Oil & Gas Markets:

Risks and Opportunities R S Sharma

Chairman & Managing Director, ONGC Chairman, ONGC Group of Companies India Energy Conference CEO Forum 3 October, 2008 New Delhi

India: Energy Scenario With 16% of global population ; 0.5% of world’s Petroleum reserve & 6.7 % of world’s Coal reserve; with a 8- 9% GDP growth target and 4.5% CAGR (’97-’07) in primary energy demand

the situation is pretty Challenging…

India: Energy scenario

• India: the 5 th – – largest energy consumer CAGR (1996-2006): 4.5% (global CAGR: 2.1%) Per capita energy consumption to rise from 375 Kgoe in 2007 to about 1200 Kgoe in 2030 2361 Primary Energy Consumption (MTOE) 1863 692 518 3.6% of total 404 322 311 255 234 216 USA China Russia Source: BP Statistical Review 2008 Japan India Canada Germany France South Korea UK

Energy Basket

Hydel 6% Nuclear 6%

World

Oil 35% Hydel 7% Nuclear 1%

India*

Oil 32% Coal 29% Gas 24% Coal 51% Gas 9% • Gas consumption in India increased at a CAGR of 6.1% (Global: 2.6%), next only to China (13%) in last ten years (1997-2007) Source: BP Statistical Review 2008 *India’s consumption based scenario excluding export

India: Oil Scenario

• India’s oil consumption (2007) 128.5 Million Tonnes – the 4 th largest consumer of Oil: 3.3% of total – Oil consumption increased at CAGR of 4 % (1997-2007) against the world CAGR of 1.4%.

943 Oil Consumption (MMT) USA 368 229 129 126 113 108 102 China Japan India Russia Germany S.Korea

Canada Source: BP Statistical Review 2008 *India’s consumption excluding export

India: Oil Scenario

• Import dependence increased from 69.5% in 2002-03 to 74.9% in 2007-08 • Import dependence may rise to 80-90% around 2030 Growing Import

140 120 100 80 60 40 20 0

MMT

1975 Production 1980 1985 Import 1990 1995 2000 2005 Consumption 2006 2007

Demand –Supply gap in Oil to exist

India: Gas Scenario

• Gas constitutes ~9% in Pry energy basket; likely to increase, thanks to Gas strikes at East coast • Situation to improve by 2012. • Demand-supply gap to exist

40 35 30 25 20 15 10 5 0

MTOE

1975 Production 1980 1985 Import Consumption 1990 1995 2000 2005 2006 2007

Source: BP Statistical Review 2008

404 MTOE

Growing Primary Energy demand … India

1633 MTOE

1500 1000 500 2007* 2011 2016 2021 2026 0 2031 Coal Oil Natural Gas Hydro Nuclear

• With development of East Coast, new & marginal fields of West coast, CBM, UCG, and likely trans-national gas trunk lines- the gas demand seems to be achievable • For oil, though importer for over 25 years, considering the dramatic rise in volume demand, the balance of trade for oil is a critical issue *Source: BP Statistical Review 2007 Projected figure Source: Integrated Energy Policy

Indian Oil & Gas Business Risks & Opportunities: (UPSTREAM)

1. Inadequate Reserve Base

Risk • India with 16% of world’s population, endowed with only 0.4% of world’s » oil & 0.6% of gas reserve Oil & Gas Production only 1% of the world » R/P Ratio for oil <20 and for gas <35 years Opportunity • India has 4% sedimentary basins of the world (3.14 million sq. km) » About 80% area yet to be explored extensively » » » Out of 26 basins, exploration yet to be Initiated in 11. Favorable open NELP regime Abundant opportunities

2. Depletion of Mature Fields

Risk • All major producing fields are more than 30 years old • Most of them have produced through their peaks » 80% of total indigenous production coming from such mature fields » » Pressure of almost all of these fields are depleting fast Cost-intensive IOR/ EOR processes required to keep them flowing Opportunity • Established IOR/ EOR technologies to enhance recovery • Fast track monetization of New & Marginal field to make up the ‘less’ from existing assets • Looking for new source of energy like, CBM, UCG, Winds, Nuclear etc.

3. Growing Dependence on Imports

Region w ise India's oil im port

73% 2% 4% 2% 19% M -East Af rica FSU Asia Pac Lat in Am Risk • Over dependence on oil & gas leading to import dependence from 70-85% • 92% Import dependent on geo-politically sensitive Middle East and Africa » 37% of total M-East crude comes from Iraq & Iran » About 45% of total African crude comes from volatile Nigeria Source: PPAC

4. Suitable & cost-effective technology

Risk • Technology development lead time is long- but economic cycle often short • Less Focus on R&D- a global oil & gas industry phenomenon • Unavailability of suitable technology at cost-effective price- threat to realizing discovered assets » » » Deepwater development still at embryonic stage Gas hydrate not out of laboratory G&G accuracy still dependent on costly drilling Opportunity • Rising affordability for investing in R&D, Technology acquisition and » assimilation Globalization has increased the access to global technological developments » » Empowered policy might help in fast and direct access to latest technology Strong Indian Academia: Greater Industry-Academia synergy possible

5. Technical Manpower Crunch

Risk • Growing human capital deficit- most significant strategic threat to the » industry Huge exodus to abroad, especially Middle East » » Less interest by young generation to pursue G&G Badly suffered NOCs Opportunity • Huge Young Population » More institutes like RGIPT, Bareilly » » Assurance of encouraging career and compensation Competitive compensations for NOCs

6. Procedural Constraints

Risk • Procedural constraints affecting the process of Resource acquisition – Acquiring patented technology or single-owner technology; Hiring Drilling rigs or FPSO; procuring Hi-tech equipments; acquiring Land… – Time… the essence of decision making affected by regulations » » Deepwater drilling rig day-rate has increased 3-5 times in last four years Availability constrained in near future • Regulation & less empowerment resulted in many lost-opportunities for OVL Opportunity • Regulatory bodies may become facilitator through guidance » Making energy security a prime national agenda would remove many » hierarchical constrictions Coordination between MoEF, MoHA, MoF, MoP&NG, MoD etc • More Empowerment of OVL essential for energy security » Time, secrecy & aggressive bidding- key factors in acquiring overseas assets

7. Fiscal Policy

Risk • Constrictive Fiscal policy » Non-transparent Subsidy Formula » » » Artificial insulation from price rise Gas pricing issue Custom duty/ Royalty imparity Opportunity • Encouraging Fiscal Policy would bring more investment » Attractive NELP-regime heralds bright future for further investment » Globalization and liberalization has already made Indian market attractive

8. Environmental legislation

Risk • Over-activism or Adventurism regarding environmental issues may pose a » threat in near future Drilling & exploration in forest lands/ river bed might be required in the » greater interest of energy security & growth A balance between conservation and energy generation might be needed Opportunity • Oil & Gas industry, by virtue of its resource, may play even greater role » in Carbon emission control, afforestation and climate control » in R&D for new and alternate source of energy

Thank You