few years (of which 50-55 percent would be met through captive crews of oil exploration companies such as ONGC and Oil India, while the rest could be outsourced to oil-allied services companies). In essence, the Indian service providers are likely to scale up their activities and capabilities. Besides enhancing their fleet size, they are likely to widen their portfolio by offering different specialized services and developing their manpower. Some of the local players might also aim to offer their services to other E&P firms across the world. Outlook for E&P activity in India The production from RIL's KG Basin fields, the planned start of Cairn India's production and the potential development of the discoveries announced by GSPC and ONGC, the E&P sector is ready to witness considerable activity in the near future. This could mean an increased interest in exploring India's hydrocarbon potential by overseas companies. However, the economic downturn (and the consequent cut-back in capital expenditures by some companies), as well as some doubt on freedom to market oil and gas and the applicability of tax concessions for the production of natural gas, could serve as a suppresser. On the contrary, the potential provided by certain acreages, particularly off India's east coast-the KG and Mahanadi Basins, means that the prospects for the growth of the upstream sector remains optimistic. It is anticipated that this is also likely to have a positive effect on the provision of off-shore services.

Refining in India and Key Players India, with its present capacity of about 178 million tonnes per annum (mtpa) is ready to come up as a major refining centre, with ample capacity additions being planned over the next few years. After the commissioning of Reliance Petroleum Ltd (RPL) (the company has now being amalgamated with RIL) 29 million tonnes per annum (mtpa) refinery at Jamnagar and the 10.5 mtpa refinery by Essar at Vadinar, both situated close to each other in Gujarat. Also sizable expansions are being considered by Essar at its existing refinery complex and by the public sector refineries such as Indian Oil, Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL). Today, there are 20 refineries, both large and small, in the country with even more additions being proposed (refer to the table below and Appendix I).

India, which has by now an excess of refining capacity, aims to become known as a major refining centre. Its advantageous site, close to the oil-producing regions of the Middle East, gives it an advantage in this mission, and the ability of the newest refineries to process heavy, low-grade crude, will extend more assistance in this regard. RPL's new refinery in Jamnagar, in particular, was established as an exportoriented one, with an aim to sell its refined products in the US market. The Gross Refining Margins (GRM) of RIL's existing refinery are among the highest in the region, due to its high intricacy index and resulting ability to process sour, highsulphur crude. Major expansions are planned at the Vadinar refinery of Essar, the Indian Oil Corporation (IOC) refinery at Paradeep and the planned refineries at Bina in Madhya Pradesh by BPCL and Bhatinda in Punjab by HPCL-Mittal Energy. Most of the private sector refineries are concentrating on the export market to a large extent. As far as the public sector unit (PSU) refineries are concerned, apprehensions have been revealed over the feasibility of the small refineries in the North-east, which are land-locked and possess a sub-optimal economic size. Most of the older refineries are also expected to upgrade themselves to meet new fuel specification standards. India is trying to come up as a refining centre even though global refining markets have tightened with the closure of small refineries in North America and Europe mainly due to challenges in spending in cleaner fuels and high compliance costs. Further, permits for Greenfield refineries are difficult to obtain in these countries due to environmental concerns. Therefore, capacity addition is mainly coming from emerging economies like India, China and some Middle Eastern countries. The Government of India has been giving tax incentives and fiscal incentives to new refineries. The new RPL refinery, for example, benefited from its Special Economic Zone (SEZ) status. However, current tax holidays would not be available to nonpublic sector refineries that commence activities after April1, 2009. In the interim, India does have a number of other viable advantages such as its favourable location, lower construction and operating costs etc. However, given the current economic crisis, some analysts feel that export markets for all the products produced by the Indian refineries may be difficult to come across.

GAS INDUSTRY IN INDIA

Availability of natural gas, including imported LNG, is expected to intensify in the country by over 52 per cent to 271.92 million cubic meters a day by 2013-14. The Union Minister of Petroleum & Natural Gas has stated that at present, total availability of natural gas in India, including liquedified natural gas (LNG) is around 167.80 mmcmd, which is likely to be around 202.97 mmcmd, 256.6 mmcmd and 271.92 mmcmd during 2011-12, 2012-13 and 2013-14 respectively.To take the advantage of prospect presented by the alarming gas surge in India, the Gas Authority of India Ltd (GAIL) is spending substantially in its pipeline network. Over the next three years, it will invest US$ 660.7 million-US$ 770.8 million, enlarging its transmission capacity from the current 150 MSCMD to 300 MSCMD. Moreover, GAIL which has signed a Memorandum of Understanding (MoU) with the Karnataka government, which will spend US$ 423.6 million this year to lay an 800-km

pipeline to transport gas from the LNG terminal in Dabhol to Bidadi near Bangalore. GAIL expects the project to be completed by March 2012. Currently, Punj Lloyd Group has secured a US$ 87.57 million deal from GAIL India for laying a natural gas pipeline from Dabhol to Bangalore. Further, GAIL has commenced construction of its KaranpurMoradabadKashipur Rudrapur/Pant Nagar natural gas pipeline at Kashipur, Uttarakhand. The assessed expenditure on the project is US$ 40.22 million. The State-owned Oil and Natural Gas Corp (ONGC) has said that its natural gas production will go up by over 58 per cent to 100 million cubic metres a day by 201516 after it puts its eastern offshore fields into production, said R S Sharma, Chairman and Managing Director, ONGC. Natural gas production will climb to 72 million standard cubic metres per day (MMSCMD) in 2012-13 from 63 MMSCMD in 200910.The US Overseas Private Investment Corporation (OPIC) will provide US$100 million in financing for the US$ 300 million South Asia Energy Fund, part of the Global Environment Fund (GEF). The South Asia Energy Fund will spend in solar, wind, hydropower, advanced biofuels and natural gas projects, with focus on Indian investment. GSPC Gas Company Ltd, a gas distribution arm of state-run Gujarat State Petroleum Corporation (GSPC), has put the target of attaining 300,000 piped natural gas (PNG) connections by 2012. The company presently has 192,000 PNG connections across Gujarat. Coal Bed Methane (CBM) The Government evolved a Policy for Coal Bed Methane in 1997 so as to utilize the countrys enormous coal reserves and the methane gas trapped in coal seams,. The MoPNG was to be the administrative ministry with the Directorate General of Hydrocarbon (DGH) as the implementing agency and accordingly, a MoU was signed between the MoPNG and Ministry of Coal in September 1997. The first meeting on CBM was held in 2001, on the lines of NELP, with competitive bidding deciding the award of acreages. So far 3 rounds of bidding have been concluded and 26 blocks have been awarded. The fourth round of CBM has been declared along with the latest round of NELP. The CBM reserves of 6 trillion cubic feet (tcf) have been established. Major players in this sector are Arrow Energy, Gas Authority of India Ltd. (GAIL), ONGC, Great Eastern Energy Corporation, BP Exploration, Reliance Energy Ltd, Reliance Natural Resources Ltd, GeoPetrol and others. Gas Transportation and Distribution The transmission and distribution sector of the natural gas stays comparatively immature, but this is expected to alter in the medium term. 1. Gas Transportation For a lengthy period in India, there was only one major long distance gas transportation pipeline, joining ONGC delivery point near Hazira in Gujarat to demand centres in the north-west corridor of the country including Jagdishpur in Uttar Pradesh and Vijaipur in Madhya Pradesh. This pipeline, 3187 kms long and with a capacity of around 34 mmscmd was run by the former public sector monopoly GAIL India Ltd and persists to serve a number of large power and fertilizer plants, besides

smaller industrial units lying along its route. In recent times, GAIL has constructed a few other pipelines, connecting the LNG terminal at Dahej to Vijaipur and Uran and the power plant at Dabhol to Panvel.

Furthermore, major pipeline expansions have also been commenced by the private sector, particular Reliance Gas Transportation India Ltd (RGTIL), which has constructed the 1,386 km long East-West pipeline connecting RIL's fields in Kakinada to centres of demand and ending at Bharuch in Gujarat. RGTIL also proposes to connect the KG Basin fields to Haldia in West Bengal and Chennai and Bangalore. The map in Appendix II illustrates the major existing pipelines and the ones planned as part of the 'National Gas Grid'. Trans-national Pipelines The Government has been examining the possibility of bringing in gas from countries such as Iran, Turkmenistan, Bangladesh and Myanmar through pipelines. Various initiatives are under scrutiny, which include: The Iran-Pakistan-India (IPI) Gas Pipeline Project: The IPI Gas Pipeline Project has been conceived as a tripartite arrangement between Iran, Pakistan and India, with the volumes being divided between the two importing countries of India and Pakistan. The pipeline is estimated to cost around USD 7.5 billion and is projected to be 2300 kms in length. Although some progress was made, several notable issues remain. Issues around pricing, delivery point transit fees to be paid to Pakistan, certification of reserves of the fields meant to supply gas are yet to be determined. Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project: This Asian Development Bank (ADB) sponsored project is likely to connect sources of supply, in Turkmenistan to sources of demand in Pakistan and India. The pipeline being considered will have a length of approximately 1680 kms (including 145 km in Turkmenistan, 735 km in Afghanistan and 800 km in Pakistan up to the India border) and a capacity of 90-100 mmscmd. Once again, while some progress has been made in discussions, issues regarding gas pricing, transit price and security of the pipeline in Pakistan, transmission tariffs etc. are to be adjudicated. Myanmar-India pipeline: A 1,575 km5 long pipeline connecting the Shwe field in the A-1 block in Myanmar, in which both ONGC Videsh and GAIL own a stake, was proposed to bring gas to India, while passing through Bangladesh. However, not much progress has been made on this issue lately. II. City Gas Distribution The boost in gas supplies and gas transmission infrastructure is also liable to provide a stimulus to City Gas Distribution (CGD) players. So far, only a small number of

major players are present in the market: these are Indraprastha Gas, Mahanagar Gas, Gujarat Gas and GSPC Gas which distributes Piped Natural Gas and Compressed Natural Gas to cities in Delhi, Mumbai and Gujarat respectively. Recent years have noticed some activity, with a number of players registering their presence. In particular, GAIL has formed Joint Ventures with other PSU firms to distribute gas in a number of cities. With the importance being laid on a cleaner environment and lower pollution levels in cities, CGD is likely to get a push in the future. Thus, apart from GAIL, handful players have drawn up grand plans to roll out city gas infrastructure across a number of cities in the country. States which are likely to see further activity include Uttar Pradesh, Maharashtra, Andhra Pradesh, Rajasthan, Karnataka, Kerala, Madhya Pradesh and West Bengal. The establishment of the Petroleum and Natural Gas Regulatory Board (PNGRB) following the passage of the PNGRB Act is likely to help in the further development of the sector. The Board shall regulate existing players, and promote the development of CGD networks in new cities. In fact, the Chairman of the PNGRB was quoted stating that natural gas would be available in 84 cities by 2011 and 250 cities by 2018. The PNGRB has begun the process of inviting applications for CGD licences in the country. Licenses are to be awarded through an open competitive bidding process, with their being a level playing field for both domestic and foreign units. Lately, requests were received for six cities put up for bidding. The main driver for the development of gas transmission and CGD will be the availability of essential volumes of gas. With the development of RIL's KG Basin and other fields, the opening could be available; what now matters is whether the CGD license-holders can obtain gas supplies and develop gas distribution infrastructure. Liquefied Natural Gas (LNG) At present India has two operational LNG terminals, both situated in Gujarat, one by Petronet LNG Ltd. (PLL) at Dahej and the other at Hazira instituted as a Joint Venture between Shell and Total. While the size of the Dahej plant is being extended from 5 to 7.5 and later to 10 mtpa de-bottlenecking operations have resulted in the merchant Hazira terminal being able to process around 3.6-4 mtpa of LNG. A couple of other terminals are also being planned, at Kochi in Kerala (also by PLL) and Mundra in Gujarat. Meanwhile, some progress is also being made to bring the partially constructed terminal at Dabhol into operation in which GAIL and National Thermal Power Corporation (NTPC) have a majority stake. Besides the gas meant for the Ratnagiri (the erstwhile Dabhol) plant, it appears that other parties may be allowed to use this terminal to re-gassify LNG obtained from various sources in return for a fee. India is in discussions with various companies in the Middle East, particularly Qatar, and Australia to source LNG for the terminals currently under operations or planned for the future.
:apactiy

Petroleum Product Pipelines India has a network of petroleum product pipelines connecting sources of supply / refineries to sources of demand. IOC has the largest network, with pipelines such as the Haldia-Barauni, Barauni-Kanpur product lines and the Mundra-Panipat crude oil

pipeline. GAIL has established two LPG pipelines, from Jamnagar to Loni and Vishakhapatnam to Secunderabad respectively. Appendix III provides a map of the existing and proposed Product Pipelines.

FUEL RETAILING
The private sector was not authorized to operate in the retailing of fuel up to 2002. Consequently, the Government determined to open the sector to private participation, subject to certain restrictions. In particular, private companies were required to carry out investment of at least USD 400 million in refineries, pipelines or other energyrelated assets in the country over a period of time. The Government, with its aim of protecting the Indian consumer from unpredictability of crude oil prices in the international markets, has been subsidizing end-user prices, as mentioned before. Very often, this has translated into a large subsidy being given to the internal consumer, with the burden of this subsidy being shared between the oil marketing firms, the Government (which has been issuing oil bonds to the PSU marketers to give back them for their under-recoveries) and the upstream PSU firms of ONGC and OIL. For example, in May 2008, the oil marketing companies were forced to take daily losses of around USD 120 million on the retail sales of diesel, petrol, LPG and kerosene. Currently, the total petroleum subsidy bill is close to USD 20 billion comprising USD 11.8 billion for diesel, USD 1.3 billion for petrol, USD 3.2 billion for LPG and USD 5 billion for kerosene. Since the Government does not compensate the private marketing firms for their losses, their businesses can become unviable at the time of high global crude oil prices. Owing to indirect control of the Government over enduser fuel prices, the fuel retail market in India prolongs to be subjected by PSU firms with Indian Oil boasting of an approximately 50 percent market share, while the other public sector fuel marketing firms HPCL and BPCL have an approximately 25 percent market share each. While the private sector firms of RIL, Essar and Shell have entered the market, they could not maintain their operations. In fact, RIL's nearly 1,450 fuel pumps have been lying idle for many months. Another feature of the Indian market is that the Government heavily taxes fuels, particularly petrol; it has been estimated that almost 50 percent of the current prices of petrol comprises of various taxes levied by the Central or State Governments. The Indian fuel market does have some potential, more so if market forces are allowed free control. The number of vehicles on Indian roads is expected to increase substantially, in line with projections of economic growth. Meanwhile, falling crude prices have re-awakened the interest of private sector players. Latest news items indicate that RIL is looking for a strategic partner for its fuel retailing business. Another opportunity lies in exploiting the potential of non-fuel retail at the existing fuel outlets, particularly given the prime location of fuel outlets at metros. Convenience shopping and the establishment of ATMs provide an opportunity. Fuel retailing shops with such additional facilities are also expected to spend in modernization and branding initiatives, with 'Club HP' of HPCL being one such initiative.

OVERVIEW OF THE INDIAN TAXATION SYSTEM

I. Direct Tax India has a federal level tax structure governed by the provisions of the Income Tax Act, 1961. It has an extensive set-up of agreements with over 90 countries across the world to prevent double taxation of income. As a result of economic reforms, the taxation system has undergone tremendous changes in the past ten years. The tax rates have been rationalized and compared favourably with many other countries. Further, over the period of time, the tax laws have also been simplified to ensure better compliances. Rates applicable for the financial year 2009-2010 are as follows: Resources Corporate tax rate Minimum Alternate tax (MAT) Dividend Distribution tax(DDT) Indian Company 33.99%* 11.33%* 16.995% Foreign Company 42.23%* 10.5575%* N.A.

Fringe Benefit tax (FBT) 33.99% 31.6725% 5 Rates applicable for the financial year 2009-2010 are as follows: MAT is applicable to a company, if tax payable by the company on its total income is less than 10 percent of its book profits. A company may be required to pay tax even during tax holiday period. Carry forward and set off of MAT is available for seven subsequent years. DDT is levied at the rate of 16.995 percent on the amount of dividend declared, distributed or paid by an Indian company.DDT is payable in addition to regular corporate income tax. FBT is payable by an employer on the benefits provided or deemed to have been provided to the employees. Tax is payable on value of fringe benefit as prescribed i.e. 5 percent, 20 percent or 100 percent of the costs incurred on such benefits. II. Indirect Tax Service Tax: Service tax is applicable on identified services provided or received in India. Service tax is applicable at 10.30 percent. Engineering, management, scientific and technical consultancy, broadcasting, construction, IPR, insurance, manpower, communication, online access, training, cargo handling, business auxiliary services are some of the key categories. Export of services is exempt from service tax. Import of service is also liable to service tax. Custom Duty: Custom is payable on import of goods/ equipments into India. It is levied as per rates specified in the Customs Tariff Act. Peak rate of Customs Duty is 10 percent. , Custom Duty exemption is available for equipment and specialised goods, parts and raw materials.

III. Regulatory and Tax Regime for the Upstream Sector India also provides a customised tax regime for the upstream sector and nonresident service providers in relation to Exploration & Production operations. FDI up to 100 percent is permitted under the automatic route in the upstream sector A foreign company can setup a project office or an Indian company for undertaking upstream operations in India. One hundred percent tax holiday available in respect of profits earned from production of mineral oils. Tax holiday is available for seven consecutive years from the year of commencement of commercial production. However, companies availing deduction under these provisions would still be liable to pay MAT on 'book profits'.

INVESTMENTS IN INDIAN OIL AND GAS SECTOR

The Ministry of Chemicals and Fertilisers, Government of India has approved a scheme of investments worth US$ 25.25 billion in three areas under its flagship petroleum, chemicals and petrochemicals investment regions (PCPIR) policy. The investment consist of US$ 7.32 billion for physical infrastructure development, and the rest is project-specific investments committed by various public and private companies in three PCPIRs Visakhapatnam and East Godavari districts in Andhra Pradesh, Bharuch in Gujarat and East Midnapore in West Bengal. US-based industrial gases company Praxair has decided to invest about US$ 370.74 million into its India operations, said Gajanan Nabar, Managing Director, Praxair India. Chennai Petroleum Corporation Limited (CPCL) plans to invest around US$ 3.39 billion for the next five years for capacity expansion including a brownfield refinery project at Manali near Chennai with an expenditure of US$ 1.69 billion. Essar Oil proposes to enlarge its refinery capability by 2 million tonnes a year at Vadinar in Gujarat with an investment of US$ 278.46 million. The company will increase its volume to 20 million tonnes by 2012. According to Mr S. Sundareshan, Secretary, Petroleum and Natural Gas, public sector oil companies are going to be the major investors in Kerala over the next two years as they have allocated over US$ 1.61 billion money in the State. State-owned refinery and marketing firm, Hindustan Petroleum plans to spend US$ 4.87 billion into a new refinery with a capacity of 18 million tonnes per year in Maharashtra.

WESTERN AUSTRALIAN CAPABILITY/ LEVEL OF INTEREST IN THE MARKET

Western Australia dominates Australian petroleum production, accounting for 75% of gas and 65% of oil and condensate produced nationally. The state currently accounts for almost 9% of the global LNG production and a major expansion of LNG production is underway. Projects worth almost 120 billion committed, or under consideration will see the long established 16 million tonnes per annum (Mtpa) North

West Shell LNG project, joined by major new facilities over the next decade. These are: The Chevron led $43 billion Gorgon Project, one of the worlds largest single resources investment, which includes subsea production from offshore gas resources estimated at 40 trillion cubic feet and gas processing facilities with 15 Mtpa LNG production for export and 300 terajoules per day (Tj/d) of natural gas for domestic consumption. The project will also break new ground in greenhouse gas management through carbon dioxide injection into underground formations; Woodside Energys $12 billion Pluto LNG Project with an ann ual capacity of 4.3Mtpa, due for completion in 2011 and considerable future expansion is under active consideration; Woodside is also leading a $5 billion redevelopment, on behalf of the North West Shell Venture, of its North Rankin field to extend its field life to 2040; and Apache Energy has also started constructing the $800 million Devil Creek Development Project which will deliver up to 200 Tj/d of dry gas for domestic consumption from offshore resources, beginning in 2011.

Other projects under active consideration include Chevrons $23 billion Wheastone LNG projects and Woodsides estimated $30 billion Browse LNG development proposal which could open production from a new field in the Kimberley region. In addition two smaller floating developments, BHP Billitons $2 billion Pyrenees oil fields and Apache Energys $700 million Van Gogh oil field both began production this year. Other identified resources are in earlier stages of development, and exploration is continuing across the State, including many thousands of kilometres of seismic acquisition and a total of 89 new wells drilled in 2009. Western Australia is attracting growing Australian and international investment and participation in the petroleum sector, from exploration, through development and construction to export production. High levels of activity are also attracting a broad range of companies that provide services to the petroleum sector, to establish, or expand, operations in Western Australia and increasingly to base headquarters in Perth to service the wider Indian Ocean and South East Asia region. The Western Australian Government is actively supporting the sectors expansion by working to secure land and infrastructure for industry development.

OPPORTUNITIES FOR WESTERN AUSTRALIA IN INDIAN OIL & GAS INDUSTRY

The Indian economy is a net importer of almost all forms of energy. This fact, coupled with the countrys growing energy needs, has intensified discussions on energy security for the country. The Government of India is thus actively seeking private participation in the energy chain to bring in the required investment and technologies and is also promoting acquisition oil and gas reserves overseas. India is one of the largest emerging gas markets in the Asia-Pacific and poised to become a major export hub with plans to augment refining capacity. Indian Oil and gas industry is estimated at about US$140 billion; a large domestic market where demand outstrips

supply. There is a huge potential for the expansion of pipelines, transportation and infrastructure segments. Western Australia can take advantage of rise in demand-supply gap of natural gas in attracting investment, providing technologies for upstream and downstream segments and also supply of large quantities of LNG for power generation. Opportunities for Western Australia in Indian oil and gas segment are as follows: Petronet LNG, GSPCL, GAIL India have been bidding to buy LNG from WA on a regular basis. Gas Pipeline- based on the inflow of gas from WA as well as transportation of gas within India, there is a plan of over 2000 kms of laying gas pipeline across India. This in itself is an opportunity for WA clients to provide design & engineering services to Indian companies. There exists major opportunity for deep water technologies for off shore gas exploration projects being run by ONGC and Reliance Group. The consortium of HPCL/BPCL/Videocon has been bidding for on shore and off shore gas exploration investment projects in WA.

Western Australia could also offer other services as outlined below: Marine Equipment and Services Offshore Engineering & Design Services Offshore Platforms (Fixed and Floating) construction opportunities Pollution, Oil Spill Control, and Environmental Technologies Power Supply, Engines, and Turbines Process and production Equipment and services Project management services Pumps and Compressors Software Engineering Services & Equipment.

INTERNATIONAL SUCCESSES
ONGC Videsh Limited (OVL), a wholly owned subsidiary of ONGC, was incorporated in 1965. The primary business of this company is to prospect for oil and gas abroad. This includes acquisition of oil and gas fields in foreign countries as well as exploration, production, transportation and sale of oil and gas. OVL has presence in 17 countries. It has 37 oil and gas projects. OVL has production of oil and gas from Sudan, Vietnam, Syria, Russia, and Colombo. Block BC10 in Brazil is currently under development. Work is being carried out at Block A-1 and A-3 in Myanmar, North Ramadam Block and NEMED in Egypt, in Qatar and in Iran. Further OVL is pursuing acquisition of various oil and gas exploration and production opportunities in Central Asia, Latin America, Africa, Middle East and South East Asia, which are at different stages. As a result of the enforcement of Foreign Direct Investment (FDI) Policy, many companies such as Indian Oil, Reliance, Bharat Petroleum, HP, ONGC, BP, BG Group , Gaz de France, Chevron are actively involved in the oil and gas sector of India.

KEY INTERNATIONAL CONFERENCES

A number of international conferences and exhibitions are organised every year by Indian Institute of Petroleum, Deharadun, Uttarakhand, Pandit Deen Dayal Petroleum University, Gandhi- nagar,Gujarat, Confederation of Indian Industry (CII), New Delhi, The University of Petroleum and Energy, Dehradun, Uttara Khand, Institution of Chemical Engineers, Calcutta and ASSOCHAM, New Delhi. I have written to these organisations for the details. As soon as I receive the information, I will include them in an Appendix to this report.

KEY INDIAN REPRESENTATIVES SUITABLE TO BE INVITED TO VISIT AND/OR LEAD BUSINESS DELEGATIONS TO WA SHOWCASES WA CAPABILITY AND INTRODUCE POTENTIAL PARTNERS
Name
Indian Institute of Petroleum Reliance Industries Limited

Address
Mohkamnaga r, Dehradun, Uttarakhand, India Makers Chambers IV, Nariman Point, Mumbai, India ONGC, New Delhi A, Wing, Shastri Bhawan, 2nd, Floor, New Delhi-110001 301, World Trade Centre, Babar Road, New Delhi110001 Sanrakshan Bhavan, 10 Bhikaji Cama Place, New Delhi-110066 Ministry of Power, 4th Floor, SEWA Bhawan, RK Puram, New Delhi-110066

Contact person
Dr. M.S. Garg, Director

Telephone

Email

Dr. Mukesh Ambani

91-2222785504

Mukesh.ambani@ril.c om

ONGC Energy Centre Ministry of Petroleum and natural Gas Oil Industry Development Board

Dr. M.M.Kale, Director General Mr. S. Prakash Secretary 91-1123386407 sec@petroleum.nic.in

Petroleum Conservation Research Association (PCRA) Bureau of Energy Efficiency (BEE)

Mr. T.S. Balasubramania n Financial Adviser Mr. Arun Kumar, ED

91-1123413298

oidb@hotmail.com

91-1126198799

pcra@pcra.org

Dr. Ajay Mathur Director General

91-1126178316

Dg-bee@nic.in

Oil Industry Safety Directorate

Petroleum Planning and Analysis Cell (PPAC)

Directorate General of Hydrocarbon s

Petronet LNG Ltd. Indraprasth Gas Limited, Indian Oil Corporation Cairn Energy India GAIL (India) Limited,

Ministry of Petroleum & Natural Gas, 7th Floor, New Delhi House, 27 Barakhamba Road, New Delhi-110003 Ministry of Petroleum& Natural Gas, 2nd Floor, Core-8, SCOPE Complex, 7 Institutional Area, Lodhi Road, New Delhi-110003 Ministry of Petroleum& Natural Gas, C-139, Sector 63, Noida201301 New Delhi

Mr. B.J.Verma, ED

91-1123316798

Verma.jb@gov.in

Dr. Basudev Mohanty, Director

91-1124362501

Mr. R.K. Sinha Director General

01204029401

dg@dghindia.org

New Delhi

New Delhi New Delhi

Shri A. Sen Gupta, Director Mr. Sudhansu Pant, General Manager Mr. G.K. Acharya, Director (R&D) Mr. Karunakaran Hari, GM

Note: Other companies related to Indian oil and gas industry are: Adani Group, Ahmedabad; Anand Engineers Pvt. Ltd., Mumbai; Desmet Ballestra India Pvt. Ltd., Bangalore, Essar Oil Limited, Mumbai; Bharat petroleum Corporation limited (BPCL), Cenlub Industries, Exxoteq Corporation, Mumbai; Gujarat State Petroleum Corporation, Gandhinagar; Hindustan Oil Exploration Company, Hindustan Petroleum Cotporation; ONGC Videsh Ltd; etc.

CONCLUSIONS
From the above report, the following conclusions can be drawn: Indias per-capita consumption of energy and electricity is well below that of industrialized nations and the world average, which means that there is a scope for rapid growth. The Government of India has been taking many radical actions to formulate strategic policy and controlling foundations for enticing investments. With enlarging gap between demand and supply, both for oil and gas, the perspective for the upstream sector is exceptionally optimistic. While oil and gas will keep on playing a substantial role in the total energy mix, the necessity for exploiting alternate energy sources like Coal Bed Methane (CBM), Underground Coal Gasification (UCG) and Shale Gas (gas locked in sedimentary rocks) will become essential to balance the demand and supply. Vision-2015 for the oil sector will concentrate on growing the marketing network, as well as quality of the products and services to customers covering four broad areas of LPG (liquefied petroleum gas), kerosene, auto fuels and compressed natural gas/piped natural gas. Foreign Direct Investment (FDI) up to 100 per cent under the regular means is allowed in exploration activities of oil and natural gas fields, infrastructure associated with marketing of petroleum products, actual trading and marketing of petroleum products, petroleum product pipelines, natural gas and LNG pipelines, market study and formulation and petroleum refining in the private sector. FDI up to 49 per cent is permitted under the government route in petroleum refining by the public sector undertakings (PSU) according to the Consolidated Foreign Direct Investment (FDI) Policy document by the Department of Industrial Policy and Promotion. The Indian Government announced a seven-year tax holiday for the commercial production of gas in respect of contract to be signed under NELP VIII & Coal Bed Methane (CBM) IV with a view to enhance the exploration and production according to a press release by the Ministry of Petroleum and Natural Gas. To be successful at a feasible and sustainable system of cost of petroleum products, the Government has set up an Expert Group, and on its recommendation, the Government has determined that the pricing of petrol and diesel both at the refinery gate and the retail level will be marketdetermined as per a press release by the Ministry of Petroleum and Natural Gas. Western Australia can take advantage of rise in demand-supply gap of natural gas in attracting investment, providing technologies for upstream and downstream segments and also supply of large quantities of LNG for power generation.

ACKNOWLEDGEMENTS
The author is grateful to Nathan Backhouse, Director, Division of International Trade and Investment Attraction for providing the project and Chloe Forster in the preparation of this report.

REFERENCES
1. Report on Availability and Utilisation of Natural Gas, Ministry of Petroleum and Natural Gas, Govt. of India, 2010, pp 1-5. 2. A.S. Mathur, Basic Statistics on Indian Petroleum and Natural Gas, 2009-10, Ministry of Petroleum and Natural Gas, Govt. Of India, pp 1-44. 3. C. Rumley et al, natural Gas in India-Prospect for LNG imports, ABARE Research Report 07.23, December, 2007, pp 1-85. 4. Oil and Gas, IBEF Report, April, 2010, pp 1-40. 5. The Indian Oil and Gas Industry, Petro-Tech-2010 Report, Ministry of Petroleum and Natural gas, Govt. Of India, October31, 2010, pp1-2. 6. G. Govindrajan, Indian Oil and Gas Sector- The New Investment Mantra, News Bureau, September, 2010, pp 1-3. 7. Indian Opportunities for Oil and Gas field Machinery Industry, IMacs Virtus, Global Partners Com., 2010, pp 1-4. 8. J, Mavani, Indian Oil and Gas Sector, KPMG Report, 2009, pp1-30. 9. Indian Oil and gas Industry: Industry Insight, Cygnus Business Consulting and Research Report, Jan, 2007, pp 1-120. 10. Indian Oil and gas Industry: An Industry Analysis, 2006, pp 1-4. 11. Petroleum and Natural gas Sector, Foreign Direct Investment (FDI) Policy Report Prepared in Economic Division, Ministry of Petroleum and Natural gas, March, 2008, pp 1-3. 12. Oil and Gas, IBEF Report, 2006, pp 1-28. 13. Country Report, INDIA, February, 2011, Economist Intelligence Unit, Report, London, pp 1-28. 14. Economy of India, Wikipedia, 2011, pp 1-29 15. Petroleum in Western Australia, Department of Mines and Petroleum Publication, April 2011, pp 4-80 16. Basic Statistics on Indian petroleum and natural gas 2009-10, Ministry of Petroleum and Natural Gas (MoPNG). 17. BP Statistical Review of World Energy, 6, December, 2010 18. Press Note on Launch of NELP-VIII, 9th, April, 2009, MoPNG. 19. Director General of Hydrocarbon 2007-8, Annual Report. 20. Ministry of Petroleum and Natural Gas, Annual Report, 2007-8. 21. BPs Indias Hydrocarbon Vision 2025, Government of India, June, 2010. 22. Income Tax Act. 1961 and Regulatory Provision. 23. Indirect Tax comprises of relevant provisions of Finance Act, 1994, Custom Act and VAT legislation.

24. Foreign Direct Investment (FDI) Guidelines, Section 42 of the Income Tax Act, 1961. 25. Indian Oil & Gas Sector, Report, WA Trade Office-India, April, 2011, pp 1-8.

ACRONYMS USED E&P CBM DGH MT MMT MMSCMD MoPNG NELP LNG Exploration &Production Coal Bed Methane Directorate General of Hydrocarbons Metric Tonnes Million Metric Tonnes Million Standard Cubic Meters Per Day Ministry of Petroleum & Natural gas New Exploration Licensing Policy Liquified Natural Gas