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IndiaEnergy reportJuly 2011
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IndiaPt.1
I ndia’s economic growth is widely praised, and with a GDP of
$4.046 trillion USD in 2010 and a GDP growth rate of 8.3%
last year, it is clear why the country is making the headlines in
the most positive of lights. In his latest visit to India, U.S. President
Barack Obama stated that "India is not simply emerging: India has
already emerged." However, before it can complete its transfor-
mation into one of the world’s superpowers, India must address
two big issues that are hampering its development. These are its
infrastructure and energy challenges.
The Silent Revolution
Project Directors: Karim Meggaro & Henrique Bezerra Project Coordina-tor: Federica Torgneur Project As-sistant: Andrey Muntyan Prepared
in collaboration with Petrofed
www.ogfj.com • Oil & Gas Financial Journal July 2011 www.focusreports.net 55
Refinery at night, courtesy of BPCL
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RPN Singh, Minister of State of Petroleum & Natural Gas
Sunil Kumar Srivastava, directorgeneral, DGH
AK Arora, secretary general, Petrofed
56 www.focusreports.net July 2011 Oil & Gas Financial Journal • www.ogfj.com
Despite the fact that stories of India’s booming economy and
emergence on the world stage shout from newsstands across the
world on a daily basis, very little time is dedicated to discussing
the industry that is needed to fuel this growth. However, India has
taken important steps to address its energy imbalance. Indeed, it
has been remarked that the transformation that has taken place in
the Indian oil and gas industry over the last two
decades has been a silent revolution, and today
India stands as one of the most influential and
important oil and gas markets in the world – and
more importantly, it has reached this position with-
out the rest of the world noticing. Focus Reports
has spent some time on the Indian subcontinent in
order to uncover the factors that have caused this
revolution, and discover where the Indian oil and
gas industry is now headed.
“The transformations in the Indian oil and gas
industry represent a silent revolution,” says S
Sundareshan, outgoing secretary of the ministry
of petroleum & natural gas, “because, besides
allowing India to grow and improve the lives of
hundreds of millions, it goes largely unnoticed. For
instance, India’s refining capacity jumped from 68
million tons to 185 million tons in only ten years.
It is likely to increase to 240 million tons before
2012.” Today, India has excess refining capacity,
and as a result the country currently exports about
40 million tons per annum. When capacity is fur-
ther bolstered, India will be in a position to export
more than 80 million tons per annum.
However, India is the world’s fourth largest
oil consumer after the United States, China, and
Japan, consuming around 3 million bbl/d in 2010
while producing only about 900 thousand bbl/d,
making energy security one of India’s major bottle-
necks for its future growth.
As a response to this, Indian policymakers have
gradually liberalized India’s oil and gas industry
over the last 15 years in an effort to boost the
country’s 5.6 billion barrels of proven oil reserves
(as of January 2011), the second-largest reserves
in the Asia-Pacific region after China. Its main
policy tool has been the New Exploration licens-
ing Policy (NELP), which aims to provide a level
playing field for all players active in E&P. Under
the NELP regime, organized in rounds and starting
with NELP I in 1999, 87 oil and gas discoveries
have already been made in 26 exploration blocks,
not counting this year’s bidding round.
The latest NELP round, NELP IX, closed in
March 2011, and offered 34 exploration blocks in
10 sedimentary basins covering an area of 88,807km2. The blocks
comprised 19 onshore blocks, 8 deep-water blocks and 7 shallow
water blocks. 19 of these blocks were being offered for the first
time to interested parties. At the close of the bidding cycle, 33
of these blocks had bids placed on them, with 10 new companies
entering the Indian E&P sector for the first time, 2 foreign and 8
Indian.
Sunil K Srivastava, the director general of Directorate General
of Hydrocarbons (DGH), India’s upstream regulatory authority,
believes the country’s sound governance and stable rules have
been the main ingredients in its efforts to attract more private
investment to its oil and gas industry: “Reliance Industries’ KG-D6
discovery took only six years to go from discovery
to production; its success was not only a product
of the competence of the operators but also the
government’s fast-tracked decisions, approvals,
governance and policies. Thanks to India’s sound
policies, investors both domestic and interna-
tional have increased their stakes in India’s E&P
industry.”
As a result, since April 2009 India has added
2.1 billion cubic feet of natural gas production per
day to its existing 2.65 billion with the start of pro-
duction on the Krishna Godavari (KG) basin and
specifically the KG-D6 block, the biggest natural
gas discovery in the world for the year 2002.
Even so, India is aware that it is far from
achieving self-sufficiency in the oil and gas sector.
As a result, it has applied pragmatic policies to
boost national production and import capacity;
internationalize its companies and secure assets
and markets overseas; and become a prominent
international refining hub by importing crude oil
from its Middle-Eastern neighbors and exporting
refined products to new markets.
The silent raise their voicesOn reflection, what many may regard as a fairly
quiet player on the oil and gas map seems to have
an awful lot to shout about. Admittedly, the vast
nature of the market, the history of state influ-
ence in India, and the need for subsidies in order
to make fuel affordable to India’s rural poor make
the downstream a fairly unattractive option for pri-
vate companies as it stands at the moment. But as
BP has shown recently, there are attractive options
in the country for multinationals willing to take
a bet on India’s untapped reserves, and less of a
bet on the country’s massive refining capacity. On
top of this, the private sector players have gone
through a period of change and emerged on the
other side as profitable, energized and creative
businesses, diversifying and evolving to overcome
new challenges and build themselves a market for
the future. The private sector cannot be forgotten
in this equation. Having established a formidable
presence in their home market, companies across
the value chain are now looking abroad to find the next frontier.
As India’s pioneering spirit develops and matures, the world will
see a tiger awake – one that can beat competitors on price, and
still bring an excellent level of quality to bear. Traveling to India, it
is hard to describe the country as silent, but now it is time for the
country to roar.
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58 www.focusreports.net July 2011 Oil & Gas Financial Journal • www.ogfj.com
India, in need of a little NELP For a long time the Indian oil and gas industry was dominated by
its top state-owned players: the so-called ‘public sector undertak-
ings’ or PSUs. Once funded by the government, these companies
are now self-sufficient, although due to fuel subsidies imposed by
the government, they rely on regular compensation in order to
keep themselves profitable. As a result, many of these companies,
headed by new management, are now looking to diversify their
businesses and make them independently sustainable, whilst con-
tinuing to play the role for which they were established; ensuring
that India has access to the energy it needs.
Outside India, these companies are not particularly well known,
but on the subcontinent, these companies are the public face
of India’s fight for energy security. From ONGC, the major E&P
player in India and the country’s most profitable company, to
GAIL, involved across the entire natural gas value chain including
pipeline infrastructure and LNG terminals; OIL, mostly onshore oil
E&P in the north west of the country but increasingly growing in
other regions, both onshore and offshore; IOCL, focused mostly
in the downstream sector owning around half of India’s refiner-
ies; and HPCL and BPCL, two companies traditionally focused in
downstream and marketing activities, bringing finished products
to consumers; and finally EIL, the engineering consultancy created
specifically to solve the challenges that would be faced by India’s
fledgling oil and gas industry.
In the 1990s, the liberalization of the industry and the introduc-
tion of the NELP started to change this state-dominated envi-
ronment. Companies such as Cairn and Reliance Industries have
become prominent private players in the upstream and down-
stream sectors – Reliance Industries recently completed the world’s
largest refinery complex at Jamnagar, with a combined production
capacity of more than 1,200,000 bpd. The development of private
players, together with the fast modernization and development of
India’s state-owned companies, has contributed significantly to the
creation of a complex and mighty service and equipment industry
that is now crossing India’s borders and conquering international
markets.
However, this excitement about the potential of India does not
Changing faces, evolving undertakings
In recent months, India has not only changed the top three
figures at the ministry of petroleum and natural gas (min-
ister, minister of state and secretary), but also, due to the
stipulation that the chairmen and managing directors (CMDs)
of state-owned companies must retire at sixty, the heads of
ONGC, IOCL, HPCL and BPCL have all been replaced. ONGC
still does not have a permanent CMD due to the complex
process by which these leaders must be nominated, approved,
checked and then appointed. Whether this situation will affect
the industry in the months and years to come will remain to
be seen; it has the potential to either set the country back by
removing those with the most influence and experience in the
industry, or bring bright new figures to these positions with the
ideas and creativity to help the industry realise its full potential.
We asked the new chairmen of several of India’s PSUs what
it is that makes their company unique, given the shifting and
diversification of the state-controlled industry. This is how they
replied…
AK Hazarika, ONGCONGC has an important role to play in India’s energy develop-
ment. Today, ONGC contributes about 70% of domestic oil
production for of the country. In gas, Reliance Industries has
taken a large share of the market after the commencement of
production from KG-D6, but still ONGC and ONGC’s share of
its joint ventures accounts for almost 50% of India’s domestic
gas production. OVL is also contributing around 20% of India’s
total oil production. In India’s oil and gas industry, ONGC’s role
will always remain important.
AK Purwaha, Engineers India Ltd.Engineers India is unique in its partnering relationship with all
of its esteemed clients, whether public or private sector. This
has developed well since the company began. Initially, the
company’s only interactions were with the Indian public sector,
as these were the only companies involved in the oil and gas
industry in the country. Today, we have seen that the market
has been liberalized and the world has entered India, and EIL
has learnt to deal with its new clients just as well as it did with
its old ones, who are still very valued clients. Our recall value
and return business rate are proof that we have managed these
relationships very well, even in this brand new industrial and
economic environment that we are facing today. As the years
progress, we hope that the confidence our clients have in us will
continue to be our greatest strength.
RK Singh, Bharat PetroleumThe question of whether BPCL continues to remain down-
stream or diversifies and looks at other opportunities has
been debated at length. Any company, whether it is a PSU or
a private sector business, wants to grow and have access to
more opportunities. BPCL also wants to grow and diversify its
business activities, but not at the cost of the core activities.
Therefore we have created strategic business units, so that each
remains focused on their core activities.
S Roy Choudhury, Hindustan PetroleumHindustan Petroleum is the amalgamation of Esso and Caltex.
As a result, we have a very rich cultural blend of Esso and
Caltex mixed with our experience in the public sector. Putting
all this together, I think HPCL got a very clear defined strategy
to service the people of the country at the same time maintain
its growth. Whatever we do, we should always remember that
we are a commercial organisation. We must generate profit in
order to grow, and we will ensure that we achieve this growth
hand in hand with India.
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www.ogfj.com • Oil & Gas Financial Journal July 2011 www.focusreports.net 59
yet seem
to have
spread to
the world’s
major oil
and gas
players.
The fact
that only
BP out of
the global
top ten is
currently
invest-
ing in India’s upstream says a lot about
the attractiveness of the Indian market for
many large foreign companies.
Vikram Singh Mehta, chairman of Shell
India, explains this lack of investment from
the international majors: “If Shell takes the
decision not to invest in Indian explora-
tion, it is not a reflection of a purposeful
strategic decision not to invest in India—it
is simply a decision based on the relative
geological attractiveness of the various
opportunities that are available to Shell,
at any particular point in time, throughout
the world.” Though this seems clear, Shell’s
decision years ago to sell its Northern
Rajasthan assets to Cairn was later regret-
ted when the massive Mangala oil field of 1
billion barrels of recoverable oil was found.
Indeed, as Rahul Dhir, managing direc-
tor and chief executive office of Cairn
India points out, “based on our success,
it becomes hard for us to imagine the
reasons why the world’s majors have not
invested in India.” He believe that “ people
still don’t understand India’s full poten-
tial; about 80% of our sedimentary basins
are not as well explored as elsewhere, so
people have been very cautious about
coming in. But on the upper side, the fiscal
terms are very well understood; the licensing regime
is very transparent; India has one of the fastest grow-
ing markets in the world; there is a very comprehensive
downstream infrastructure with India being a net exporter
of refined products; so there is no shortage of access to
oil and gas, with the demand for gas being constrained
only by supply bottlenecks. The government is very keen
on overcoming these challenges by, for instance, giving
open access to the pipelines. Therefore, it is a bit of a
mystery to us to understand why
some majors are not investing heavily
S. Roy Choudhury, chairman and managing director, HPCL
AK Hazarika, chairman and managing director, ONGC
RK Singh, chairman and managing director, BPCL
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60 www.focusreports.net July 2011 Oil & Gas Financial Journal • www.ogfj.com
in India’s upstream sector.”
It seems, though, that the situation might be starting to change.
Late February 2011 saw the largest foreign investment in India’s
energy sector to date, when BP
announced that it would buy a
30% stake in Reliance Industries’
assets, and form a strategic
partnership together which would
see a 50:50 joint venture created
between the two for sourcing and
marketing energy in India. Addi-
tionally, BP will take a 30% stake
in Reliance’s 23 oil and gas blocks,
for which the company paid $7.2
billion USD plus a further $1.8
billion USD in the future through
performance related payments.
Deals like this will perhaps lead
the way for greater involvement from the world’s biggest oil and
gas players.
As PMS Prasad, executive director of Reliance Industries (RIL)
points out: “This deal marks a
significant milestone in India’s
E&P history as it ushers in the
participation of a global oil and
gas major for the first time ever
with a material stake in Indian oil
and gas blocks. There are signifi-
cant synergies between both the
partners given BP’s deepwater
capabilities worldwide and RIL’s
demonstrated project execution
capabilities. We believe it is a
potent combination to find more
the hydrocarbons to meet India’s
energy needs.”
Interview with Jubilant EnergyFor the full interview, log onto energy.focusreports.net
Why did the Jubilant Group choose to invest in a sector that is so technologically and capitally intensive, when it had so many other choices?
There is a silent revolution going on in the E&P industry in India.
E&P markets opened up in India only in the 1990s, first through
the pre-NELP programs, and then through the NELP. Even
today, there is significant unexploited potential in this country.
There are areas where we have not even done basic exploration
activities. So, considering these facts, the group feels that there
is great opportunity in this market. We know that the sector
requires high technology, and considerable investment, but the
group is prepared for that.
In many aspects, the E&P industry strongly resembles the
pharmaceutical industry. In pharma, you have a very long pro-
cess of drug discovery, which is akin to the exploration phase in
oil and gas. Then, you have a process of drug testing—similar
to the appraisal phase in O&G. Then, in both industries, you go
into the production stage. In E&P, we work on 7 to 10 different
exploration prospects/blocks and the success rate of 30-40%
are likely to provide very good returns to shareholders. Both of
these businesses require a lot of industrial expertise, a wealth of
research, and a technologically focused mind frame.
The recent listing of Jubilant Energy on the AIM, raising $85 million USD, was the third largest IPO of the year on the AIM. What was your strategy to attract such high interest from the international investor community?
There were several reasons behind investor interest in our IPO.
The first was the profile of India as a country, and the opportu-
nities a company like ours has here. There are very few nations
in the world, especially from an E&P perspective, that have
sufficient in-house demand for everything you explore and pro-
duce in the country. That was a very strong selling point.
The second selling point was the significant under-exploita-
tion of the Indian sedimentary basins. If you speak to the DGH,
they will tell you that 70-75% of the Indian sedimentary basins
are underexploited.
Another very strong theme that investors were interested
in was that India is just emerging as an international E&P pres-
ence.
Jubilant is one of the very few E&P plays in the private sec-
tor in India. Yes, you have many government companies that
are involved in E&P, but if you look into the private sector, you
have Reliance and Cairn at the top, and then there is a huge
vacuum of pure, independent E&P plays. Our objective was to
show Jubilant, on the London market, as a model of such plays
in India. A final aspect was Jubilant’s reputation in India’s capital
market. Jubilant Group has always created significant share-
holder value in this market. Our objective was to replicate the
same model in the London market.
Ajay Khandelwal, CEO, Jubilant Energy
PMS Prasad, executive director, Reli-ance Industries
Vikram Singh Mehta, chairman, Shell India
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www.ogfj.com • Oil & Gas Financial Journal July 2011 www.focusreports.net 61
It is not just the majors that are
looking at India with hesitation;
India is also struggling to attract
junior players to its NELP blocks,
both domestic and international.
Ajay Khandelwal, CEO of Jubilant
Energy, a prominent junior player
who has actively acquired assets
in the NELP rounds seems opti-
mistic, but asks for improvements.
“With any market that undergoes
a regulatory transformation, it
takes time for everything to fall
into its intended place. It cannot
occur overnight… The whole idea and conception of the highly
transparent mechanism of NELP is great, and very successful, but
there are always limitations to any such mechanism. India has gone
through multiple rounds of regulatory framework, and there has
to be a transition where the market becomes even more investor-
friendly, such as if the Open Acreage Licensing Policy (OALP) gets
enacted. So, better times to come.”
AK Arora, director general of PetroFed, India’s main oil and
gas association, agrees, “What would further boost new explora-
tion intensity would be the implementation of the OALP, which
requires the creation of a data repository now on its way. With the
announcement of NELP IX the honorable minister of petroleum
Rahul Dhir, managing director and chief executive officer, Cairn India
India Sedimentary basins, courtesy of DGH
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62 www.focusreports.net July 2011 Oil & Gas Financial Journal • www.ogfj.com
and natural gas gave a clear
indication that the OALP would
follow soon. It will probably be
announced around 2012.”
In the same way Ashu Sagar,
secretary general of the Asso-
ciation of Oil & Gas Opera-
tors (AOGO), sees the need to
increase the number of players,
especially juniors in the Indian
market, “India must have many
more small E&P companies; the
current number is not enough. It
should be easy to get in; it should
be easy to get out. There should be a completely open market
where the increased number of players improves the quality of
service and bring competitive prices. This is not a demand. It is a
paradigm for a healthy industry.”
One of the major hurdles standing in the way of the planned
move to an open acreage policy is the lack of seismic survey work
done in the country to date; without this data, it is hard for compa-
nies to assess attractive prospects for investment. Prem Vasistha,
vice president of PGS India, explains the perspective from one of
the world’s largest seismic companies: “for some time, PGS has
been working in India, thinking and discussing with the people
that have been involved in policy regarding this transition. Until
the government comes up with a policy where they put everything
together to make speculative survey a viable option for the major
seismic companies, OALP is not a feasible option.”
Vasistha believes that in order to incentivize speculative survey
in India, the government must work with the seismic companies
and become stakeholders in the data that is needed in order to
move exploration of the country forward. “Even a small concession
of a financial contribution from the government will make a huge
difference. I believe that the government should consider funding
25% to 30% up front for this work, so that good service companies
would be encouraged to do the survey and recover the remaining
cost from sales. This would have some very positive consequences.
It would help the government with faster acquisition of data,
encourage more mutual trust between seismic companies and the
DGH, and also make the government, through the DGH, a joint
partner in eventual data sales.”
The government recognizes the need to consider new options,
but is rightly proud of the success of the initial liberalization of the
market through the NELP, as minister of state for petroleum & nat-
ural gas RPN Singh explains; “We will look at options of what we
can do to address acreages, because we need to make this policy
move at a much faster rate. Without doubt we can say that NELP
has been a very successful initiative of the government, and to
further kick-start exploration and production we will look at other
proposals.” He also addresses the need to collate the data on
which an open acreage policy must be based: “We are working on
Prem Vasistha, vice president - India, PGS
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•a National Data Repository to be set up. As soon as that is ready,
we will evaluate moving to an Open Acreage Licensing Policy.”
An industry refinedRefining in India has come a long way since the country’s first
refinery, Digboi, opened in 1901. Technological leaps and aspira-
tions towards global competitiveness mean that today, India is
home to the world’s largest refinery at Jamnagar on the country’s
west coast, operated by Reliance Industries and accounting for an
incredible 2% of the world’s refining capacity.
Quality has never been an issue for India’s refineries. AK Arora
of PetroFed points to the fact that it is not just the private sector
players that have changed the industry; from as far back as the
1980s, India’s state-owned refining companies were benchmarking
themselves against global standards of refining. This is what has
led India’s refining quality to be so high today. “This benchmark
exercise was a special challenge because it was done in a period
when India was absolutely destitute of hard currency. Yet the PSUs
spent valued resources on this, modernizing major refineries as
well as those smaller and remote. We set our targets high – true,
excellence is not always achievable, but you always have to aim in
that direction.” He concludes; “Indian refineries kept on improving
quality and capacity at the lowest cost for decades. Now it is only
natural that we are winning in international markets.”
This drive by the PSUs to strive for international refining quality
resonates with India’s desire to increase self-sufficiency and take
advantage of the relatively low cost of refinery building and opera-
tion in India, and today the government is pushing for an increase
of annual refining capacity in the country to 240 million tons by
2012, both for the home and domestic markets.
Bharat Petroleum Corporation Ltd. (BPCL) is one such company
paving the way to India’s increased refining capacity. Today, the
company’s capacity stands at 30 million tons per annum, but in
order to grow this capacity at the same rate as India’s GDP, the
company has initiated a plan involving brownfield expansions at
its refinery in Kochi, and has recently begun crude processing new
greenfield refinery at Bina, with a current capacity of 120,000 bar-
rels per day, expandable to 240,000 barrels in the future.
Hindustan Petroleum Corporation Ltd. (HPCL) accounts for 10%
of India’s refining capacity, but with a petroleum product market
share in the country of 20% and responsible for selling 40% of the
nation’s lube oil, the company is fighting a constant battle to refine
enough crude to supply its customers. For this reason, a new refin-
ery has been commissioned in Bathinda in partnership with Indian
industrial giant Mittal.
S Roy Choudhury became chairman and managing director of
HPCL in August 2010, after 20 years with the company across the
business, from marketing to sales, refinery, pipelines, operations
and distribution. Today, Choudhury also serves HPCL as director
of marketing. In his interview with Focus Reports, he explains the
need to expand the company’s refining capacity on a continuous
basis: “even after you take into consideration this new refinery,
HPCL will only be able to meet 56-57% of its requirement, because
of the company’s growth rate.” Projecting sales figures of 40
million tons by 2015-16, the company has resolved to expand its
refining operations in both Mumbai and Visakhapatnam. However,
budget constraints mean that these upgrades in capacity have
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64 www.focusreports.net July 2011 Oil & Gas Financial Journal • www.ogfj.com
to happen gradually: “We are not going for the
full capacity straight away because of the costs
involved. Today we are walking on a tightrope
economy, especially the public sectors. We have a
lot of borrowings, and already HPCL’s debt equity
ratio is very tight. We concluded it would be bet-
ter to start at 9 million tonnes, start to bring in
revenue, and then go for another 9 million tons.”
One of the companies that supported the
most the development of the Indian downstream
sector has been Engineers India (EIL). Accord-
ing to AK Purwaha, its chairman and managing
director, “today, to EIL’s credit, there are 20 of 24
refineries in country 9 of which were grassroots
refineries built by us and another grass root refinery at Bathinda is
close to completion. In this sense, Engineers India is unique, being
probably the only company in the design engineering and project
management consultancy segment who have more than 50 large
refinery projects to its name.”
Other PSUs, not traditionally involved in the refining sector,
have seen the opportunities available in the sector for growth.
Applying its expertise in the fertilizer sector to the refining indus-
try, Projects & Development India’s (PDIL) main growth driver
today is project management for various refining units, working
both in India and abroad.
There are not just opportunities for public sector players to take
advantage of the silent revolution happening in the Indian refining
sector. Engineering consultancies such as Enereff Engineers were
quick to take advantage of the newly liberalized market, but of
course had to overcome the traditional boundaries facing any new
service provider in the oil and gas industry; build-
ing up a track record and gaining the confidence
of clients, in this case, the PSUs who already had
existing facilities in the country. Enereff’s manag-
ing director, Lalit Shingal, explains that “once one
of the refineries of IOCL had accepted us, there
was less resistance with the second unit of the
same company: acceptance was a little smoother,
faster, better, as they had seen our work.”
Shingal has noticed some major changes in the
refining industry since he began his company at
the time the liberalization of the sector was begin-
ning to occur. As well as noting that today, Indian
refineries are processing more heavy and sulphu-
rous crude than ever before, he believes that the largest change
has been in the scale of refineries being built and upgraded:
“Today we talk of processing over 9 million tons per annum of
crude in a single refinery. This has enabled refiners to install a lot
of equipment that would otherwise have been non-viable eco-
nomically.” The complexity of equipment needed in such refineries
provides plenty of opportunities for niche engineering consultan-
cies such as Enereff, and today the company’s main focus is work-
ing with Indian Oil at their new refinery at Paradip, providing heat
exchangers in order to maximize the plant’s efficiency.
Increasingly however, the PSUs that have been responsible
for building up India’s strength as a refiner are today looking to
diversify their activities in order to continue their path to sustain-
able growth. RK Singh, newly appointed chairman and managing
director of BPCL after a long period as director (refineries), spoke
in detail to Focus Reports about his company’s foray s into the
Uhde - a global first
Uhde, part of the ThyssenKrupp group, has been in
India for over four decades, and the Indian subsid-
iary has worked on over 500 global contracts since
that time. Dr. Benno Lueke, managing director of Uhde India,
explains how the Indian subsidiary was responsible for taking
Uhde’s first steps into the oil and gas industry on a global level,
at the time that the sector was just starting to liberalize in India:
“after the refinery sector opened up, Uhde India was employed
to provide engineering services to India’s first public sector
refinery at Mangalore. Previously in India, this work had only
been given to Engineers India, as all of India’s refineries were
owned and operated by the public sector. The moment the
refining sector opened up to the private sector Uhde India got
involved. We started with the Mangalore refinery, and since that
project we have worked on almost all the refineries in India. This
is a competency that Uhde India developed on its own, and it
has been instrumental in driving the business here.”
It is the fact that Uhde India developed capabilities in the
refining sector separate from the main Uhde group that makes
it such a unique story. Today, the Indian subsidiary accounts for
20% of Uhde’s global workforce, and following Uhde India’s
successes in the oil and gas
sector, a new global business
unit comprising the best of
Uhde’s oil and gas talent is
being developed in order to
take on projects around the
world. “Combining forces,”
says Lueke, “we hope that
we will be qualified for more
projects in India, which will
enhance our oil and gas busi-
ness significantly.” As well
as offering EPCM and PMC
services for various refining
units, along with Uhde’s refining technologies division, the com-
pany can also offer hydrogen plants, sulphur recovery units and
aromatics extraction processes. It seems that for Uhde, India
has been the first step along a long and fruitful journey into the
hydrocarbon sector, and will play a continuing role in the years
to come.
Benno Lueke, managing director, Uhde India
Lalit Shingal, managing director, Enereff Engineers
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E&P sphere, as well as its plans to move into gas marketing, city
gas distribution, petrochemicals and power generation. He also
summed up the need to diversify and remain profitable by saying
“India is short of crude: we currently import 80% of our crude
oil, and accordingly the government has placed a lot of empha-
sis on increasing crude production. That is how the NELP policy
came into being. When India has such a demand for crude, it
makes sense for companies like BPCL to enter
the upstream sector. We took a risk, but we
succeeded. As an organization, we have dreamt
to grow and make more profit and diversify our
portfolio and activities, and I am sure that BPCL
now has a good future ahead.”
Go forth and multiplyAnother pillar of India’s strategy to guarantee
the supply of its fast-growing demand has been
the acquisition of assets oversees. According to
government figures, Indian oil and gas companies
are already present in more than 21 countries and
produce more than 8 million tons of oil and gas
per annum outside of the country. Unquestionably,
the company leading this charge to international markets for India
is ONGC, who as a PSU is charged with the task of guarantee-
ing India’s energy security for the years to come. Current chair-
man & managing director of ONGC AK Hazarika, also director
(onshore), and charged with the task of leading the company while
a permanent chairman is selected, explains the company’s strategy
in international markets: “Our focus is also on sourcing equity oil
from outside India to meet the country’s rising energy demands.
That is why we created our subsidiary company, ONGC Videsh Ltd
(OVL), whose sole purpose is to look for oil internationally. In this
regard, another strategy, set by the company in 2002 is to source
20 million tons of oil equivalent per year into the
country by 2020, through OVL.
“Today, OVL is a good growth vehicle for
the company, and now has 34 properties in 15
countries. OVL has 9 producing assets where it
has equity oil, and year on year the company is
producing an increasing amount of equity oil. This
year it has reached 9.4 million tons of oil equiva-
lent, whereas last year, in 2009, it was 8.87 million
tons.” Through its flagship projects in Sudan,
Venezuela, Brazil and Russia, ONGC hopes to
secure energy for India, and also bring the Indian
flag to large international projects, and promote
the strengths of the Indian oil and gas industry
abroad.
Oil India Ltd. (OIL) is another PSU now looking to international-
ize its exploration and production activities. Chairman and manag-
ing director NM Borah had some interesting comments to make
about the challenge of taking those first steps abroad: “one must
be cautious and strategic when internationalizing. Three years
back OIL had opportunities coming from everywhere, from Latin
America to Africa. But we didn’t have a structured way of think-
ing questions such as ‘given the choice, what part of the world
would OIL like to go and why? Is it onshore or offshore? Gas, oil
or both? If it’s oil, what size?’ The company didn’t have good
answers for these questions, so we realized that this was some-
thing we needed to figure out before further expanding abroad.
This brainstorming might take some time, but it will put OIL on a
better position to capitalize on good international opportunities
that come along the way.”
However, the acquisition of overseas oil and gas assets by
Indian companies, though in fast expansion, is still shy when
compared to its Chinese and Western counterparts. Outgoing
secretary Sundareshan explains that “the Indian model of inter-
nationalization has been very different from others. If you look at
Western countries, private companies carry all their investments.
If you look at other players such as China, all their investments
come from governmental funds, with the state’s backing. In India,
our state-owned companies have been internationalizing on their
own, using self-generated resources. There is no national govern-
ment contribution to this. But even without our explicit guidance,
they have done a very good job guaranteeing India’s future energy
security. We hope that the private sector will add increasingly to
this process, and help India’s fast-growing economy to secure the
future energy need.”
The successful internationalization of Indian state-owned
companies has followed the liberalization and modernization of
the sector. But one issue still remains in the domestic market, and
is arguably the main reason private companies are barely present
in India’s downstream sector: price controls for final consumers.
K. Venkataramanan, president (opera-tions), Larsen & Toubro
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The lack of profitability directly affects the international competi-
tiveness of India’s downstream companies and their capacity to
acquire assets abroad and raise capital in financial markets.
Despite the challenges faced by oil and gas companies in the
Indian market, one sector that has seen much growth and success
over the years has been the service industry, and today, after many
triumphs in the home market, these companies are now ready to
expand internationally. “Once people see our credentials,” says K
Venkataramanan, president of operations at Larsen & Toubro, “the
first question they ask is why are we not already present interna-
tionally? We tell them that we have been building our track record
in India and now we believe that we have a sufficient number
of references to internationalize. We have achieved that critical
mass.” This is something of an understatement from Larsen & Tou-
bro, India’s largest engineering and construction company, which
on its 70th anniversary was hailed by India’s political and industrial
elite as ‘the company that built India’. Now, after conquering many
diverse Indian sectors, from oil and gas to defense, the company
is looking beyond its borders. As Venkataramanan says, “we have
reached the point now where we would definitely like to become
an international player, initially in the Gulf area, parts of Africa and
South East Asian markets.”
Currently, international projects account for 10% of Larsen &
Toubro’s business, but over the next five years, Venkataramanan
hopes to increase this to at least 30%. With this in mind, the com-
pany is restructuring its international affiliates. In the Gulf, Larsen
& Toubro has split its business into two clusters, one to service
Oman and Qatar, and the other to cover Saudi Arabia, Bahrain
and Kuwait. By recruiting local managers to lead the businesses,
Venkataramanan hopes that their experience will help to drive
the businesses. As well as this, the company has invested in a
manufacturing complex at Sohar, Oman, where recently the largest
structures ever made in the Gulf were completed and delivered:
two 15,000 ton jackets for ONGC’s Bombay High field. Addition-
ally, the company has representatives in London, Houston, Singa-
pore, Kuala Lumpur and Perth in order to drive more international
business. Venkataramanan is optimistic about Larsen & Toubro’s
future in new countries, but is well aware of the challenges that lay
ahead. “Larsen & Toubro is well regarded in the equipment space
because that is where we are best known around the world. As a
fully integrated EPC player, we are enlarging our circle of recogni-
tion. Companies might consider us for a $1 billion USD project,
but we need to get into the consideration set right up to $2.5 bil-
lion USD, and for a wider range of services.”
India’s greatest natural resourceAfter Reliance’s discovery in the KG basin back in 2002 and Cairn’s
discovery onshore in Rajasthan, two discoveries that have changed
the shape of the upstream oil and gas industry in India, it might be
tempting to believe that India could yet become one of the world’s
most important oil and gas investment destinations. However,
there is one aspect in which India is already a world leader, and
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this is in the impressive
human resource base
on which the country is
capitalizing. There are
very few countries in the
world where it would
have been easy for Fer-
nas to build a workforce
of 1600 employees from
scratch in two years; it
now has plans to grow to
a 5000-strong company
by the end of 2011. The
human resources are
readily available in a
country with a popula-
tion of 1.2 billion; the biggest challenge is to make sure this rapid
growth is completed sustainably.
Despite the successes of Indian education institutions in creat-
ing generations of engineers and
scientists, there were some in
the industry who believed that a
dedicated institution for oil and
gas-based studies was needed
in India. Sanjay Kaul, the founder
and president of the University
of Petroleum & Energy Stud-
ies (UPES) explains his desire to
found such an institution: “when
I was in the oil and gas industry
working for an oil company, I
could walk into any hotel on any
highway and find a hotel man-
agement graduate, whereas an
industry that contributed almost
16-17% of India’s GDP did not even have a university.” He goes
on to explain the short-term insights that contributed to his vision
for an institution like UPES: “IT just boomed, and suddenly there
were no software engineers, there were no hardware engineers.
Innovation could only come from overseas. I thought to myself
that if the same reforms come to
the power sector and oil and gas
sector, would this also happen?
That you have got the reforms
done, investment is pouring in,
you have got a multiplier effect
fuelled by the 9-10% growth rate,
but no talent to fuel it.”
Having had the initial idea
for UPES in 1995, it was only in
2001 that Kaul felt the time was
right to put his ideas into action.
He believed that the only hurdle
in the way of sectoral education
was that there was no precedent.
After successfully generating
interest for the idea in the indus-
try through round table events and forums, Kaul’s dream became a
reality, and the university became the first public private partner-
ship (PPP) to be recognized by the University Grants Commission,
an Indian statutory and regulatory body governing university
education in the country.
SJ Chopra, the chancellor of UPES, explains his perception of
the mission of the university today. “Our aim with UPES was to
address the knowledge and skill gaps covering the entire gamut
of the oil and gas industry: upstream, downstream and midstream
components. Further, also for the management programs, our
emphasis has been very specific to domains. This thinking is
reflected in all our academic programs. Over the years we have
made efforts to remain true to our stated vision of providing
quality education and also engage effectively in training, research
and consultancy in the core areas of energy, power and infrastruc-
ture. Our aim is to now address the growing needs of the entire
spectrum of the energy sector with the idea of developing human
talent that is tailor-made for the oil and gas industry.”
The Indian AdvantageMany local service and manufacturing companies have made
extremely good business out of the oil and gas sector despite
international competition caused by liberalization and a transpar-
ent tendering process, because their home market allows them to
focus on quality while keeping prices low. However, this advan-
tage initially acts as a double-edged sword for companies, as the
international reputation for products in a market like India are that
quality suffers in order to keep costs low. However, as the cases
below show, it is not only possible to keep high manufacturing
standards in India, but also to overcome this issue of reputation
and perception by international companies and clients.
One company that has capitalized on its Indian advantage is
Jindal SAW, India’s first and largest manufacturer of submerged
arc welded (SAW) pipelines, with revenues of around $1.5 billion
USD in 2010. According to Jindal SAW’s managing director Sminu
Jindal, “international markets already represent around 50% of
Jindal SAW’s revenues and we intend to continue expanding in
fast-growing markets, especially through greenfield investments,
and of course if any good acquisition opportunity comes along
anywhere else we will take advantage of it.”
Sanjay Kaul, president and founder, UPES
Sminu Jindal, managing director, Jindal Saw
UPES campus, Dehradun, courtesy of UPES
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For Jindal, the initial challenges related to the general percep-
tion that Indian products lack of quality were quickly overcome
with high investments in quality and HSE standards. “This is a
perception that we had to fight initially but eventually our products
spoke for themselves. Jindal SAW’s experience in the USA speaks
volumes about how we managed to gain the confidence of our
international customers. Our products faired exceptionally well and
were in fact much above their prequalification criteria after which
we didn’t have to fight for recognition. Jindal SAW was the first of
its kind to go not only for ISO 9000, but also 18000 and 14000.”
Jindal SAW gained special recognition for its participation in
Cairn Energy’s Barmer Salaya pipe
line (BSPL) project. The project
involved the supply of longitudi-
nal submerged arc welded (LSAW)
line pipes for worlds' longest
underground pre-insulated heat
traced pipeline to transport waxy
and heavy crude which otherwise
solidifies at ambient temperature.
“By undertaking this challenge
and successfully completing the
task,” says Jindal, “Jindal SAW
Ltd. proved its technical compe-
tence and execution capabilities
to take on technologically chal-
lenging projects and accomplish
their execution to meet the
project’s requirement. We were
running on full capacity and to ful-
fill the requirement we had to set
up new thermal insulation coating
facility, new liquid epoxy coating
facility, new hydrotesting facility
for seamless tubes and sect tube
welding facility involving com-
plicated welding process – all
from scratch. We did this and
we also manufactured and sup-
plied 590km of thermal insulated
coated pipes all within 11 months – a record no one in the world
had accomplished before.”
Uma Shanker, chairman and managing director of Advance
Valves, recalls the challenges faced by Indian manufacturing com-
panies. In a concerted attempt to change the standard industry
template, Advance Valves opted for an extremely transparent way
of doing business that helped them win contracts with non-Indian
companies. “We were encouraged knowing that you could be suc-
cessful while disclosing the details of your technology—even as an
Indian company. Sometime in the 1990s, the West started listening
to Indian engineers. There was some resistance, but gradually they
began to accept our capability.”
Shanker believes that because of the high levels of quality
permeating the local market today, there is now no distinction
between international quality levels and Indian ones. “Indian buy-
ers are as technologically demanding as global customers. The
differences are vanishing more and more. Particularly with the
global market—the supplier base, and the vendor base, and the
engineering consulting base, are becoming more and more global;
and the scale of operation in India is ever growing.”
The fact that prominent Indian companies have been so
conscious about the quality of their products and services and
the safety of the environment and their employees has helped
to break paradigms in international markets about how Indian
companies are climbing the international value-added ladder while
maintaining their cost-competitiveness.
Jindal Drilling, part of the D.P. Jindal Group, is another example
of how Indian expertise has achieved international levels of quality.
Raghav Jindal, managing director, Jindal Drilling & Industries
Uma Shanker, chairman and manag-ing Director, Advance Valves
Manufacturing plant, Courtesy of Advance Valves
CarIGL_OGFJ_1107 1 6/17/11 5:22 PM
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The company was incorporated in 1983 with a focus on providing
quality offshore drilling and correlated services and today operates
five jackup rigs and provides a wide spectrum of services such as
offshore drilling, directional and horizontal drilling, mud logging,
and manufacturing of seamless pipes.
Having built its business through working almost exclusively
with ONGC in the Indian market, the company is now planning to
spread its tentacles throughout the Indian market and beyond, as
Raghav Jindal, newly appointed managing director of Jindal Drill-
ing explains. “With the broadening of the Indian market, we will
be looking at partnering with various new entrants. Jindal Drilling
is bidding for tenders with some of the other already established
companies in the market such as British Gas, Cairn and Reliance
Industries and we recently did a drilling project for Cairn. Last but
not least, Jindal Drilling will also target the international market
and look into acquisitions abroad while participating in quality
partnerships.”
As part of its growing international recognition, Jindal Drilling
recently received an award from Forbes Asia, rating the company
as one of the top 200 companies on the continent that are under a
billion in market capitalization. “That was a great achievement for
the company. The ratings criteria are not specifically provided, but
some of the noted areas are growth opportunities in the future,
services, profit margins and turnover. There were only 37 compa-
nies selected from India, and just two or three from the oil & gas
sector,” says Jindal.
Gas is always greenerThe 2002 discovery of KG-D6
natural gas reserves by Reli-
ance has awakened India to the
potential of natural gas in recent
years. Today India is finally invest-
ing heavily in LNG terminals, gas
pipelines, city gas distribution
(CGD), compressed natural gas
(CNG) and liquified petroleum
gas (LPG), and many established
Indian players are using such
plays as a way to diversify their
domestic business in the face of
government subsidies on petro-
leum products.
The state-owned gas and
infrastructure giant GAIL is
involved in most of India’s major
infrastructure projects to increase
its gas import capacity. According
to GAIL’s chairman and manag-
ing director BC Tripathi, the main
“benefit GAIL has provided to
India is in the development of its
gas industry. When GAIL’s first
project started in 1984, India
didn’t have the necessary technol-
ogy, consultants, or materials
providers (such as pipes, compressors, and valves). Today India is
one of the largest exporters of pipes in the world, having almost
25% share of the world pipes industry. The same happened in the
construction industry: India had no contractors in 1984. When you
look at the various equipment suppliers (such as gas turbines, com-
pressors, wags), any item required in the industry is now produced
in India and exported elsewhere”. As a result, the “contribution
that GAIL has provided to India over the last 25 years, apart from
building the backbone infrastructure to the industry and support-
ing the energy supply, is the development of the Indian oil and gas
value chain.” The growth in GAIL’s turnover has impacted directly
on its investments, “In the last 25 years GAIL had an accumulated
turnover of $5.5 billion USD, but we are going to achieve more
than that in the next four years. The company currently has almost
4970 miles of pipelines and we are going to have 9320 miles by
2014/2015, almost doubling the available infrastructure.”
Petronet LNG is an example of the emphasis placed by the gov-
ernment of India on increasing the country’s energy supply through
gas. The company constitutes an effort to bring together four
major public sector undertakings (PSUs) to start a new business in
LNG, a field where India had no real experience, technology, or
expertise. “This was in 1998. The four companies – ONGC, IOCL,
BPCL, and GAIL – came together, and to have access to the neces-
sary technology, GDF SUEZ was taken as a strategic partner. The
Asian Development Bank also provided international support. In
this period Petronet LNG has done pretty well. The company has
the biggest re-gasification plant in the world and we have been
awarded the largest LNG sourcing contract,” explains AK Balyan,
BC Tripathi, chairman and managing director, GAIL
BC Tripathi, chairman and managing director of GAIL
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CEO of Petronet.
Petronet set up India’s first LNG receiving and
regasification terminal at Dahej, Gujarat, and is in
the process of building another terminal at Kochi,
Kerala, both on India’s west coast. While the Dahej
terminal has a nominal capacity of 10 million tons
per annum (MTPA) the Kochi terminal will have a
capacity of 2.5 MTPA.
However, there are challenges to delivering the
gas India so desperately needs. Balyan explains
why. “Petronet LNG needs to have reasonably
priced and affordable gas to make it available to
a billion people and that is a challenge. The world
gas scenario is very volatile and filled with uncer-
tainties. So one thing we are working on is to have
sustainable, long-term contracts at reasonable
price levels, to be able to import and bridge the
gap between demand and supply.”
Vikram Singh Mehta from Shell complements
Balyan’s comments; “You cannot produce gas
without infrastructure in place to support the
market. That means power plants must be con-
structed, fertilizer plants must be constructed,
and more. Demand is potentially huge, but you
have to facilitate the demand.” Even so, Shell and
its partner Total have built the $700 million USD
Hazira Terminal, which includes an LNG storage
and regasification terminal with a fully functioning
port. The industry hopes that current investments
in infrastructure will facilitate the access of oil and natural gas to a
largely unattended industry and population; LNG’s current prices
will help make it more competitive in a coal abundant, though
extremely polluted, country.
If finding major buyers looks challenging, try delivering fuel
directly to more than a billion people who are urbanizing at record
speed, with a 300 million-strong middle class growing in size and
purchasing power. This is what companies such as Indraprastha Gas
Limited (IGL) are doing. Their main achievement, as its managing
director Rajesh Vedvyas highlights, “has been to expand IGL’s infra-
structure so as to meet the ever growing demand. When I entered
the scene there were long queues at Delhi’s compressed natural gas
(CNG) stations, so I took as my first task the expansion of the infra-
structure at a rather fast pace to allow consumers to conveniently
refill their vehicles. In a matter of two years IGL
has built about 80 CNG stations from an initial
base of 160, and another 40 are under construc-
tion. There is a huge jump in the infrastructure
so as to make CNG refueling a pleasant experi-
ence for our consumers.”
Thanks to the enforcement of incentive laws
and the obligation for all public transport to
run on CNG, the pollution levels in Delhi have
diminished considerably, though there is still
a long way to go. Vedvyas expects that in five
years IGL will be at least four times bigger than
today in terms of turnover. “Last year IGL had
revenues of around $300 million USD, but our
target for 2015 is to become a $1 billion USD
company.”
IGL is also growing quickly in PNG city gas
distribution (CGD), though Delhi’s wide accep-
tance of this clean alternative has not been a norm
in India. “At the moment we have 40 Indian cities
where CGD has been rolled out in the last five
years, but in most of these cities, CGD business
has not taken off in real terms. There are issues
that need to be addressed before the PNGRB
tries to implement CGD in 200 plus cities they are
planning to. Even cities like Delhi and Mumbai
still have unresolved issues. The PNGRB needs
to act as a facilitator to resolve these problems
first before expanding the CGD business on such
a large scale. Unless they do that, it is doubtful
that CGD business can be successfully launched
in other cities.” Again, the problem is not lack of
demand, but how much large and small consumers
are willing to pay and how much the government
is willing to subsidize or enforce the use of cleaner
fuels.
Fernas, a Turkish construction company,
entered the Indian market explosively 2 years ago
through the medium of oil and gas, winning pipe-
line contracts with GAIL, IOCL, and ONGC’s Petro
Additions Ltd. It is already looking to diversify its
portfolio in India, firstly through power and road
projects, but also through city gas distribution, an
area where the company has experience as the owner and operator
of city gas distribution in the Turkish city of Diyarbaker, where it
supplies gas to more than 100,000 consumers.
As CEO of Fernas India Rohit Singhal explains, this would mark
a shift in the strategy of Fernas in India so far: “City gas distribution
is going to be another area where we may compete as an opera-
tor, rather than just as a constructor. The company outside India,
especially in Turkey, has moved away from construction to asset
ownership. We want to follow a similar strategy in India.” It seems
that despite the challenges of bringing gas to such an enormous
market, including the logistical challenges of bringing gas to new
cities and the legislative challenges still being faced regarding
distribution rights for new cities, there are companies in India today
willing to brave the challenges and seize the opportunities.
Rohit Singhal, chief executive officer (India), Fernas Construction Company
Rajesh Vedvyas, managing director, IGL
Pipelines in Rajasthan, Courtesy of Cairn India
email: [email protected]