India's Oil Security New Paradigms

8/7/2019 India's Oil Security New Paradigms

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FMS, Delhi

Indias Oil SecurityNew Paradigms

Abhishek Deheriya


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Contents

Executive Summary ........................................................................................................................... 3

Introduction ...................................................................................................................................... 4

Energy security for Developed World............................................................................................. 5

Energy security for Developing World ............................................................................................ 5

Principles of Energy Security .............................................................................................................. 6

Objectives of study ............................................................................................................................ 7

India: Oil History and Policies............................................................................................................. 8

Independent Indias Hydrocarbon Policy........................................................................................ 8

Oil Crisis ........................................................................................................................................ 9

Liberalizing the Hydrocarbon Sector .............................................................................................. 9

ONGC Videsh Limited ...................................................................................................................... 11

What made ONGC so profitable ................................................................................................... 13

Rage for Oil: China and India ........................................................................................................ 13

Policy initiatives............................................................................................................................... 15

Oil and Gas Suppliers to India .......................................................................................................... 18

Oil Reserves, Production and Consumption ..................................................................................... 20

Oil-Proven Reserves ..................................................................................................................... 20

Oil Production ............................................................................................................................. 21

Oil Consumption .......................................................................................................................... 22

The Mix for energy security: Fifth Principle ...................................................................................... 24

Creating a diverse energy mix ...................................................................................................... 24

Government and the energy security architecture ....................................................................... 25

Pathways to energy security and efficiency .................................................................................. 26

Conclusion ....................................................................................................................................... 28

Bibliography .................................................................................................................................... 29

Articles and Books ....................................................................................................................... 29

Website ....................................................................................................................................... 29


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Executive Summary

The days of high crude prices might be away and the bankers and

financial sector might have displaced the news from the front pages of

newspapers, but Energy Security remains at the top of the global political

and economic agenda. It was a key concern during the big swings in

energy markets of the past two years.

India is fifth largest oil consumer in the world. Oil and gas represent over

40 per cent of the total energy consumption in India. The consumption of

petroleum products in the country is on the rise and demand already far

exceeds domestic supply. Crude oil influences the Indian economy in

many ways.

The concern for developing countries like India is how changes in energy

prices affect its balance of payments. Energy security now lies in its ability

to rapidly adjust to their new dependence on global markets, which

represents a major shift away from their former commitments to self

sufficiency.

A policy framework to encourage Indian companiesaggressive approach

in gaining overseas fields, have an energy mix and to increase the

present efficiency in oil production.


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IntroductionOn the eve of World War I, First Lord of the Admiralty Winston Churchill

made a historic decision: to shift the power source of the British navy's

ships from coal to oil. He intended to make the fleet faster than its

German counterpart. But the switch also meant that the Royal Navy

would rely not on coal from Wales but on insecure oil supplies from what

was then Persia. Energy security thus became a question of national

strategy. Churchills answer? Safety and certainty in oil, he said, "lie in

variety and variety alone." Since Churchill's decision, energy security has

repeatedly emerged as an issue of great importance.

But the subject now needs to be rethought, for what has been the

paradigm of energy security for the past three decades is too limited and

must be expanded to include many new factors. Moreover, it must be

recognized that energy security does not stand by itself but is lodged in

the larger relations among nations and how they interact with one

another.

The renewed focus on energy security is driven in part by an exceedingly

tight oil market and by high oil prices, which have doubled over the past

three years. But it is also fueled by the threat of terrorism, instability in

some exporting nations, a nationalist backlash, fears of a scramble for

supplies, geopolitical rivalries, and countries fundamental need for energyto power their economic growth.

In the background renewed anxiety over whether there will be sufficient

resources to meet the world's energy requirements in the decades ahead.

Since Churchill's day, the key to energy security has been diversification.

This remains true, but a wider approach is now required that takes into

account the rapid evolution of the global energy trade, supply-chain

vulnerabilities, terrorism, and the integration of major new economies

into the world market.


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Energy security for Developed World

Although in the developed world the usual definition of energy security is

simply the availability of sufficient supplies at affordable prices, different

countries interpret what the concept means for them differently. Energy-

exporting countries focus on maintaining the "security of demand" fortheir exports, which after all generate the over whelming share of their

government revenues. For Russia, the aim is to reassert state control

over "strategic resources" and gain primacy over the main pipelines and

market channels through which it ships its hydrocarbons to international

markets.

For Japan, it means offsetting its stark scarcity of domestic resources

through diversification, trade, and investment. In Europe, the major

debate centers on how to manage dependence on imported natural gas-and in most countries, aside from France and Finland, whether to build

new nuclear power plants and perhaps to return to (clean) coal. And the

United States must face the uncomfortable fact that its goal of "energy

independence" a phrase that has become a mantra since it was first

articulated by Richard Nixon four weeks after the 1973 embargo was put

in place-is increasingly at odds with reality.

Energy security for Developing WorldThe concern for developing countries is how changes in energy prices

affect their balance of payments. For China and India, energy security

now lies in their ability to rapidly adjust to their new dependence on

global markets, which represents a major shift away from their former

commitments to self sufficiency.


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Principles of Energy SecuritySeveral principles underpin energy security. The first is what Winston

Churchill urged and has been discussed earlier: diversification of supply.

Multiplying ones supply sources reduces the impact of a disruption in

supply from one source by providing alternatives, serving the interests of

both consumers and producers, for whom stable markets are a prime

concern. But diversification is not enough.

A second principle is resilience, a security margin in the energy supply

system that provides a buffer against shocks and facilitates recovery after

disruptions. Resilience can come from many factors, including sufficient

spare production capacity, strategic reserves, backup supplies of

equipment, adequate storage capacity along the supply chain, and the

stockpiling of critical parts for electric power production and distribution,

as well as carefully conceived plans for responding to disruptions that

may affect large regions.

Hence the third principle: recognizing the reality of integration. There is

only one oil market, a complex and worldwide system that moves and

consumes about 86 million barrels of oil every day. For all consumers,

security resides in the stability of this market. Secession is not an option.

A fourth principle is the importance of information. High-quality

information underpins well-functioning markets. On an international level,

the International Energy Agency has led the way in improving the flow of

information about world markets and energy prospects. That work is

being complemented by the new International Energy Forum, which will

seek to integrate information from producers and consumers.

Fifth: Emergence of new technologies, finding a mix, increase in

efficiency.

Information is no less crucial in a crisis, when consumer panics can beinstigated by a mixture of actual disruptions, rumours, media images, and

fear. As important as these principles are, recent years have highlighted

the need to expand the concept of energy security in two critical

dimensions:

1. The recognition of the globalization of the energy security system,

which can be achieved, and

2. The acknowledgment of the fact that the entire energy supply chain

needs to be protected.


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Objectives of studyTo find out various policy initiates by the government to ensure

Indias oil security.

To analyze the present situation of crude supply i.e. imports and

domestic production and Indian companies working overseas.


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India: Oil History and PoliciesIt all started with tea-more specifically tea from China, which Scottish

entrepreneurs successfully grew in the foothills of the Himalayas in the

North-Eastern region in 1834. In mid 1860s the British built a railway

from Calcutta to the garden region using both men and elephants. While

working near a site called Digboi, a derivative of the Dig, boy, dig call

that the Scottish foremen issued to their workmen- an elephant appeared

with his feet smeared in oil. That was sufficient evidence for James

Goodenough to persuade his employer to drill for petroleum. The firm

struck oil in 1857, the first successful discovery in Asia.

For more than six decades, the Digboi field was Indias sole petroleum

source. During World War II, its oil and its proximity to the Pangsu pass

on the Indo-Burmese border made it prime target of Japanese invaders

after they had captured Burma. They came within three days marching

distance of Digboi but were first halted and then repulsed by the Allied

forces at a heavy cost.

In the post-war period selling kerosene remained the main business of

the Burmah Oil Company and other foreign oil companies like Caltex

(later Esso) and Royal Dutch Shell, with their subsidiaries based in India.

Independent Indias Hydrocarbon Policy

In 1956, the Indian parliament placed oil in the public sector with the

creation of the ministry of petroleum and natural gas, which was given a

virtual monopoly in future oil and gas exploitation and production. Its

operating arm, the Oil and Natural Gas Corporation (ONGC), found

western oil corporations unwilling to help it acquire expertise to explore

and produce oil on its own. So it sought and received assistance from the

Soviet Union, including the education and training of Indians as

Geophysicsts and petroleum engineers. From the late 1950s, Soviet oil

experts began working with the ONGC and together they discovered oil inthe Assam and Tripura-Cachar basins as well as in the Cambay area of

Gujarat.

In 1961, the government of India and Burmah Oil Company (BOC)

became equal partners in Oil India Ltd (OIL), set up to engage exclusively

in exploration and production. Both OIL and ONGC made a number of oil

and gas discoveries in different regions.

In 1964-67, an Indo-Soviet exploration team discovered the Bombay High

offshore oil and gas field. The production started in 1974.


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Oil Crisis

In 1973, OPEC hiked the oil prices for the first time. Since then the price

of the crude was regularly hiked up from $ 2.1 per barrel in 1973 to $27

in 1980. The price of crude had hovered between $50 and $60 per barrel

in the last two decades of the century.

As a consequence of this sharp increase in oil prices, the value of Indias

oil imports raised sharply from Rs 1110 crores in 1973-74 to over

Rs 5620 crores in 1982-83 and to Rs 260000 crores in 2008-09.

This oil crisis made governments, economies, business, scientists and

innovators think. While Honda came up with the its fuel efficient cars,

India had its own policy initiates.

Stepping-up oil production: ONGC and OIL increased theirexploratory drilling operations all over the country and offshore

areas.

Control over the consumption of petroleum products.

Substitution of oil by coal.

Conservation on energy.

Focus on renewable sources.

Liberalizing the Hydrocarbon Sector

Petroleum minister in the BJP led coalition, Ram Naik, sanctioned 25 newexploration blocks under the 1997 New Exploration Licensing Policy, with

the plan to announce 25 more before the end of year 2000. In contrast,

during the 1990s, only 23 exploration blocks were sanctioned. In Jan

2001, Naik flew to Houston to arouse interest among American oil

executives in bidding for exploring rights for oil and gas-onshore and

offshore-in the proven and promising sedimentary basins of Gujarat, Uttar

Pradesh (UP), West Bengal, Orissa and Rajasthan.

To expedite the process and encourage the entry of the private sector the

government deregulated the whole of the oil sector in April 2002-from

exploration to marketing. This allowed private and foreign companies to

undertake the marketing of petrol, diesel and ATF, provided they agreed

to invest a minimum of $50 million in oil exploration or production,

refining, pipelines, or terminals. This gave an impetus to private

companies at home, such as Reliance Industries.

Reliance industries was active in prospecting and production. In 2003, its

discovery of 14.5 billion cubic feet of natural gas in the Krishna-Godavari

(KG) basin was the highlight of the year. It not only improved the energysecurity of the country by boosting possible gas production by 50 percent,


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but also raises the prospect of Indian sedimentary basins in the

international market.

To reverse the falling output of the Bombay High oil field, the ONGC

initiated an investment of $2.6 billion in 2001 to redevelop it.

To intensify its activities abroad, ONGC set up a wholly owned subsidiary,

ONGC Videsh Ltd (OVL), to focus on overseas exploration and production

projects.

With oil prices exceeding $60 a barrel in June 2005, India, like China,

realized as never before the economic wisdom of importing oil from their

own oil fields at a cost of $10-12 a barrel after fees and royalties rather

than purchasing it on the open market. At the same time, record high

petroleum prices made the ONGC the largest Indian company by value,with the market capitalization of nearly $42.3 billion.


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ONGC Videsh LimitedONGC Videsh Limited (OVL) was rechristened on 15th June 1989 from the

erstwhile Hydrocarbons India Private Limited, which was incorporated on

5th March, 1965. The objectives were:

To contribute 60 MMTPA of equity oil and gas by 2025

To support India's energy security

To build balanced portfolio of exploration, discovered and producing

assets in focus countries

To build a team that excels in performance through assimilation of

best practices and technologies

To be at par with the best international oil and gas companies

Be the strongest Indian Player in the international E&P

Over a period of time, OVL has grown to become the second-largest E&P

company in India both in terms of oil production and oil and gas reserve

holdings. The primary business of OVL is to prospect for oil and gas

acreages abroad including acquisition of oil and gas fields, exploration,

development, production, transportation and export of oil and gas. OVL is

a wholly-owned subsidiary of Oil and Natural Gas Corporation Limited

(ONGC) - the flagship national oil company of India.

Starting with the exploration and development of the Rostam and Raksh

oil fields in Iran and undertaking a service contract in Iraq, a major

breakthrough was achieved by OVL in 1992 in Vietnam with the discovery

of two major free gas fields, namely LanTay and LanDo, in partnership

with British Petroleum and Petro-Vietnam. The success carried on

thereafter. In 2001, OVL acquired 20% stake in Sakhalin-1 project in the

far east of Russia. In January 2009, OVL completed the acquisition of

Imperial Energy Corporation Plc-a UK listed company, having its

exploration and production assets in Tomsk region of Western Siberia,

Russia with an investment of over USD 2.1 billion.

The company, adopting a balanced portfolio approach, maintains a

combination of producing, discovered and exploration assets, working as

operator in 17 projects and joint operator in 5 projects. OVL produces

hydrocarbons from its 9 assets, namely, Russia (Sakhalin-I and Imperial),

Syria (Al-Furat Project), Vietnam (Block 06.1), Colombia (Mansarover

Energy Project), Sudan (Greater Nile Oil Project and Block 5A), Venezuela

(San Cristobal Project) and Brazil (BC-10); 6 projects are in development

phase and 23 are in the exploration phase. OVL has successfully

completed 741 km long pipe line project in Sudan.


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OVLs international oil and gas operations produced 8.87 MMT of O+OEG

in 2009-10 as against 0.252 MMT of O+OEG in 2002-03. OVLs overseas

cumulative investment has crossed USD 10 billion.

While OVL participates and operates in varied environments both

political and geographical, it is committed to the highest standards of

Occupational Health, Safety and Environment protection and compliance

to all applicable local laws and regulations. Understanding well its

Corporate Social Responsibility, OVL makes valuable contributions to the

communities and economies in which it operates by investing in education

and training, improving employment opportunities for nationals, and

providing medical, sports and/or agricultural facilities, besides payment of

tax revenues to local governments.

Some of the leading alliance partners of OVL are BP, CNPC, Ecopetrol,

ENI, Exxon, Statoil Hydro, PDVSA, Petrobras, Petronas , Petrovietnam,

Repsol, Rosneft, Shell, Sinopec, Total and TPOC.

Fig: OVL oil and gas production


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What made ONGC so profitable

ONGC is the biggest supplier of crude in India. Around 77% of the crude

demand is fulfilled by it. OIL is also a big contributor to the crude basket.

The crude they produce receives the similar treatment as that received by

imported one. Even though the production cost of that barrel of crude hadbeen $2 or $10 or in extreme cases $20, they receive the same price as

that of imported one. Private companies have also gained through it.

This has made them, especially ONGC cash rich organisation ready to bid

for the overseas fields. Also the crude that ONGC sends to India, or swaps

with some other supplier, is priced at par, i.e. international rates.

But these bidding are competitive and there is huge competition, mostly

by our neighbour

Rage for Oil: China and India

To sustain their current rapid growth, both the countries China and India

are in desperate need to secure supply of Energy. I provide the specific

examples that illustrate the ongoing skirmish.

India (ONGC) narrowly lost to China (CNPC) in a bid for Kazakhstan's

third largest oil producer. PetroKazakhstan, a Canadian-owned company

with oil fields in Central Asia, accepted a $4.2 billion takeover bid by

state-owned China National Petroleum Corp. CNPC beat a $3.6 billionoffer from India's ONGC. ONGC has said it may make a counteroffer, but

the competition has already pushed the price into the stratosphere.

CNPC's bid was a 21.1% premium on the price of PetroKazakhstans

shares. And it values the company's proven reserves at $10.26 per barrel

-- 20% more than the market valuation of CNPC's own reserves,

according to United Financial Group, a Moscow investment bank.

In Angola, China Petrochemical Corp. (better known as SINOPEC) beat

ONGC in bidding for an oil exploration block being sold by Shell Oil Co.

Chinese ended up lending the Russians $6 billion in return for guaranteed

oil supplies at a bargain price from Yuganskneftegaz. India was not happy

with this bargain.

So far Chinese had an upper hand to secure energy in foreign lands. But

that is not the only case. A memorandum of understanding has been

signed between China and India (2005) that states: Cooperation in

upstream exploration and production, refining and marketing of

petroleum products and petrochemicals, oil and gas pipelines, researchand development, and promotion of environmentally friendly fuels.


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India and China, often fierce rivals in the race for global energy supplies,

have won a joint bid to buy Petro-Canadas 37 percent stake in Syrian oil

fields for $573 million. There is also ongoing plan for joint bidding in

Caspian Sea region, Central Asia, Africa and Latin America. Some would

perhaps point out that any partnership would never work between Indiaand China, as they are economic rivals. An interesting comment from

Reuters is that: India and China will flirt, not wed, in foreign oil push.

This is true in the area of energy resources, but when it comes to their

economies, the two are very different. China is concentrating on

manufacturing where as India moving ahead to high-tech software area

and providing advances services, such in the financial industry.

But this is one of the instances when the giants worked together for

common good. But the war is going to be intense.


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Policy initiativesThe gap between supply and availability of crude oil, petroleum products

as well as gas from indigenous sources is likely to increase over the

years. The growing demand and supply gap would require increasing

emphasis to be given to the exploration and production sector.

The objectives of the exploration policy would be as follows:-

To undertake a total appraisal of Indian sedimentary basins for

tapping the hydrocarbon potential and to optimize production of

crude oil and natural gas in the most efficient manner so as to have

Reserve Replacement Ratio of more than.

To keep pace with technological advancement and application and

be at the technological forefront in the global exploration andproduction industry.

To achieve as near as zero impact, as possible, on environment.

To achieve the above objectives the following actions are required to be

taken.

Medium term

Continue exploration in producing basins.

Aggressively pursue extensive exploration in non-producing andfrontier basins for knowledge building' and new discoveries,

including in deep-sea offshore areas.

Finalise a programme for appraisal of the Indian sedimentary basins

to the extent of 25% by 2005, 50% by 2010, 75% by 2015 and

100% by 2025. Sufficient resources to be made available for

appraising the unexplored/party explored acreages through Oil

industry Development Board (OIDB) cess and other innovative

resource mobilisation approaches including disinvestment and

privatisation.Provide internationally competitive fiscal terms, keeping in view the

relative prospectively perception of Indian basins, in order to attract

major oil and gas companies and through expeditious evaluation of

bids and award of contracts on a time bound basis.

Optimize recovery from discovered/ future fields.

Improve archival practices for data management.

Continue technology acquisition and absorption along with

development of indigenous Research & Development (R&D).

Ensure adequacy of finances for R&D required for buildingknowledge infrastructure.


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Make Exploration and Production (E&P) operations compatible with

the environment and reduce discharges and emissions.

Support R&D efforts to reduce adverse impact on environment.

Acquire acreages abroad for exploration as well as production.

Long term

100% exploration coverage of the Indian sedimentary basins by

2025.

Leapfrog to technological superiority.

Put in place abandonment practices to restore the original base line.

Conserve resources and adopt clean technologies.

External policy & Oil Security

Objectives

Supplement domestic availability of oil with a view to provide adequate,

stable, assured and cost effective hydrocarbon energy to the Indian

economy.

To achieve the above objective the following actions are required to be

taken.

Medium term

Put in place a comprehensive policy to include total deregulation of

overseas E&P business and empowering them to compete with

international oil companies with provision of fiscal and tax benefits.

Evolve a mechanism to leverage India's Buyer Power" to obtain

quality E&P projects abroad.

Have focussed approach for E&P projects and build strong relations

in focus countries with high attractiveness like Russia, Iraq, Iranand North African countries.

Natural Gas

Natural gas is emerging as the preferred fuel of the future in view of it

being an environmental friendly economically attractive fuel and also a

desirable feedstock. Increased focus needs to be given to this potential

sector.


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Objectives

To encourage use of natural gas, which is relatively a clean fuel.

To ensure adequate availability by a mix of domestic gas imports

through pipelines and import of LNG.

To tap unconventional sources of natural gas like coal bed methane,

natural gas hydrates, underground coal gasification etc.

To achieve the above objectives the following actions are required to be

taken.

Medium term

Timely and continuous review of gas demand and supply options to

facilitate policy interventions.

Pursuing diplomatic and political initiatives for import of gas from

neighboring and other countries with emphasis on transnational gas

pipelines.

Expediting setting up of a regulatory framework.

Import LNG to supplement the domestic gas availability and

encourage domestic companies to participate in the LNG chain.

Provide a level playing field for all the gas players and ensure

reasonable transportation tariffs. .

Rationalize customs duty on LNG and LNG projects.

Put in place an effective organizational structure, which would

facilitate progress in the National Gas Hydrates Programme.

Make the Coal Bed Methane Policy operational.

Formulate National Policy on Underground Coal Gasification in a

time bound manner.

Increase R&D efforts on conversion of gas to liquids.

Long term

Review of LNG option in the light of economic, political and energysecurity considerations.

Exploit the gas hydrates reserves.

Produce gas from Coal Bed Methane and through Underground Coal

Gasification.

Commercialize the production and use of alternate fuels like Di-Methyl

Ether and use of Fuel Cells through increased R&P efforts.


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Oil and Gas Suppliers to IndiaThe chief suppliers of oil and natural gas to India have been the countries

of the Persian Gulf and the Middle East, a region that India has

traditionally had close liaisons with. This region, home to nearly 3.5

million Non Resident Indians (NRIs), has a two way trade of over US$ 20

billion with India and this trade is likely to grow with various long term

joint venture projects already in place.

The second principal supplier is Russia, Indias traditional ally. Indian oil

companies are partnering Russian oil majors in developing oil fields and

more joint ventures are already in the offing. Central Asia has suddenly

become the focal point of Indias hunt for scarce global reserves of

energy. Also India is growing its engagement with not just Uzbekistan

(the sixth largest producer of oil in the world) but with the region as a

whole. Efforts are already on to make Kazakhstan and Turkmenistan

natural gas suppliers to India via a proposed pipeline through politically

unstable Afghanistan.

Africa, the third major supplier of energy to the world, has historically not

evoked much interest in New Delhi. Africa however, is a happening story

and the mandarins in New Delhi have realised this fact. Sub-Saharan

Africa holds 7 percent of global oil reserves and accounts for 11 per cent

of the worlds produce of oil. In fact in 2001, out of the 8 billion barrels ofoil reserves discovered, nearly 7 billion were in West and Central Africa.

With oil production from this region set to increase from the current

output of 3.8 million barrels per day (mb/d) to about 6.8 mb/d by 2008,

its time New Delhi cultivated long lasting relations with the countries of

this region.

Latin America is another region that is suddenly making its presence

count in the world energy market. India already has significant stakes in

Venezuelas energy sector and is gunning for more business in Columbia,Cuba, Ecuador, Argentina and Trinidad and Tobago.

But there are those who discount Indias quest for foreign oil. Sceptics

argue that merely mopping up oil from foreign shores and shipping it to

India does not really mean that we have secured our energy needs. India

sits on top of one of the largest coal reserves in the world. It is estimated

that we have 92 billion tons (and growing) of proven coal reserves, one-

third of which can easily be mined. The trick, say analysts, lies not in

importing oil and gas but in harnessing this resource which is so readily

available to us.


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Our current yearly production at around 400 million tons is grossly

inadequate. Till not too long ago, India exported coal (mainly to Nepal

and Bangladesh); last year our power plants had to import 10 million tons

to make full utilisation of their capacity. Even one per cent increase in

thermal energy output requites 5 million additional tons of coal. If oneconsiders Indias projected energy requirement in the next five years, this

shortfall is expected to rise to 50 million tons by 2008-09 and to 80

million tons by 2011-12.


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Oil Reserves, Production and Consumption

Oil-Proven ReservesAt end

1989

At end

1999

At end

2008

At end 2009

Thousand Thousand Thousand Thousand Thousandmillion million million million million Sharebarrels barrels barrels tonnes barrels of total

US34.3 29.7 28.4 3.4 28.4 2.1%

Canada11.6 18.3 33.2 5.2 33.2 2.5%

Mexico52.0 21.5 11.9 1.6 11.7 0.9%

Venezuela59.0 76.8 172.3 24.8 172.3 12.9%

Total Europe &

Eurasia 84.2 107.8 137.2 18.5 136.9 10.3%

Iran92.9 93.1 137.6 18.9 137.6 10.3%

Iraq100.0 112.5 115.0 15.5 115.0 8.6%

SaudiArabia 260.1 262.8 264.1 36.3 264.6 19.8%

United ArabEmirates

98.1 97.8 97.8 13.0 97.8 7.3%

Total Middle East 661.0 685.8 753.7 102.0 754.2 56.6%

Russia NA 59.2 74.3 10.2 74.2 5.6%

Libya22.8 29.5 44.3 5.8 44.3 3.3%

Nigeria16.0 29.0 37.2 5.0 37.2 2.8%

China16.0 15.1 14.8 2.0 14.8 1.1%

India4.3 5.0 5.8 0.8 5.8 0.4%

Total World 1006.4 1085.6 1332.4 181.7 1333.1 100.0%

OECD116.4 93.3 91.3 12.4 90.8 6.8%

OPEC763.2 831.9 1028.8 140.4 1029.4 77.2%

Non-OPEC 175.8 166.4 180.6 24.6 180.9 13.6%

Table: Oil-proven reserves, 2010, BP Statistical Review of World Energy


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Oil Production

Change 20092009over

share

Million tonnes 1999 2000 2006 2007 2008 2009 2008 of total

US352.6 352.6 310.2 309.8 304.9 325.3 7.0% 8.5%

Canada121.0 126.9 153.4 159.5 157.7 155.7 -1.0% 4.1%

Brazil56.3 63.2 89.2 90.4 93.9 100.4

7.1%2.6%

Venezuela160.9 167.3 144.2 133.9 131.5 124.8

-4.9%3.3%

Norway149.7 160.2 128.7 118.6 114.1 108.3

-4.8%2.8%

Russian Federation

304.8 323.3 480.5 491.3 488.5 494.2

1.5%

12.9%Iran

178.1 191.3 208.2 209.7 209.9 202.4-3.3%

5.3%

Iraq128.3 128.8 98.1 105.2 119.3 121.8

2.4%3.2%

Kuwait102.6 109.1 132.7 129.9 137.2 121.3

-11.3% 3.2%

Saudi Arabia423.6 456.3 514.3 494.2 515.3 459.5

-10.6% 12.0%

United Arab Emirates117.4 119.3 139.0 135.1 137.3 120.6

-12.0% 3.2%

Total Middle East1079.4 1138.1 1220.0 1200.8 1251.5 1156.4

-7.3% 30.3%

Nigeria100.8 105.4 117.8 112.1 103.1 99.1 -3.6% 2.6%

China160.2 162.6 183.7 186.7 195.1 189.0 -2.8% 4.9%

India34.6 34.2 35.8 36.1 36.1 35.4 -1.8% 0.9%

Total World3479.3 3609.0 3910.0 3901.4 3934.7 3820.5 -2.6% 100.0%

ofwhich:

EuropeanUnion 174.8 166.3 114.6 113.1 105.4 98.7 -6.1% 2.6%

OECD988.9 1011.1 912.0 897.7 864.4 860.1 -0.2% 22.5%

OPEC1432.9 1507.6 1673.7 1654.4 1703.8 1574.7 -7.3% 41.2%

Table: Oil production, 2010, BP Statistical Review of World Energy


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Oil Consumption

Change2009

2009over

share

Million tonnes

2000 2005 2006 2007 2008 2009 2008

of total

US897.6 951.4 943.8 942.3 888.5 842.9

-4.9% 21.7%

Canada88.1 100.3 99.6 102.8 101.7 97.0

-4.4% 2.5%

Mexico85.7 87.7 86.8 89.2 88.9 85.6

-3.4% 2.2%

Brazil91.6 89.5 92.1 99.0 104.8 104.3

-0.2% 2.7%

France94.9 93.1 93.0 91.4 90.8 87.5

-3.5% 2.3%

Germany129.8 122.4 123.6 112.5 118.9 113.9

-4.0% 2.9%

Italy93.5 86.7 86.7 84.0 80.4 75.1

-6.3% 1.9%

Netherlands42.7 50.8 52.2 53.8 51.4 49.4

-3.6% 1.3%

Russian Federation123.5 121.9 127.1 126.3 131.6 124.9

-4.8% 3.2%

Spain70.0 78.8 78.1 78.8 77.1 72.9

-5.2% 1.9%

United Kingdom78.6 83.0 82.3 79.2 77.9 74.4

-4.3% 1.9%

China223.6 327.8 347.7 364.4 380.3 404.6

6.7% 10.4%

India106.1 119.6 120.4 132.9 143.6 148.5

3.7% 3.8%

Japan255.5 244.1 237.5 229.3 221.9 197.6

-10.7% 5.1%

South Korea103.2 105.4 105.5 108.3 103.1 104.3

1.5% 2.7%

Taiwan49.1 51.3 51.7 52.5 48.3 46.6

-3.3% 1.2%

Thailand36.7 46.9 46.2 45.1 43.6 44.2

1.7% 1.1%

Total World3562.1 3877.8 3916.2 3969.5 3959.9 3882.1

-1.7% 100.0%

Table: Oil consumption, 2010, BP Statistical Review of World Energy


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A few inferences that can be made:

While the oil consumption of major economies (OECD) as a whole

dropped in the year 2008-09, India and China demand remand

buoyant. The Chinese oil consumption increased by 6.7%, and for

India, this figure stands 3.7%. At the same time the growth rate for

China and India was 8.3% and 6.7% respectively.

Indias oil production is only 0.9% of world total, but 3.8% of world

consumption.

India leapt ahead of Germany (in 2007) to become fourth largest oil

consumer.

From 2000 to 2009, Chinas consumption increased by 80%, while

for the same period Indias figure is 40%, and world; 11%.

OPEC has around 77% of proven reserves.Venezuela has around 13% of the worlds proven reserves.

Indias domestic production has been more or less static in this

decade.


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The Mix for energy security: Fifth PrincipleBy utilizing all the principles, we must formulate our vision. One must be

clear about where we are and where we want to gothe starting point and

the destination. We need a clear regulatory framework to enable business

to invest with confidence to build such a future. And we need to set out

practical pathways towards the destination.

Creating a diverse energy mix

Projections suggest that world will need around 45% more energy in 2030

than we consume today-and double what we consume today by 2050.

Thats going to require investment of more than $1 trillion a yearevery

year.

How do we meet that demand sustainably? Certainly there will need to bechanges in the energy mix. We need more low-carbon energy. And we

need to use energy more efficiently. But the main point is that there is no

magic solution, and we will need a wide mix of energy types in 20 years

time.

The share of renewable energy will certainly increase, but we have to be

realistic about its contribution. As of today, all of the worlds wind, solar,

wave, tide and geothermal energy accounts for around 1% of total

consumption. Given the practical challenges of scaling up suchtechnologies, the International Energy Agency cant see them accounting

for much more than 5% of consumption in 2030, even with aggressive

policy support.

Undoubtedly nuclear energy and bio-fuels will play a part, and by 2030

carbon capture technology could be deployed at scale. But there will still

be a major role for hydrocarbons. Indeed the IEA analysis indicates that

even in a low carbon scenario predicated on keeping the atmospheric

concentration of CO2 to less than 450ppm, hydrocarbons will remain

dominant.

The good news is that we have enough reserves of oil, and especially

natural gas, to last for decades and reserve estimates are rising as we

develop ways of unlocking both conventional and unconventional

resources. Analysis indicates that the world has sufficient proved reserves

for over 40 years of oil and 60 years of gas at todays consumption rates.

But the consumption is bound to increase as the economies boom and the

population increase.


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So the foundation stone of energy security is creating a diverse supply of

energydiverse in the forms it takes and diverse in the places it comes

from.

Today we say there are no silver bullets. A century ago Churchill said the

same thing in the language ofhis time when he declared that Safety and

certainty in oil lie in variety and variety alone.

The energy of the future will be more than oil. But oil will still be a major

part of it. The critical point is that it will be a diverse mix, i.e. use of the

fifth principle.

Government and the energy security architecture

Building such a future demands action both from businesses and policy-

makers. Business can provide the building blocks and tools - but we needto work within the architecture provided by governments. There are two

ways in which the current energy security architecture can be

strengthened.

First, with continuing pressure on supply, its important to develop energy

resources as efficiently as possible and opening them up to competition.

Restrictions on market forces are key when it comes to unlocking the

resources we need. Right now much of the world's oil is held by countries

in which access is restricted and so the application of technology held by

the International Oil Companies is limited.

So competition has a big role to play. Opening access to a range of

potential operators encourages the most efficient solutions, and often

involves partnerships that provide new combinations of skills.

Iraq is a very good example. BP is teaming up there with CNPC of China

and Iraqs South Oil Company to drive a major investment programme

that will nearly triple production from the super-giant Rumaila field. With

this and the other agreements concluded with national and international

oil companies in the last six months, Iraq has the potential to contribute

10mmb/d to global supplies in the next 10-15 years. Thats a big piece of

the additional resource we need.

Advanced technology is essential to producing these resources

efficiently. The revolution in shale gas in the United States in the past

three years, unlocked by new application of drilling and fracturing

technology, is a great example that has transformed the USs energy

future. So too is the series of discoveries we and others have made with


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the help of advanced seismic imaging techniques in the deep waters of

the Gulf of Mexico. One of our recent finds, the Tiber field, involved

drilling a well 10 kilometres deep.

The second area where policy is critical is the question ofclimate

change. It is, of course, central to sustainable energy security that we

find a clear way forward on this issue.

In that sense, to paraphrase Churchill again, it not as the end of the effort

to curb carbon emissions. Not even the beginning of the end. But it is,

perhaps, the end of the beginning.

The crux of the matter is this. If policy makers encourage investment

whether in low-carbon energy or fossil fuels - then investment will flow-

but if it doesnt then the risk is that spare capacity will dwindle and wewill return to the price volatility we saw in 2008.

Pathways to energy security and efficiency

This cant be a one-size-fits-all approach. Each country or economic bloc

will have to assess its natural advantages and deficiencies in energy, so

that it can set a workable framework within which the market can deliver

energy security.

The first conclusion is that, in all circumstances, energy efficiency is the

biggest priority. That means more efficient vehicles, buildings and

electronic appliances more investment in technology and infrastructure

such as smart grids.

For example, flaring of produced gas - the process of burning-off

surplus combustible vapours from a well, either as a means of disposal or

as a safety measure to relieve well pressure - is the most significant

source of air emissions from offshore oil and gas installations.

Along with the loss of gas, gas flaring is increasingly recognised as a large

environmental problem, contributing more than 1% to global emissions of

CO2.

The gas flaring from ONGCs Mumbai region has reduced as a result of

various actions/initiatives taken. Cairn India uses recovery technique to

arrest the gas flaring and utilise it.

Efficiency is the key

In the IEAs latest low-carbon scenario, efficiency is projected to be

capable of driving more reductions of energy-related emissions by 2030


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than renewable power, nuclear, carbon capture and bio-fuels put

together.

In transport, by far the most effective pathway to a lower-carbon

transport industry is through making car engines more efficient.

Hybrid vehicles will be increasingly important. So, in the medium term,

will advanced bio-fuels. Electric vehicles and hydrogen fuel cells will have

a part to play in the long term. But they need massive new infrastructure

and their electricity or hydrogen needs to be produced more sustainably.

Electric vehicles are only as low-carbon as the power that fuels them.

Looking at the power pathway, it will increasingly make sense to use

more natural gas. Gas is the fuel that offers the greatest potential to

achieve the largest greenhouse gas reductions - at the lowest cost - in theshortest time - and by using technology that's available today.

Gas is easily the cleanest burning fossil fuel. It's very efficient and

combined-cycle turbines, fuelled by natural gas, are quick and relatively

cheap to build.

Europe is already a big user of natural gas, which is one reason why its

industrial and power sectors emit less carbon than the US. The trouble is

that European politicians sometimes speak as if dependence on imported

gas is a problem. Same way is Delhi for its public transport.

Russia is a big gas supplier. Abundant new supplies from places like Qatar

mean LNG is coming into its own as a globally traded commodity like oil.

Energy efficiency, gas fired power, lighter cars and advanced bio-fuels all

offer relatively low-cost routes, while more headline-grabbing options are

not the most cost-effective in terms of cost per tonne of mitigated CO2.

With todays technology, carbon capture and storage to make clean coal,

for example, is very expensive. Offshore wind is also costly - for example

in comparison to onshore wind, which is now a big business for BP in the

United States, and indeed to nuclear.


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ConclusionEnergy security is one thing, finding new reserves inland, offshore and

outside the country, finding the real solution is different. Different sources

predicts end of oil within next hundred years. Though it is enough for next

two or may be three generations, it will not last after that, and that is for

sure. Also the environment impact that burning of fossil fuel is close to

irreversible. Another accumulation of CO2 and other green house gases

will contribute their part in changing the climate and the environment that

we live in.

India, along with moving forward with its energy security policy must

develop a long term view. It must develop an energy mix, with

contributions from each source.

Also a huge investment is what is needed in research and development of

the fuel of the future.


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Bibliography

Articles and Books

Sorrell, Steve, Miller, Richard, Bentley, Roger and Speirs, Jamie Oilfutures: A comparison of global supply forecasts,

www.elsevier.com/locate/enpol

Yergin, Daniel, The Fundamentals of Energy Security, Cambridge Energy

Research Associates

Hiro, Dilip, Blood of the Earth

Yerin, Daniel, Ensuring Energy security

Malik, Aman, India's oil security

Dutta, Tanima, China and India: Geo-political tension and Rage for Oil

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12529-3-1.html

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CIA World Factbook, 2010

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IHS Cambridge Energy Research Associates

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Documents

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