Plough Oil and Gas Fields Better

The Economic Times     5th January 2021     Save    
QEP Pocket Notes

Context: As economies gather momentum through 2021, global oil and gas consumption would start bounding towards normalcy, pushing up prices.

Challenges in Oil and Gas Sector

  • Finding and developing new reserves: as well as more efficient exploitation of producing fields for ensuring supply security (India is the third-largest oil consumer after the US and China).
  • Cancellation of investments: due to turbulence in oil markets combined with a shift away from fossil fuels (to reduce carbon footprint).
    • Lack of commercial viability in a low-price environment: would result in some of the world’s oil and gas discoveries become ‘stranded resources’.
  • Inordinate delays in securing environmental and defence approvals: obstructs fast-track exploration and production activity in the new blocks.
  • Low profit for the producers: The majority of India’s crude output comes from ageing fields that pre-date the New Exploration Licensing Policy (NELP).
    • Under the previous regime, producers turned over a hefty 60-65% of their revenues to the government in the form of royalty, cess, profit petroleum and income-tax.

Measures Taken by India

  • Proposal for a special unit for approvals: could help widen the playing field (which has been limited to state (ONGC and Oil India) and also conduct basic due diligence on the blocks before they are offered.
    • Moved to digitalise and speed up approval of field development plans and budgets.
  • Halving of oil industry development cess: on blocks investing in enhanced recovery. But the scheme is applied only to oil from designated wells, rather than the entire production, diluted its benefit.
  • Awarding of contracts: along with successive reforms in the production-sharing contract framework.
  • Increasing the confidence of produces: by adopting a global framework for revenue sharing.
QEP Pocket Notes