Budget@10: Oil and gas industry moves towards energy transition, focused on self-reliance

 Budget@10: Oil and gas industry moves towards energy transition, focused on self-reliance

In the Union Budget 2023-24, Finance Minister Nirmala Sitharaman allocated Rs 35,000 crore for state-run oil marketing companies for energy transition and net zero objectives.

Companies in the oil and gas sector, one of the largest contributors to emissions, have set a net-zero target by 2070.

India's oil and gas sector has seen several significant changes over the last 10 years, from increased exploration to moving towards net zero emissions.

The government has emphasized expanding oil and gas exploration over the past decade to achieve a greater level of energy self-sufficiency by opening "no-go areas" to exploration. It aims to reduce dependence on imports for most of its energy needs.

The government is also focusing on the energy transformation of the oil and gas industry as India aims to achieve net zero emissions by 2070. Companies in the oil and gas sector, one of the largest contributors to emissions, have already set a net-zero target by 2070.

In the Union Budget for FY2024, Finance Minister Nirmala Sitharaman allocated Rs 35,000 crore for capital investment towards energy transition and net zero emissions objectives for state-run oil marketing companies (OMCs). However, the amount has not been allocated to OMCs.

The Big Hits

LPG connections: A record 170 million new cooking gas connections were given in the last decade under the Modi government, taking the total number to 312.6 million. Of those, 95.8 million connections were released under the Pradhan Mantri Ujjwala Yojana, an initiative to provide free cooking gas to poor families.

Increase in exploration: Modi government increased exploration to reduce the country's dependence on oil imports. It opened up "no-go areas" such as the Andaman and Nicobar Islands for exploration to boost domestic oil production.

Ethanol blending: Ethanol blending in petrol has increased from 5 percent to 12 percent in 2014. The government aims to achieve 20 per cent blending by 2025, five years ahead of its earlier target.

City Gas Infrastructure: In India, domestic piped natural gas connections increased four-fold to 10.4 million from 2.54 million in 2014. With the latest 12th City Gas Distribution (CGD) bidding round, there will be access to CGD network across the country. From 66 districts in 2014, the CGD network now covers 630 districts.

Kirit Parikh's Recommendations: To liberalize domestic natural gas prices, the government linked them to the cost of imported crude oil. They will be 10 per cent of the monthly average of the Indian crude oil basket, subject to a floor and ceiling of $4 per MMBtu and $6.5 per MMBtu, respectively.

big mistakes

Petrol/Diesel out of GST: Despite the request of the industry, the government has not brought petroleum products under the ambit of Goods and Services Tax. Currently, fuels like petrol, diesel, natural gas and aviation turbine fuel are not under GST.

Increase in Oil Imports: With the increase in oil consumption in India, crude oil imports increased despite the government's efforts to boost domestic production. India imports 87 percent of its crude oil needs.

Low share of natural gas: India is focused on becoming a gas-based economy, but the share of natural gas in the energy basket remains low, at around 6.2 per cent. This comes amid low domestic production of natural gas in India and power plants' dependence on coal.

experts speak

Suman Chaudhary, Chief Economist and Head of Research, Acute Ratings & Research

One of the major policy measures in the last nine years has been the notification of the National Policy on Biofuels in 2018, which has been further revised in 2022. This policy mainly encourages the production of ethanol not only from sugarcane but also from food grains. Waste and other agricultural commodities. The country has already achieved 12 per cent ethanol blending with petrol in the current financial year and has extended the 20 per cent target to FY26 instead of FY2030. This will reduce the dependence on crude oil imports to some extent.

Prashant Vashishtha, Senior Vice President and Co-Head, Corporate Ratings, ICRA

Some of the major issues hampering the development of the upstream sector currently include high cess of 20 per cent ad valorem, slow pace of approvals and stalled progress in many blocks due to lack of requisite approvals from the Ministry of Defense and/or the Government of India. or delay in decision-making by the Ministry of Environment, Forest and Climate Change, DGH (Directorate General of Hydrocarbons), increase in arbitration cases involving administration of production-sharing contracts, etc.

Saurav Mitra, Practice Leader and Director – Consulting, CRISIL Market Intelligence & Analytics

Indian oil and gas industry is on the right track and will complement GDP growth. The biggest changes coming to the industry in the next five years will be: i) increased share of biofuels in the O&G mix, ii) increased access to natural gas for consumers across the country, with expansion of pipelines and CGD networks and , iii) Introduction of carbon markets into the system, as more and more O&G companies declare their net-zero targets.