economic study of oil & gas industry

8/12/2019 Economic Study of OIL & GAS Industry

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Ramesh Choudhary Jayshree Patil

Sampada Patil

Anthony Alexandar

Mahesh Koli



Oil reserves continue to grow, registering an increase of 20% compared to 1995, thanks to successfulexploration in new fields and to the increased knowledge of producing oilfields. The Middle East hasdominated the oil landscape for decades, but reserves are also growing in other countries such asKazakhstan, Nigeria, Ghana and recently the United States. In fact, today these countries record muchhigher reserves than in the past, thanks to deep water activity and the recent contribution of tight oilonshore. Since 1995, an increase of 40% in gas reserves has been recorded, thanks to the large exportprojects via pipelines and LNG which have encouraged exports. In this regard, in 2011 the Americanshale gas boom saw the US reach historical heights with its own proven reserves which caused it toreconsider its own economic model.

The growth of reserves has been accompanied by a continued increase in production, in spite of therecent political events in the Arab world. Oil production has reached a new record, with an increase of1% in 2011 and of 20% since 1995. Gas, with an increase of production in 2011 of 3% and of 50% since1995, has proven it is a source of energy for the future.

Global consumption, in line with increase in production, shows the continued growth of the oil sector,

thanks to the strong development of emerging countries, and the increase in demand for gas favouredby low US prices and the closure of nuclear power stations after the earthquake and tsunami inFukushima in Japan.



Oil Production - Areas and Aggregates

Crude and non conventional oil. natural gas liquids (thousand barrels/day)

1995 2000 2005 2008 2009 2010 2011 ∆ y/y (2011-2010) CAGR (2011-2000)

EUROPE 6,712 7,095 5,950 5,037 4,775 4,401 4,078 -7.30% -4.90%

RUSSIA and CENTRAL ASIA 7,062 7,864 11,703 12,694 13,145 13,427 13,467 0.30% 5.00%

MIDDLE EAST 20,591 23,510 25,556 26,505 24,936 25,442 27,483 8.00% 1.40%

AFRICA 7,332 7,808 9,942 10,420 10,055 10,340 9,240 -10.60% 1.50%

ASIA - PACIFIC 7,400 7,933 8,035 8,112 8,176 8,410 8,198 -2.50% 0.30%

AMERICAS 19,853 20,993 20,985 20,516 20,867 21,389 21,986 2.80% 0.40%

- North America 10,939 10,746 10,115 10,168 10,648 11,142 11,613 4.20% 0.70%

- Latin America 8,913 10,248 10,870 10,348 10,220 10,247 10,373 1.20% 0.10%

WORLD 68,948 75,203 82,170 83,285 81,955 83,410 84,451 1.20% 1.10%

EUROPEAN UNION 3,543 3,537 2,769 2,354 2,203 2,050 1,834 -10.60% -5.80%

MENA 24,359 27,228 29,964 31,099 29,254 29,757 30,641 3.00% 1.10%

OECD 21,036 21,874 20,148 18,757 18,794 18,864 18,911 0.30% -1.30%

NON OECD 47,913 53,329 62,022 64,528 63,161 64,546 65,540 1.50% 1.90%

OPEC 27,365 30,769 34,805 36,139 34,064 34,751 35,743 2.90% 1.40%

NON OPEC 41,584 44,435 47,366 47,145 47,891 48,659 48,708 0.10% 0.80%

Natural Gas Production - Areas and Aggregates

(billion cubic metres)

1995 2000 2005 2008 2009 2010 2011 ∆ y/y (2011-2010) CAGR (2011-2000)

EUROPE 281 324 339 330 314 320 295 -7.90% -0.90%

RUSSIA AND CENTRAL ASIA 667 677 759 814 707 793 819 3.40% 1.80%

MIDDLE EAST 140 202 311 396 418 479 534 11.60% 9.20%

AFRICA 82 125 183 206 193 205 192 -6.60% 4.00%

ASIA - PACIFIC 216 283 364 415 436 468 483 3.20% 5.00%

AMERICAS 779 850 873 938 936 966 1,019 5.50% 1.70%

- North America 674 710 687 733 734 748 796 6.40% 1.00%

- Latin America 105 140 187 205 203 218 223 2.40% 4.30%

WORLD 2,166 2,461 2,830 3,100 3,004 3,231 3,343 3.40% 2.80%

EUROPEAN UNION 226 248 225 201 183 186 165 -11.50% -3.60%

MENA 214 311 466 564 581 644 683 6.00% 7.40%

OECD 983 1,077 1,075 1,130 1,120 1,151 1,182 2.70% 0.90%

NON OECD 1,183 1,383 1,755 1,969 1,883 2,080 2,160 3.90% 4.10%

OPEC 226 313 432 515 521 583 623 6.80% 6.50%

NON OPEC 1,940 2,148 2,398 2,585 2,482 2,648 2,720 2.70% 2.20%



Oil Consumption - Areas and Aggregates

(thousand barrels/day)

1995 2000 2005 2008 2009 2010 2011 ∆ y/y (2011-2010) CAGR (2011-2000)

EUROPE 16,245 16,348 16,999 16,769 15,963 15,893 15,625 -1.70% -0.40%

RUSSIA and CENTRAL ASIA 3,432 3,263 3,300 3,611 3,593 3,834 4,028 5.00% 1.90%

MIDDLE EAST 4,359 5,094 6,266 7,272 7,526 7,816 8,016 2.60% 4.20%AFRICA 2,173 2,441 2,902 3,274 3,328 3,395 3,345 -1.50% 2.90%

ASIA - PACIFIC 18,076 20,924 24,191 25,468 25,872 27,321 28,060 2.70% 2.70%

AMERICAS 25,891 29,046 30,840 30,177 29,288 30,064 30,003 -0.20% 0.30%

- North America 19,777 22,013 23,483 22,021 21,223 21,692 21,423 -1.20% -0.20%

- Latin America 6,114 7,033 7,357 8,156 8,065 8,371 8,580 2.50% 1.80%

WORLD 70,175 77,116 84,497 86,571 85,571 88,322 89,075 0.90% 1.30%

EUROPEAN UNION 14,197 14,559 15,082 14,802 14,015 13,990 13,642 -2.50% -0.60%

MENA 5,450 6,334 7,703 8,844 9,131 9,420 9,529 1.20% 3.80%

OECD 45,443 48,544 50,451 48,337 46,310 46,831 46,290 -1.20% -0.40%

NON OECD 24,732 28,572 34,046 38,234 39,261 41,492 42,786 3.10% 3.70%OPEC 4,809 5,579 6,859 7,908 8,271 8,548 8,724 2.10% 4.10%

NON OPEC 65,367 71,537 77,638 78,664 77,300 79,774 80,352 0.70% 1.10%

Natural Gas Consumption - Areas and Aggregates

(billion cubic metres)

1995 2000 2005 2008 2009 2010 2011 ∆ y/y (2011-2010) CAGR (2011-2000)

EUROPE 514 591 676 666 614 670 617 -7.90% 0.40%

RUSSIA and CENTRAL ASIA 455 461 510 551 519 562 576 2.50% 2.00%

MIDDLE EAST 133 179 264 334 347 372 400 7.40% 7.60%

AFRICA 45 56 86 101 97 102 103 1.20% 5.70%ASIA - PACIFIC 223 304 405 500 521 570 624 9.40% 6.80%

AMERICAS 791 881 883 939 929 975 1,014 4.00% 1.30%

- North America 685 742 701 739 732 758 787 3.90% 0.50%

- Latin America 106 139 182 200 197 217 227 4.30% 4.60%

WORLD 2,160 2,472 2,823 3,091 3,026 3,251 3,333 2.50% 2.80%

EUROPEAN UNION 398 470 532 525 497 526 469 -10.80% 0.00%

MENA 170 225 334 417 430 459 486 6.00% 7.30%

OECD 1,194 1,379 1,442 1,523 1,490 1,571 1,578 0.40% 1.20%

NON OECD 966 1,092 1,381 1,567 1,537 1,680 1,755 4.50% 4.40%

OPEC 179 225 313 373 381 403 427 6.10% 6.00%

NON OPEC 1,981 2,246 2,511 2,717 2,645 2,849 2,906 2.00% 240.00%



World Top 10 Exporters of Oil

World Top 10 Importers of Oil

World Top 10 Exporters of Gas

World Top 10 Importers of Gas



Administered Price Mechanism (APM)

• Under the APM, prices in the hydrocarbon sector are controlled at four stages production, refining, distributionand marketing on the principle of compensating normative cost and allowing a pre-determined return oninvestments.

• The national oil producing companies like Oil & Natural Gas Corporation (ONGC) and Oil India Limited (OIL) arecompensated for their operating expenses and allowed a 15 per cent post-tax return on the capital employed.Both ONGC and OIL sell crude to refiners at $7-8 per barrel as against the prevailing international price of $17-18 per barrel.

• Sourcing and import of crude and petroleum products is fully canalised through the government-owned IndianOil Corporation and controlled by the empowered standing committee of the Centre.

• The refining sector is also regulated wherein the refiners are fully compensated for the acquisition cost of crudeand other raw materials as well as operating costs with a guaranteed 12 per cent post-tax return on the networth.

• In the third stage, consumer prices are fixed under a similar cost-plus formula wherein the marketing and

distribution costs are fully compensated for, and a return on investment at the rate of 12 per cent post-tax onnet worth is guaranteed.

• At the distributors level, the dealers commission and margins are regulated by the government to maintainuniformity in the commission rate. Freight for import of crude is paid to Indian shipping companies at a cost-plus rate, which is much higher than the market rate.



APM has been dismantled from year 2002 after the recommendation ofagency setup by DGH

Market determined pricing of petroleum

Dismantling of Oil Pool Account, which was the balancing tool used under

the APM

Private companies were permitted for retail distribution of petro-products,subject to specified guidelines such as a minimum investment of Rs 20 bn isrequired in the petroleum sector

Set up of Petroleum Regulatory Board

Reduction in subsidies on LPG and Kerosene to 15% and 33% respectively by1-Apr-02. LPG and kerosene subsidies to be phased out in the next 3 to 5years



De-regulation of Petrol prices

Subsidy on Petroleum Products◦ 1. Diesel (Rs. 10 per litre)

◦ 2. Kerosene (Rs. 19 litre)

◦ 3. LPG (Rs. 490 per cylinder)

Enabling Private Players to market transportation fuel including HSD

Compensation of Under Recoveries losses to PSU



New Exploration Licensing Policy (NELP)

NELP was formulated to provide a level playing field to both Publicand private sector companies in exploration and production ofhydrocarbons with Directorate General of Hydrocarbons as a nodalagency for its implementation.

Under NELP, 68 oil & gas discoveries have been made byprivate/joint venture companies in 19 blocks, thereby adding morethan 600 MMT6 of oil equivalent hydrocarbon reserves. As on April

1, 2009, investment commitment under NELP amounted to aboutUS$ 10 bn on exploration, while actual expenditure upto April 1,2009 was approximately US$ 4.7 bn. In addition, investment worthUS$ 5.2 bn has been made on development of discoveries.

economic study of oil & gas industry

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