Hydrocarbon Vision 2025

• A ministerial group set up by the Prime Minister to give focus on long-term energy
security for India has developed the following vision for the next 25 years.
• To assure energy security by achieving self-reliance through increased indigenous
production and investment in equity oil abroad.
• To enhance quality of life by progressively improving product standards to ensure a
cleaner and greener India .
• To develop hydrocarbon sector as a globally competitive industry which could be
benchmarked against the best in the world through technology up gradation and capacity
building in all facets of the industry.
• To have a free market and promote healthy competition among players and customer
service.
• To ensure oil security for the country keeping in view strategic and defense
considerations.
• Focus on oil security through intensification of exploration efforts and achievement of
100% coverage of unexplored basins in a time bound manner to enhance domestic
availability of oil and gas.
• Secure acreages in identified countries having high attractiveness for ensuring sustainable
long-term supplies.
• Pursue projects to meet the deficit in demand and supply of natural gas, and facilitate
availability of LNG.
• Maintain adequate levels of self sufficiency in refining (90% of consumption of middle
distillates).
• Establish adequate strategic storage of crude and petroleum products in different
locations. Create additional infrastructure for distribution and marketing of oil and gas.
• Open up hydrocarbon market so that there is free and fair competition between public
sector enterprises, private companies and other international players.
• Create a policy framework for cleaner and greener fuels.
• Have a rational tariff and pricing policy, which would ensure the consumer getting the
petroleum products at the most reasonable prices and requisite quality, eliminating
adulteration.
• Announce a long-term fiscal policy to attract required investments in hydrocarbon sector.
• Restructure the oil sector PSUs with the objective of enhancing shareholder value and
disinvest in a phased manner in all oil sector PSUs.
• To develop regulatory and legislative framework for providing oil/gas security for the
country.
HYDROCARBONS VISION 2025
By P.N.V. Nair

Hydrocarbons-crude oil and natural gas-play a pivotal role in powering industrial growth and development
activity. The importance of oil and gas can be gauged from the fact that it accounts for 45 per cent of
India's total energy requirements, and will continue to do so until 2025. While the share of oil (which
presently constitutes 35 per cent) is expected to reduce to 25 per cent by 2025, the share of gas will rise
to 20 per cent (from the present level of 7 per cent) as natural gas will be a preferred fuel for many
applications where pipelines exist.

Even though a developing country like India has a high energy-intensity, the per capita consumption is
around 5 times lower than the world average. However, consumption is expected to increase at a faster
pace in the coming years. Moreover, as the demand-supply gap widens, the import dependence of oil has
risen to 65 per cent (as against 30 per cent in 1985-86) due to lower domestic production. Also,
considering the worst-case outlook (India's GDP growing at 5 per cent until 2025), the demand for
petroleum products is expected to rise to 280 million tonnes as against 90 million tonnes last year.

In such a scenario, it becomes imperative to have a long-term policy for the hydrocarbons sector, which
would facilitate meeting the future needs of the country.

The Hydrocarbons Vision 2025 lays down the framework which would guide the policies relating to the
hydrocarbons sector for the next 25 years. Issues such as E&P, refining, marketing, external policy, oil
security, tariff and pricing, and restructuring and disinvestment are addressed by the Group, to ensure
that an optimal mix of energy resources are made available to the consumer at the right price.

Exploration and Production

With regard to the energy sector in general and the hydrocarbon sector in particular, the E&P vision will
be to undertake a total appraisal of the Indian sedimentary basins for hydrocarbon potential and to
optimize production of crude oil and natural gas in the most efficient manner. This can be achieved
through intensive exploration efforts endorsed by effective mobilisation and infusion of technology and
capital. Leveraging upon India's IT strength and highly skilled manpower, the E&P industry will have to
develop a strong technology base to become globally competitive.

Due to the uncertainties of the exploration game and the dynamics of international oil prices, the
mobilisation of huge amounts of capital will be difficult. In such a scenario, the Group recommends that
the government will have to step in and their support will be crucial, especially in the short- to medium-
term, whereas in the long-term, the Group feels that market mechanism will take care of the funding as
the industry may get market-oriented in the coming years.

Under the New Exploration Licensing Policy (NELP), the sub-continent has been divided into
geographically distinct exploration blocks. The allotment of these blocks is done by bids in the nature of
lease/mining licence for a specified period. The government still retains ownership control over these
areas and enters into a production-sharing contract with the successful bidder.

Refining
As a pivotal source of energy, stable oil supply and national oil security are important determinants for the
development of the economy. In such a scenario, the Group recommends that the country should have
refining capacity that is sufficient to meet 90 per cent of the demand for middle distillates, which
constitutes a major chunk of the domestic demand. Given the free market scenario in the future,
investment decisions should be left to the sponsors and investors. By investing in production assets
overseas, the Group feels that Indian refining companies will have a captive supply of crude, which will
give them a distinct competitive advantage on a global scale. As the domestic refining industry gets
increasingly developed, it becomes imperative to attract private players, both domestic and foreign, and
this should be coupled with operational autonomy for the PSU refineries, since their ability to make
decisions should be free from external scrutiny. Finally, according to the Group, lowering of trade and tariff
barriers (in view of WTO) would reduce the competitive advantage for the domestic industry. In such a
scenario, lowering the cost of capital by ensuring infrastructure status to the refining industry will help
neutralise the situation.

Marketing
With the marketing deregulation expected next year, operational restrictions will have to be removed to
facilitate a smooth transition into a free market scenario. The government has to go on a restructuring
mode to improve the competitive advantage of the existing marketing companies, such as HPCL, BPCL,
IOC and IBP. Already, these companies have acquired the government stake in the stand-alone refineries
like Kochi Refineries, Chennai Petroleum, Numaligarh Refineries and Bongaigaon Refineries. These
acquisitions will help them to significantly improve their refining-to-marketing ratios and make them
increasingly competitive. Since it will not be possible for domestic refiners like RPL to build a distribution
network overnight, they should be given suitable duty protection and, for the medium term, should
continue to utilise the distribution network of the PSUs, until they have one of their own in place.

Since marketing is more remunerative than refining, the Group recommends that only those companies
that are willing to invest Rs 2000 crore either in E&P or refining or a combination thereof should have
access to marketing. The other important aspects to be addressed are the prevailing price distortions -
there should be a complete withdrawal of subsidy on LPG while subsidy on the more politically sensitive
kerosene should be removed in a phased manner. There should also be a rationalisation of sales tax
across states to enable the right price to the consumer.

The country is left with a huge oil pool deficit mainly because of the large imports and the administered
price mechanism of the products. Therefore, it should be the long-term goal of the government to
increase oil production and reduce imports. The revival of the oil industry will, in turn, enable the recovery
of the economy as a whole. The Hydrocarbons Vision 2025, no doubt, spells out the government's
strategy and operational style with regard to this vital industry.