• The Indian Oil & Gas Sector traces the trends that are most likely to emerge in this
• With the Government gradually giving up control on the oil & gas sector in favor of
market forces, Indian oil companies both upstream and downstream players are getting
• This is changing the ground realities for this vital sector of the Indian economy.
• Hence in order to realize the importance of Indian oil sector this project can be very
useful as it highlights the most successive challenges faced by the Indian oil sector.
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INTRODUCTION TO INDIAN OIL SECTOR
Petroleum is a liquid that is found underground. Sometimes we call it oil. Oil can be as thick and
black as tar or as thin as water. Petroleum has a lot of energy. We can turn it into different fuels-
like gasoline, kerosene, and heating oil. Most plastics and inks are made from petroleum, too.
People have burn oil for a long time. Long ago, they didn’t dig for it. They gathered that seeped
from under the ground into ponds. It floated on the water.
Long before the dinosaurs, oceans covered most of the earth. They were filled with tiny sea
animals and plants. As the plants and animals died they sank to the ocean floor. Sand and
sediment covered them and turn into sedimentary rock. Millions of years passed. The weight of
the rock and heat from the earth turned them into petroleum.
Petroleum is called a fossil fuel because it was made from the remains of plants and animals. The
energy in petroleum came from the energy in the plants and animals. That energy came from the
sun.
Petroleum is non-renewable:
The petroleum we use today was made millions of years ago. It took millions of years to form.
We can’t make more in a short time. That’s why we call petroleum non-renewable. We import
more than half the oil we use from other countries.
We drill oil wells.
Petroleum is buried underground in tiny pockets in rocks. We drill oil wells in to the rocks to
pump out the oil. A few wells are more than two miles deep. A lot of oil is under the oceans
along our shores. Oil rigs that can float are used to reach this oil. After the oil is pumped to the
surface, it is send to refineries. At the refineries, it is separated into different types of oil and
made into fuels. Most of the oil is made into gasoline. The oil is moved from one place to
another through pipelines and by ships and trucks.
We use petroleum everyday.
What would we do without petroleum? Our country would come to a stop! Most of our cars,
trucks, planes are powered by fuel made from oil.
Our factories use oil to make plastics and paints, medicines and soaps. We even burn oil to make
electricity. We use more petroleum than any other energy source.
Petroleum keeps us going, but it can damage our environment. Burning fuels made from oil can
pollute the air. Pollution from cars is a big problem in many parts of the country. oil companies
are making cleaner gasoline and other fuels every year.
Oil can pollute soil and water injuring the animals that live in the area. Oil companies work hard
to drill and ship oil as safely as possible. They try to clean up any oil that spills.
ORIGIN OF PETROLEUM
During the past 600 million years incompletely decayed plant and animal remains have become
buried under thick layers of rock. It is believed that petroleum consists of the remains of these
organisms but it is the small microscopic plankton organism remains that are largely responsible
for the relatively high organic carbon content of fine-grained sediments like the Chattanooga
shale which are the principle source rocks for petroleum. Among the leading producers of
petroleum are Saudi Arabia, Russia, the United States (chiefly Texas, California, Louisiana,
Alaska, Oklahoma, and Kansas), Iran, India, China, Norway, Mexico, Venezuela, Iraq, Great
Britain, the United Arab Emirates, Nigeria, and Kuwait. The largest known reserves are in the
Middle East
• Surface tension is the measure of attraction between the surface molecules of a liquid.
The higher the oil's surface tension, the more likely a spill will remain in place. If the
surface tension of the oil is low, the oil will spread even without help from wind and
water currents. Because increased temperatures can reduce a liquid's surface tension, oil
is more likely to spread in warmer waters than in very cold waters.
• Specific gravity is the density of a substance compared to the density of water. Since
most oils are lighter than water, they lie flat on top of it. However, the specific gravity of
an oil spill can increase if the lighter substances within the oil evaporate.
• Viscosity is the measure of a liquid's resistance to flow. The higher the viscosity of the oil,
the greater the tendency for it to stay in one place.
The Importance of Oil and Natural Gas
When they hear of the decline of oil and natural gas, the first inclination of many people is to
say, “Oh well. So I won’t be able to drive as much. I’ll just have to buy a hybrid car and a wood
stove.” It is difficult to appreciate the true importance of hydrocarbons to modern civilization. It
is doubtful that there is any facet of our technological civilization which will not be affected by
the diminishing production of oil and natural gas.
If you are reading this article in the morning paper, then the paper it is printed on was
manufactured using the energy of oil or natural gas, while the ink itself is an oil product. The
printing press which printed this newspaper was built using the power of oil and natural gas, and
runs on energy provided by oil and gas. Unless the paper was delivered by a paperboy riding a
bicycle (built using the energy of oil and gas, and riding on tires made of oil), then it was
delivered by a motor vehicle which consumed oil, was built with the energy of oil and gas,
incorporating plastic parts made from oil, and driven on roads made from oil.
The light you are reading by was probably produced from electricity generated by natural gas. If
not, then it was generated by coal or nuclear fuels both of which are mined and transported using
oil. The chair you are sitting on was built using the energy of oil and natural gas, and if it is built
with any materials other than wood (cut and transported using oil and gas) or metal (mined,
smelted and transported using oil and gas), then they are probably artificial materials made from
oil. The same goes for the clothes you are wearing.
The coffee you are sipping as you read this column was transported and processed using the
energy of oil. Likewise the bacon and eggs you had for breakfast. And the grain which went into
the toast you are eating (harvested, ground, baked and transported using the energy of oil and
gas), was grown using fertilizers produced from natural gas and pesticides produced from oil.
The plate you are eating on was either made from oil, or baked in a kiln using natural gas. And
your breakfast was cooked on a stove which used either natural gas, or electricity generated from
natural gas.
Beyond that, the materials used to build the house you are sitting in were transported using oil, as
was every item in your house. Oil powered vehicles transport all raw materials to the factory, all
finished products from the factory to the marketplace, and all purchases from the marketplace to
your home. It is mainly due to the availability of cheap and plentiful oil that the average
consumer in INDIA today can live like a king or queen.
The average Indian citizen today is benefiting from the energy equivalent of 60 slaves working
around the clock. We take our energy slaves totally for granted. A large portion of them are used
on frivolous consumption. And, if we are denied our energy slaves for even a few hours, then
most of us will kick up a big fuss until they are restored to us.
Our civilization is built on oil, and an ever expanding supply of energy is vital to continued
economic growth. To quote the Energy Information Administration, Department of Commerce
and Bureau of Economic Analysis, “The availability of oil, natural gas, and coal is what made
the United States’ rise to a global economic superpower possible. As energy consumption
escalated, so did the nation’s economic output as measured by annual gross domestic product.”
The converse of this last sentence is also true. As energy consumption declines, so will the
annual gross domestic product. It is suspected that this decline will be precipitous rather than
gradual. Once investors understand that diminishing energy production cannot be reversed, the
market will collapse. The result could be a depression worse than the Great Depression of the
1930s; a depression with no end in sight.
To see where we may be heading, it is only necessary to look back at the 1970s. In the year 1970,
U.S. domestic oil production peaked and began to decline. This country has never again
produced so much oil as we did in 1970. The result was spiraling inflation and gasoline
rationing. Due to inflation, mortgage rates jumped 21%. There were trucker strikes, the Arab oil
embargo, and a host of other difficulties. But we were able to overcome the peak of domestic oil
production because the world as a whole had not peaked. We had someplace else where we could
turn. By the early 1980s, Alaska’s North Slope oil was brought on line, as was Gulf of Mexico
oil production and, more importantly, the North Sea deposits. Although the North Slope and Gulf
of Mexico deposits were not big enough to change the peak of U.S. oil production, along with
the North Sea oil they gave us enough leverage to break the back of OPEC for the time being.
But today the North Slope and North Sea fields are all past peak, as are most of the major oil
fields in the world. The vast majority of the remaining oil deposits are found in the Middle East,
in the countries of Saudi Arabia, Iraq and Iran. Outside of this area, there are important deposits
in Russia, West Africa and Venezuela, but these deposits are an order of magnitude smaller than
the Middle East. And there are indications that Saudi Arabia’s Ghawar oil field—the largest
single field in the world—has been overproduced and abused to the point of collapse.
This is why many experts speculate that the end of cheap oil could bring about the end of
civilization as we know it. After this will come an era of diminishing energy supplies,
diminishing economies, and the faltering ability to even feed the number of people who live in
the U.S. today, much less the entire planet.
INDUSTRY STRUCTURE
The structure of the oil industry had been established in the early 1920’s and had been
remarkably stable up until the 1990’s. In the last decade a range of competitive forces influenced
two key structural changes – the consolidation of some of the historic majors, hand in hand with
widening liberalization of gas and power markets.
Today for the first time there was truly an energy market spread across firms competing against
one another in oil, gas and power, compared with the segmentation of relatively static market
structures maintained by barriers to entry or government control.
Energy businesses which drove their operations to achieve cost reductions, to achieve growth in
their markets and which were abreast of the electronic communications revolution in how they
conducted their business were likely to succeed today, not simply those who had physical and
resource assets.
Oil markets had over the last 2 years broken out of the band of crude oil prices which had been
the main trading range in the decade to 1998. Prices had halved and then tripled in two years, and
the forward outlook for the next 2 years as reflected in oil futures would be relatively tight
market conditions. The outlook was for price expectations of above Rs.840 per barrel for some
time yet.
The volatility of price was a sign that markets were working and often politicians were in favour
of markets when prices were falling but wanted to intervene if prices rose. The main driver was
essentially that the world was increasing its demand for oil (by about a million b/d each of the
next 3 years) and asking OPEC to supply about 2/3rds of that growth.
Despite the present revitalized cohesion of OPEC, calls for government intervention on the
grounds of energy security were misplaced. The basic fact was that oil producers were mostly
tied into a single commodity for their entire economic future, and they had no persistent
incentive to stop or reduce supply. They were much more dependent and vulnerable to physical
oil supply shocks than consumer economies were.
NATURAL GAS AND TECHNOLOGY
Over the past thirty years, the oil and natural gas industry has transformed into one of the most
technologically advanced industries in the United States. New innovations have reshaped the
industry into a technology leader, in all segments of the industry. This section will discuss the
role of technology in the evolution of the natural gas industry, focusing on technologies in the
exploration and production sector, as well as a few select innovations that have had a profound
• 3-D and 4-D Seismic Imaging - The development of seismic imaging in three
dimensions greatly changed the nature of natural gas exploration. This technology uses
traditional seismic imaging techniques, combined with powerful computers and
processors, to create a three-dimensional model of the subsurface layers. 4-D seismology
expands on this, by adding time as a dimension, allowing exploration teams to observe
how subsurface characteristics change over time. Exploration teams can now identify
natural gas prospects more easily; place wells more effectively, reduce the number of dry
holes drilled, reduce drilling costs, and cut exploration time. This leads to both economic
and environmental benefits.
• CO2-Sand Fracturing - Fracturing techniques have been used since the 1970s to help
increase the flow rate of natural gas and oil from underground formations. CO2-Sand
fracturing involves using a mixture of sand propants and liquid CO 2 to fracture
formations, creating and enlarging cracks through which oil and natural gas may flow
more freely. The CO2 then vaporizes, leaving only sand in the formation, holding the
newly enlarged cracks open. Because there are no other substances used in this type of
fracturing, there are no 'leftovers' from the fracturing process that must be removed. This
means that, while this type of fracturing effectively opens the formation and allows for
increased recovery of oil and natural gas, it does not damage the deposit, generates no
below ground wastes, and protects groundwater resources.
• Coiled Tubing - Coiled tubing technologies replace the traditional rigid, jointed drill pipe
with a long, flexible coiled pipe string. This greatly reduces the cost of drilling, as well as
providing a smaller drilling footprint, requiring less drilling mud, faster rig set up, and
reducing the time normally needed to make drill pipe connections. Coiled tubing can also
be used in combination with slim hole drilling to provide very economic drilling
conditions, and less impact on the environment.
• Slim hole Drilling - Slim hole drilling is exactly as it sounds; drilling a slimmer hole in
the ground to get to natural gas and oil deposits. In order to be considered slim hole
drilling, at least 90 percent of a well must be drilled with a drill bit less than six inches in
diameter (whereas conventional wells typically use drill bits as large as 12.25 inches in
diameter). Slim hole drilling can significantly improve the efficiency of drilling
operations, as well as decrease its environmental impact. In fact, shorter drilling times
and smaller drilling crews can translate into a 50 percent reduction in drilling costs, while
reducing the drilling footprint by as much as 75 percent. Because of its low cost profile
and reduced environmental impact, slim hole drilling provides a method of economically
drilling exploratory wells in new areas, drilling deeper wells in existing fields, and
providing an efficient means for extracting more natural gas and oil from undeleted
fields.
• Offshore Drilling Technology - The offshore oil and gas production sector is sometimes
referred to as 'NASA of the Sea', due to the monumental achievements in deepwater
drilling that have been facilitated by state of the art technology. Natural gas and oil
deposits are being found at locations that are deeper and deeper underwater. Whereas
offshore drilling operations used to be some of the most risky and dangerous
undertakings, new technology, including improved offshore drilling rigs, dynamic
positioning devices and sophisticated navigation systems are allowing safe, efficient
offshore drilling in waters more than 10,000 feet deep.
Offshore Production - NASA of the Sea
• Offshore Drilling Technology - The offshore oil and gas production sector is sometimes
referred to as 'NASA of the Sea', due to the monumental achievements in deepwater
drilling that have been facilitated by state of the art technology. Natural gas and oil
deposits are being found at locations that are deeper and deeper underwater. Whereas
offshore drilling operations used to be some of the most risky and dangerous
undertakings, new technology, including improved offshore drilling rigs, dynamic
positioning devices and sophisticated navigation systems are allowing safe, efficient
offshore drilling in waters more than 10,000 feet deep.
The above technological advancements provide only a snapshot of the increasingly sophisticated
technology being developed and put into practice in the exploration and production of natural gas
and oil. New technologies and applications are being developed constantly, and serve to improve
the economics of producing natural gas, allow for the production of deposits formerly considered
too unconventional or uneconomic to develop, and ensure that the supply of natural gas keeps up
with steadily increasing demand. Sufficient domestic natural gas resources exist to help fuel the
U.S. for a significant period of time, and technology is playing a huge role in providing low-cost,
environmentally sound methods of extracting these resources.
Two other technologies that are revolutionizing the natural gas industry include the increased use
of liquefied natural gas, and natural gas fuel cells. These technologies are discussed below.
LIQUIFIED NATURAL GAS
Cooling natural gas to about -260°F at normal pressure results in the condensation of the gas into
liquid form, known as Liquefied Natural Gas (LNG). LNG can be very useful, particularly for
the transportation of natural gas, since LNG takes up about one six hundredth the volume of
gaseous natural gas. While LNG is reasonably costly to produce, advances in technology are
reducing the costs associated with the liquification and regasification of LNG. Because it is easy
to transport, LNG can serve to make economical those stranded natural gas deposits for which
the construction of pipelines is uneconomical.
LNG, when vaporized to gaseous form, will only burn in concentrations of between 5 and 15
percent mixed with air. In addition, LNG, or any vapor associated with LNG, will not explode in
an unconfined environment. Thus, in the unlikely event of an LNG spill, the natural gas has little
chance of igniting an explosion. Liquification also has the advantage of removing oxygen,
carbon dioxide, sulfur, and water from the natural gas, resulting in LNG that is almost pure
methane.
LNG is typically transported by specialized tanker with insulated walls, and is kept in liquid
form by auto refrigeration, a process in which the LNG is kept at its boiling point, so that any
heat additions are countered by the energy lost from LNG vapor that is vented out of storage and
used to power the vessel.
The increased use of LNG is allowing for the production and marketing of natural gas deposits
that were previously economically unrecoverable. Although it currently accounts for only about
1 percent of natural gas used in the United States, it is expected that LNG imports will provide a
steady, dependable source of natural gas for U.S. consumption.
NATURAL GAS FUEL CELLS
Fuel cells powered by natural gas are an extremely exciting and promising new technology for
the clean and efficient generation of electricity. Fuel cells have the ability to generate electricity
using electrochemical reactions as opposed to combustion of fossil fuels to generate electricity.
Essentially, a fuel cell works by passing streams of fuel (usually hydrogen) and oxidants over
electrodes that are separated by an electrolyte. This produces a chemical reaction that generates
electricity without requiring the combustion of fuel, or the addition of heat as is common in the
traditional generation of electricity. When pure hydrogen is used as fuel, and pure oxygen is used
as the oxidant, the reaction that takes place within a fuel cell produces only water, heat, and
electricity. In practice, fuel cells result in very low emission of harmful pollutants, and the
generation of high-quality, reliable electricity. The use of natural gas powered fuel cells has a
number of benefits, including:
Clean Electricity - Fuel cells provide the cleanest method of producing electricity from
fossil fuels. While a pure hydrogen, pure oxygen fuel cell produces only water,
electricity, and heat, fuel cells in practice emit only trace amounts of sulfur compounds,
and very low levels of carbon dioxide. However, the carbon dioxide produced by fuel cell
use is concentrated and can be readily recaptured, as opposed to being emitted into the
atmosphere.
Distributed Generation - Fuel cells can come in extremely compact sizes, allowing for
their placement wherever electricity is needed. This includes residential, commercial,
industrial, and even transportation settings.
Dependability - Fuel cells are completely enclosed units, with no moving parts or
complicated machinery. This translates into a dependable source of electricity, capable of
operating for thousands of hours. In addition, they are very quiet and safe sources of
electricity. Fuel cells also do not have electricity surges, meaning they can be used where
a constant, dependably source of electricity is needed.
Efficiency - Fuel cells convert the energy stored within fossil fuels into electricity much
more efficiently than traditional generation of electricity using combustion. This means
that less fuel is required to produce the same amount of electricity. The National Energy
Technology Laboratory estimates that, used in combination with natural gas turbines, fuel
cell generation facilities can be produced that will operate in the 1 to 20 Megawatt range
at 70 percent efficiency, which is much higher than the efficiencies that can be reached by
traditional generation methods within that output range.
The generation of electricity has traditionally been a very polluting, inefficient process.
However, with new fuel cell technology, the future of electricity generation is expected to change
dramatically in the next ten to twenty years. Research and development into fuel cell technology
is ongoing, to ensure that the technology is refined to a level where it is cost effective for all
varieties of electric generation requirements.
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