OIL AND NATURAL GAS

INTRODUCTION :
Oil and natural gas are naturally occurring chemicals that are made up of just two elements -- carbon and hydrogen.
The class of chemicals based on carbon and hydrogen are called hydrocarbons.
The simplest hydrocarbon, methane, is made up of one carbon atom and four hydrogen atoms. Other hydrocarbons
like octane and octadecane have more complicated structures. Plastics are made of molecules called polymers that
are very long chains of hydrocarbons.
OIL/NATURAL GAS FORMED:
Stage 1 - All of the oil and gas we use today began as microscopic plants and animals living in the ocean millions of
years ago. As these microscopic plants and animals lived, they absorbed energy from the sun, which was stored as
carbon molecules in their bodies. When they died, they sank to the bottom of the sea. Over millions of years, layer
after layer of sediment and other plants and bacteria were formed.
Stage 2 - As they became buried ever deeper, heat and pressure began to rise. The amount of pressure and the
degree of heat, along with the type of biomass, determined if the material became oil or natural gas. More heat
produced lighter oil. Even higher heat or biomass made predominantly of plant material produced natural gas.
Stage 3 - After oil and natural gas were formed, they tended to migrate through tiny pores in the surrounding rock.
Some oil and natural gas migrated all the way to the surface and escaped. Other oil and natural gas deposits
migrated until they were caught under impermeable layers of rock or clay where they were trapped. These trapped
deposits are where we find oil and natural gas today.

FOUND:

Oil and natural gas reserves are found in many parts of the world. In the past, demand was low and reserves were
easy to find. In fact, the first users of oil depended on surface seepage for their supplies. However, as demand has
increased, all the easy-to-find oil has been used.
Today, oil exploration takes place in some of the most challenging places on earth. We are now looking for new oil
reserves thousands of feet under the ocean and in areas of climatic extremes. (Youll find more information on these
technologies under "Exploration and Production."

We don't have to worry about running out of oil or natural gas any time soon.
At our current rate of use, we have oil and natural gas reserves to last 60-90 years. And while the total amount of oil
and natural gas isn't increasing, our ability to find and extract oil and natural gas from new sources expands almost
every day!
We now produce natural gas from buried coal seams, oil and natural gas from deep deposits located miles beneath
the surface of the earth, and in the deep ocean, hundreds of miles offshore and in water depths greater than 10,000
feet. (Youll find more information on these technologies under Exploration and Production.)
Finding economical ways to extract oil from coal tars and oil shales could provide supplies for hundreds of years.
The oil and natural gas industry is also investing in alternative energy such as wind, solar, geothermal and biomass to
make these potential energy resources more reliable and affordable to meet the growing need for energy.


Oil and gas in everyday life
Oil and gas are used widely in modern life.
Oil fuels the cars, trucks and planes that underpin modern economies and lifestyles.
By-products from oil refining are used in the production of plastics and chemicals, as well as many lubricants, waxes,
tars and asphalts. Nearly all pesticides and many fertilisers are made from oil or oil byproducts.


Gas provides electricity and is also used for cooking, heating houses and buildings, and heating water.
It is also important for fuelling many industrial operations, including glass and steel foundries, aluminium or nickel
smelters, and many manufacturing industries. Gas is used in producing fertilisers and a wide range of industrial
products, including plastics and polymers, textiles and paints and dyes.
It can also be used in the form of compressed natural gas (CNG) or liquefied natural gas (LNG) as a transportation
fuel.

Natural gas meets 28 percent of U.S. energy demand (as of 2012).
Natural gas now heats 51 percent of U.S. households. It also cools many homes and provides fuel for cooking.
Because natural gas burns cleaner than gasoline or diesel, many companies and municipalities are deploying fleets of
natural gas-powered cars, trucks and buses to reduce emissions. There are approximately 142,000 natural gas vehicles
operating on American roads.


INTRODUCTION OF OIL & GAS INDUSTRY

Oil and gas are amongst the most important resources we have. Apart from providing the
majority of our energy, petroleum is used to create countless products upon which we rely in
every part of our lives. It is not surprising, then, that the oil and gas industry is a principle driver
of the global economy. The systems and processes used to produce and commercialise oil and


gas are complex, involving large amounts of capital, state-of-the-art technology and vast
numbers of skilled personnel serving supply chains that span the globe.

The oil and gas industry also poses significant and diverse risks and opportunities for those
organisations working along its supply chains. This course provides a comprehensive grounding
in all aspects of the oil and gas industry. After a broad overview of the distribution of petroleum
resources and the organisations that constitute the industry, it introduces the techniques used to
detect and assess the commercial viability of deposits. Next, it looks at the extraction process and
the technologies used to process, store, transport and refine oil and gas. Finally, it explores the
processes of selling, trading and marketing gas and petroleum products, before finishing with a
survey of environmental and geopolitical risks and opportunities, and an assessment of the
industrys future.


Indias Oil and Gas Reserves
Sedimentary Area
3.14 Million Sq. Km (four per cent of the worlds
sedimentary area)
Sedimentary Basins
26 ( Exploration initiated in 15 )
Prognosticated Resources (O+OEG)
205 Billion Barrels (For 15 Basins only; needs
up-gradation)
Established reserves
65 Billion Barrels (as of April 1,2008)




History of Oil & Gas Industry in India
Oil struck at Makum near Margherita in Assam in 1867
First commercial oil discovery in Digboi in 1889
Systematic E&P in 1899 after Assam Oil Company formed
1947 Indias domestic oil production just 250,000 tonnes per annum
1954 IPR - petroleum to be core sector
1955 ONGC set up
1958 - First Gas & Oil pool discovered in Jwalamukhi (Punjab) and Cambay. Oil India
Limited (OIL) was set up
Discovery of giant Bombay High field in 1974 Western offshore highest producer
1991 Liberalized petroleum exploitation and exploration policy
1991-1994 4th, 5th, 6th, 7th and 8th Rounds of exploration bidding
1999 - New Exploration Licensing Policy (NELP)
2000 NELP II
2002 NELP III
2003 NELP IV


2004 NELP V
2006 NELP VI
2007 NELP VII
-UNDERSTANDING THE INDUSTRY FROM UPSTREAM TO DOWNSTREAM

Considered to be the biggest sector in the world in terms of dollar value, the oil and gas industry
is a global powerhouse employing hundreds of thousands of workers worldwide as well as
generating hundreds of billions of dollars globally each year. In regions which house the major
NOCs, these oil and gas companies are so vital they often contribute a significant amount
towards national GDP.
The oil and gas industry can be broken down into three key areas: upstream, midstream and
downstream.
The Upstream component is also refereed to as the E & P (exploration and production (E&P).
This involves search for underwater and underground natural gas fields or crude oil fields and
the drilling of exploration wells and drilling into established wells to recover oil and gas.
Downstream refers to the filtering of the raw materials obtained during the upstream phase.This
means refining crude oil and purifying natural gas. The marketing and commercial distribution of
these products to consumers and end users in a number of forms including: natural gas, diesel oil,
petrol, gasoline, lubricants, kerosene, jet fuel, asphalt, heating oil, LPG (liquefied petroleum gas)
as well as a number of other types of petrochemicals. Midstream is generally classified under the
downstream category.
The largest volumes of products of the oil and gas industry are fuel oil and gasoline (petrol).
Petroleum is the primary material for a multitude of chemical products, including
pharmaceuticals, fertilizers, solvents and plastics. Petroleum is therefore integral to many
industries, and is of critical importance to many nations as the foundation of their industries.
In recent years there has been a growing negative sentiment towards the oil and gas industry and
"big energy". Major environmental disasters such as the Deepwater Horizon Gulf Of Mexico Oil
Spill have cast a negative spotlight up on the industry. The trend towards Renewable and
Alternative energy is also another threat to traditional oil and gas companies. Coupled with the
rise in pro-eco legislation and governmental pressure has meant the oil and gas industry isunder
more scrutiny than ever.
However the Oil and gas industry is still extraordinarily successful and still experiences massive
growth. It's estimated that 30 billions barrels are consumed globally each year - primarily by
developed nations. Oil also accounts for a significant percentage of energy consumption


regionally from 32% for Europe and Asia, 40% for North America, 41% for Africa, 44% for
South and 53% for the Middle East.
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COMPANIES IN OIL AND GAS INDUSTRY AND THEIR MARKET SHARE





FLOW OF FOREIGN INVESTMENTS
FDI Policy
The present policy on FDI in the Petroleum & Natural Gas sector vide Press Note No 5 (2008)
permits FDI up to 100% under the automatic route in all activities other than refining and
including market study and formulation, investment/financing, setting up infrastructure for
marketing in Petroleum and Natural Gas Sector subject to sectoral policy.
In Refining, FDI up to 49% in case of Public Sector Undertakings, without involving any
divestment or dilution of domestic equity in existing public sector undertakings through Foreign
Investment Promotion Board (FIPB) and FDI up to 100% is permitted in case of Private
companies under Automatic route subject to sectoral policy.



28%
22%
20%
18%
11%
1%
Market Share of Oil and Gas Companies
IOCL
ONGC
Reliance
HPCL
BPCL
Others (GAIL, OIL)


Private & Foreign Investments are on the rise
Many Indian private sector players (RIL, PetroNet, Essar, etc)
Under seven rounds of NELP, 212 blocks were awarded, of which 56 blocks went to
private companies & JVs
International players and approx. investments in India: Cairn Energy Plc over US$ one
billion, British Gas - over US$ 800 million, Shell - US$ 650 million, BP - US$ 444
million
Other global players with India operations - Total, Exxon Mobil, Gaz De France, and
Chevron


GOVERNMENT POLICIES AND REGULATIONS
The Petroleum Act to control issues relating to import, transport, storage, production,
refining and blending of petroleum was already in place since 1934.
Further, the Oil Fields (Regulation and Development) Act, 1948 and the Petroleum and
Natural Gas Rules, 1959 provided regulatory framework for domestic exploration and
production of Oil & Gas.
Hydrocarbon Vision
The Hydrocarbons Vision 2025 lays down the framework which would guide the policies
relating to the hydrocarbons sector for the next 25 years. Issues such as E&P, refining,
marketing, external policy, oil security, tariff and pricing, and restructuring and
disinvestment are addressed.



NELP
(New Exploration Licensing Policy)
Prior to the NELP, the Oil fields (Regulation and Development) Act, 1948 and Petroleum
and Natural gas Rules, 1958 regulated the issue of license and PSU's.
ONGC and OIL were the only public sector companies involved in exploration and
production till 1997 while IOCL was the primary entity concerned with refining and
processing oil after extraction.
Main features include
- Discovery or production bonus by the bidder; income tax holiday for seven
years from the start of commercial production
- No customs duty on imports
- Freedom to the contractor for marketing of oil and gas in the domestic market of
commercial production.
Eight rounds of NELP have been completed till now and the Ninth Round has recently
started in 2010.
Two major discoveries as production by Reliance Industries' (RIL) KG-D6 basin and
crude oil production in Barmer (Rajasthan) by Cairn India are the result of NELP

Policy for Change in Price of Petroleum Products
In line with the recommendations of a High Level Expert Group headed by Dr. Kirit
Parikh the Government has decided that the pricing of petrol and diesel, both at the
refinery gate and the retail level, will be market-determined.
It has also been decided that in case of a high rise and volatility in international oil prices,
Government will intervene in the pricing of petrol and diesel.
In view of the importance of the household fuels, namely PDS Kerosene and Domestic
LPG, the Government has decided that the subsidies on these products will be continued.
The PDS Kerosene and Domestic LPG Subsidy Scheme 2002 and the Freight Subsidy
scheme, 2002 have been extended till 31.03.2014. However, in order to reduce under
recoveries, it has decided to increase the retail price of PDS Kerosene by Rs.3/litre and of
domestic LPG by Rs.35/cylinder.


Directorate General of Hydrocarbon
The DGH was established under the administrative control of Ministry of
Petroleum & Natural Gas by Government of India Resolution in 1993 to promote sound
management of the Indian petroleum and natural gas resources having balanced regard to
the environment, safety, technological and economic aspects of the petroleum activity
and to review the exploration programmes of companies and advise the Government on
the adequacy of these programmes.

Regulatory Bodies
Petroleum and Natural Gas Regulatory Board
The Petroleum and Natural Gas Regulatory Board Act, 2006 was enacted in April, 2006.
Consequently, Government has set up in October, 2007, the Petroleum and Natural Gas
Regulatory Board (PNGRB) to regulate the refining, processing, storage, transportation,
distribution, marketing and sale of petroleum, petroleum products and natural gas,
excluding production of crude oil and natural gas.
Section 11 and 12 of the PNGRB Act, 2006 states the functions and powers
Policy for Development of Natural Gas Pipelines
The natural gas sector is at the threshold of rapid growth. With increased exploration
efforts under NELP, large scale discoveries of gas in the East Coast there is an imminent
need to provide a policy framework for the growth of the pipeline infrastructure with a
view to facilitate the evolvement of a nation-wide gas grid and the growth of city or local
gas distribution networks.
The objective of the policy is to promote investment from public as well as private sector
in natural gas pipelines, to facilitate open access for all players to the pipeline, promote
competition among entities, and secure the consumer interest in terms of gas availability
and reasonable tariff for natural gas pipelines and city or local natural gas distribution
networks.

LEGAL ASPECTS OF OIL AND GAS INDUSTRY
Oil and Gas sector is divided into 3 parts
Upstream


Midstream
Downstream
Upstream Sector
The upstream sector is also known as the Exploration and Production of Oil and
Gas. following are the laws which are directly related to the upstream sector.

Constitution of India Jurisdiction to regulate oilfields vested with Central
Government CoI: Entry 53 of List I "Regulation and development of oilfields and mineral
oil resources; petroleum and petroleum products CoI: Entry 25 of List II "Gas and Gas
Works.
Midstream
The midstream industry processes, stores, markets and transports commodities
such as crude oil, natural gas, natural gas liquids (LNGs, mainly ethane, propane and
butane) and sulphur. Generally midstream is clubbed with downstream industry.
Downstream
The downstream sector includes oil refineries, petrochemical plants, petroleum product
distribution, retail outlets and natural gas distribution companies.

The total refinery crude throughput during 2009-10 at 160.03 million metric tonnes is
0.46% lower than 160.77 million metric tonnes crude processed in 2008-09 and the
prorate capacity utilization in 2009-10 was 89.92% as compared to 107.43% in 2008-09.
Oilfields (Regulation and Development) Act, 1948
Basic enabling statute for licensing and leasing of petroleum and gas blocks by the
appropriate government. Covers mineral oils which are defined as including natural gas
and petroleum [S.3(c)]. Mining lease is defined exhaustively to cover all forms of
exploring and exploiting mineral oils and all purposes connected thereto [S.3(d)]
Empowers central government to make rules with regard to mining leases [S.5]
Also empowers central government to make rules for the development of mineral oil



Petroleum and Natural Gas Rules, 1959
Rules provide framework for grant of exploration licenses and mining leases
Salient features of the Rules :
Prohibition on prospecting and mining except under a license or lease granted under the
rules [Rule 4]
Central Government has the power to grant licenses or leases in respect of any land
vested with it or minerals underlying the ocean within the territorial waters or the
continental shelf [Rule 5(i)]
State government has power to grant license or lease over lands vested with it [Rule 5(ii)]
Person obtaining exploration license obtains the exclusive right to a lease for producing
(i.e. extracting) oil/gas over any part of area covered in license
Land acquisition Act, 1894
The law deals with the acquisition of land for Public purpose. The Act is a general Act
which deals with the procedure and the conditions under which a land can be acquired.
The only requirement is that the land can only be acquired for public purpose as per
Section 3(f) of the Act.
The Petroleum Act, 1934
The act deals with import, transport, storage, production, refining, and blending of
petroleum. The Act is one of the oldest acts in the oil and gas sector. Earlier to this act the
rules regarding the above specified activities were separate for separate States.
The Petroleum Minerals Pipelines (Acquisition of Right of users in Land) Act, 1962

TAXATION
Petroleum Product Pricing Taxation comparisons
In April 2002 India abolished the Administrative Pricing Mechanism (APM) controlling
the domestic price of petroleum products in India. Under the APM, product prices were
directly administered by Indias Central Government based on an opaque and complex
cost of operating capital plus formula.



Effect of Taxation and Subsidies: A Comparison
The effect of lower product prices than input prices - a large effective subsidy has been
the increasing accumulation of under-recoveries by OMCs. Under-Recoveries represent
the difference between the trade-parity cost of Refined product paid by OMCs and their
realised change frequently depending on a number of factors.

Environmental effects

Because petroleum is a naturally occurring substance, its presence in the environment need
not be the result of human causes such as accidents and routine activities (seismic
exploration, drilling, extraction, refining and combustion). Phenomena such as seeps

and tar
pits are examples of areas that petroleum affects without man's involvement. Regardless
of source, petroleum's effects when released into the environment are
similar.


Global warming
When burned, petroleum releases carbon dioxide; a greenhouse gas. Along with the
burning of coal, petroleum combustion is the largest contributor to the increase in
atmospheric CO
2
. Atmospheric CO
2
has risen steadily since the industrial revolution to
current levels of over 390 ppmv, from the 180 300 ppmv of the prior 800 thousand
years, driving global warming.
[71][72][73]
The unbridled use of petroleum could potentially
cause a runaway greenhouse effect on Earth. Use of oil as an energy source has caused
Earth's temperature to increase by nearly one degree Celsius. This raise in temperature has
reduced the Arctic ice cap to 1,100,000 sq mi (2,800,000 km
2
), smaller than ever
recorded.
[74]
Because of this melt, more oil reserves have been revealed. It is estimated by
Diesel fuel spill on a road



the International Energy Agency that about 13 percent of the world's undiscovered oil
resides in the Arctic.

Extraction

Oil extraction is simply the removal of oil from the reservoir (oil pool). Oil is often
recovered as a water-in-oil emulsion, and specialty chemicals called demulsifiers are used
to separate the oil from water. Oil extraction is costly and sometimes environmentally
damaging, although Dr. John Hunt of the Woods Hole Oceanographic Institution pointed
out in a 1981 paper that over 70 percent of the reserves in the world are associated with
visible macroseepages, and many oil fields are found due to natural seeps. Offshore
exploration and extraction of oil disturbs the surrounding marine environment

Oil spills
Crude oil and refined fuel spills from tanker ship accidents have damaged natural
ecosystems in Alaska, the Gulf of Mexico, the Galapagos Islands, France and many other
places.

The quantity of oil spilled during accidents has ranged from a few hundred tons to several
hundred thousand tons (e.g., Deepwater Horizon Oil Spill, Atlantic Empress, Amoco
Cadiz). Smaller spills have already proven to have a great impact on ecosystems, such as
the Exxon Valdez oil spill

Oil spills at sea are generally much more damaging than those on land, since they can
spread for hundreds of nautical miles in a thin oil slick which can cover beaches with a
thin coating of oil. This can kill sea birds, mammals, shellfish and other organisms it coats.
Oil spills on land are more readily containable if a makeshift earth dam can be rapidly
bulldozed around the spill site before most of the oil escapes, and land animals can avoid
the oil more easily



Kelp after an oil spill





Tarballs
A tarball is a blob of crude oil (not to be confused with tar, which is typically derived from
pine trees rather than petroleum) which has been weathered after floating in the ocean.
Tarballs are an aquatic pollutant in most environments, although they can occur naturally,
for example, in the Santa Barbara Channel of California.
[80][81]
Their concentration and
features have been used to assess the extent of oil spills. Their composition can be used to
identify their sources
of origin,
[82][83]
and tarballs themselves may be dispersed over long distances by deep sea
currents.
[81]
They are slowly decomposed by bacteria, including Chromobacterium
violaceum, Cladosporium resinae, Bacillus submarinus, Micrococcus varians, Pseudomonas
aeruginosa, Candida marina and Saccharomyces estuary

Whales

James S. Robbins has argued that the advent of petroleum-refined kerosene saved some
species of great whales from extinction by providing an inexpensive substitute for whale oil,
thus eliminating the economic imperative for open-boat whaling.


Unconventional Production

The calculus for peak oil has changed with the introduction of unconventional production
methods. In particular, the combination of horizontal drilling and hydraulic fracturing has
resulted in a significant increase in production from previously uneconomic plays.Certain
rock strata contain hydrocarbons but have low permeability and are not thick from a
vertical perspective. Conventional vertical wells would be unable to economically
retrieve these hydrocarbons. Horizontal drilling, extending horizontally through the
strata,permits the well to access a much greater volume of the strata. Hydraulic fracturing
creates greater permeability and increases hydrocarbon flow to the wellbore.


Conclusion
The Indian oil and gas sector is one of the six core industries in India and has very
significant forward linkages with the entire economy. Government has taken many
steps to regulate it. The Steps are also taken to increase the Indigenous oil and gas
reserves.
Although there are few loopholes which should be taken care of as soon as possible,
one major drawback in the E&P sector is that the Regulatory Body (DGH) does not
have any statutory value. The decisions of the DGH are merely advisory in nature and
the Government is not to follow them.









CURRENT MARKET SITUATION - OIL

The Indian Oil and Gas industry plays an important role in the Indian economy with
major refineries and gas companies in the country.

Indian Oil and Gas sector is primarily controlled by state owned Oil and Natural Gas
Corporation (ONGC) which accounts for approx. 60% of Indias crude oil output.

The Indian Oil industry consumption was around 3.57 mn barrels per day (b/d) in
2012 compared to around 3.27 mn b/d in 2011 and is expected to reach 4.20 mn
b/d by 2017.

Indian Refinery industry has approximately 21 refineries with total oil refinery
capacity being around 3.6 mn b/d which is expected to reach 4.29 mn b/d by 2016.

India imports around 70% of total oil needs, from countries like Saudi Arabia, Iran,
UAE, etc, and has spent USD $91,490 million in 2011 on imports.

CURRENT MARKET SITUATION - GAS
Indian Natural Gas consumption was approx 69.1 billion cubic meters (BCM) during 2011. It is
expected to grow to 160 BCM by 2022.





India imports 23% of total gas needs from Iran, Pakistan, Afghanistan, Myanmar, Qatar and has
spent USD $8,405 million on imports in 2011.



SWOT ANALYSIS OF THE INDIAN OIL AND GAS INDUSTRY
Strengths
India is the worlds fifth biggest energy consumer and continues to grow rapidly
Major natural gas discoveries by a number of domestic companies hold
significant medium to long term potential.
Demand for petroleum products
Increase in demand for oil and gas
High exploration portfolio
Weaknesses
The oil and gas sector is dominated by state controlled enterprises, although the
government has taken steps in recent years to deregulate the industry and
encourage greater foreign participation.
Increase in oil prices
Inadequate and slowly developing infrastructure
Lack of awareness in safety issues
Environmental issues

Opportunities
Liquefied natural gas (LNG) imports are still set to grow rapidly over the longer
term as domestic consumption expands
India has freed gasoline retail price controls
Untapped domestic oil and gas potential
Strong domestic energy demand growth
High recovery rates from existing projects



Threats
Increased competition within government and private players
Continuing government interference
Changes in national energy policies

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes
a framework of macro-environmental factors used in the environmental scanning component of
strategic management. Some analysts added Legal and rearranged the mnemonic to SLEPT;
inserting Environmental factors expanded it to PESTEL or PESTLE, which is popular in the UK.
The model has recently been further extended to STEEPLE and STEEPLED, adding education
and demographic factors. It is a part of the external analysis when conducting a strategic analysis
or doing market research, and gives an overview of the different macro environmental factors
that the company has to take into consideration. It is a useful strategic tool for understanding
market growth or decline, business position, potential and direction for operations.
The growing importance of environmental or ecological factors in the first decade of the 21st
century have given rise to green business and encouraged widespread use of an updated version
of the PEST framework. STEER analysis systematically considers Socio-cultural, Technological,
Economic, Ecological, and Regulatory factors.
Political factors, are how and to what degree a government intervenes in the economy.
Specifically, political factors include areas such as tax policy, labour law, environmental law,
trade restrictions, tariffs, and political stability. Political factors may also include goods and
services which the government wants to provide or be provided (merit goods) and those that
the government does not want to be provided (demerit goods or merit bads). Furthermore,
governments have great influence on the health, education, and infrastructure of a nation.
Economic factors include economic growth, interest rates, exchange rates and the inflation
rate. These factors have major impacts on how businesses operate and make decisions. For
example, interest rates affect a firm's cost of capital and therefore to what extent a business
grows and expands. Exchange rates affect the costs of exporting goods and the supply and
price of imported goods in an economy
Social factors include the cultural aspects and include health consciousness, population
growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors
affect the demand for a company's products and how that company operates. For example, an
ageing population may imply a smaller and less-willing workforce (thus increasing the cost
of labor). Furthermore, companies may change various management strategies to adapt to
these social trends (such as recruiting older workers).


Technological factors include ecological and environmental aspects, such as R&D activity,
automation, technology incentives and the rate of technological change. They can determine
barriers to entry, minimum efficient production level and influence outsourcing decisions.
Furthermore, technological shifts can affect costs, quality, and lead to innovation.
Environmental factors include weather, climate, and climate change, which may especially
affect industries such as tourism, farming, and insurance.Furthermore, growing awareness to
climate change is affecting how companies operate and the products they offer--it is both
creating new markets and diminishing or destroying existing ones.
Legal factors include discrimination law, consumer law, antitrust law, employment law, and
health and safety law. These factors can affect how a company operates, its costs, and the
demand for its products.
The model's factors will vary in importance to a given company based on its industry and
the goods it produces. For example, consumer and B2B companies tend to be more
affected by the social factors, while a global defense contractor would tend to be more
affected by political factors. Additionally, factors that are more likely to change in the
future or more relevant to a given company will carry greater importance. For example, a
company who has borrowed heavily will need to focus more on the economic factors
(especially interest rates).
Furthermore, conglomerate companies who produce a wide range of products (such as
Sony, Disney, or BP) may find it more useful to analyze one department of its company
at a time with the PESTEL model, thus focusing on the specific factors relevant to that
one department. A company may also wish to divide factors into geographical relevance,
such as local, national, and global (also known as LoNGPESTEL).







POLITICAL FACTORS
Crude oil is one of the most necessitated worldwide required commodity. Any slightest
fluctuation in crude oil prices can have both direct and indirect influence on the economy of the
countries. The volatility of crude oil prices drove many companies away. Therefore, prices have
been regularly and closely monitored by economists. Now a days prices have shoot up to record
levels of USD 125 per bbl. This is an increase of nearly 70% from that of the previous year. The
consumption level of oil is projected to be rise by 1.2 million bbl/d in the year 2008. The
consumption of China is presumed to be rise by 0.4 million bbl/d in current year, as it has
already registered an increase of 0.8 million bbl/d in march.

Crude oil prices act like any other product cost with more variation taken place during shortage
and excess supply. Studies have conducted to analyze the impact of rise in crude oil price to the
economic growth in the OPEC (Organization of Petroleum Exporting Countries) countries. It has
been observed that $10 in the crude oil price means decrease in the economic growth of the
OPEC countries by 0.5%. This rise in prices account to have more influence on the economic
condition of developing countries.

Any massive increase or decrease in crude oil has its impact on the condition of stock markets in
throughout the world. The stock exchanges of every country keep a close eye on any up and
downward movement of the crude oil price. India fulfills its major crude oil requirements by
importing it from oil producing nations. India meets more than 80% of its requirement by
importing process. Therefore, any upward and downward motion of prices are closely tracked in
the domestic marketplace. Many times it has been recorded that prices of essential products like
crude also acts as a prime driver in becoming reason of up and down movement of price.

Keeping in view the conditional status of present scenario, most of the observers at the
international arena is much more interested in knowing the current oil price and the outcome of


this price burst. These has become a hot bound question in all over world. There tend to be exist
two schools of thought. One side argues that high prices are cyclical and arise due to the
coincidence occurrence of potentially reversible factors which all are going in the same direction.
But the other school of thoughts opine that there is a fundamental structural change in the oil
market which is pointing towards the shortage of investment from a decade. Both the thoughts
are important. As if the prices are cyclic in nature, there result will not exist forever but if they
are structural then they will tend to be stay for a longer time period.

Any fluctuation in crude oil affects the other industrial segments also. Higher crude oil price
implies to the higher price of energy, which in turns negatively affects other trading practices
that are directly or indirectly depends on it. Crude Oil has been traded in throughout the world
and there prices are behaving like any other commodity as swinging more during shortage and
excessiveness.

In the short term, price of crude oil is influenced by many factors like socio and political events,
status of financial markets, whereas from medium to long run it is influenced by the
fundamentals of demand and supply which thus results into self price correction mechanism.

This sustained movement in the northern side underlines some of the fundamental changes in the
marketplace. On the demand supply, where in the past the more and more consumption was
come from the OPEC countries, especially the US but in today's date much of the incremental
demand flow is from emerging economies. Particularly China and India which have recorded
more than 40% contribution in the incremental global consumption during the time period of
2000-06. International price of crude oil is projected to shoot up to 100 million barrels per day by
2015.

While demand may touch to a great height, supply will juggle to keep up the pace. The
production from existing sources has been reduced by 4% per annum, which implies that around
3 million barrels per day of new capacity is required to be added in every year for offsetting this
declination.

There are innumerable factors which influence the price movement of crude oil in throughout the
world. Like methods and technology using for increase the oil production, storing up of crude oil
by rich and prosperous countries, changes introduced in tax policy, social and political issues etc.
In recent years many factors have emerged as the key figures in influencing the price index of
crude oil in throughout the world.

The crude oil prices have been buffeted by many factors, which are summarized as below -
Production: The OPEC nations are the major producer of world's crude oil. Therefore,
every policy made by such countries related to the crude oil prices have their influence on
crude oil prices. Any decision taken by OPEC nations for increasing or decreasing
production of crude oil impacts the price level of crude oil in international commodity
markets.
Natural Causes: In recent years, global community have witnessed many events which in
turns have volatility effects on the price level of crude oil. Like hurricane katrina and


other type of tropical cyclone have hit the major portion of globe, which as a result driven
the crude oil prices to reach at its peak.
Inventory: In throughout the world, oil producers and consumers get stock their crude oil
for their future requirements. This gives rise to speculation on price expectations and
sale/arbitrage chances in case any unexpected thing cracks during supply and demand
equations. Any upward or downward movement in inventory level shoots up volatility in
price index of crude oil, which generates lot of changing movement in sensex.
Demand: With a sharp rise in economic demand, requirement of crude oil is increasing to
manifold in context to the limited supply. The high demand economies of crude oil is
putting undue pressure on the available fixed resources. The major gap created between
demand and supply of crude oil is forcing the price curve of crude oil to rise in upward
direction.

The price structure of crude oil is also influenced by the cyclical pattern. It has been observed
that requirement of crude oil got increased during summer season in comparative to the winter
season. As any dip in the seasonal temperature increases the consumption of energy for heating
purpose in many cold nations. Demand shoots up and thus generates the requirement of tapping
the inventories. Similarly, in summer, supply exceeds the demand and petroleum inventories are
build up for storage purpose. Henceforth, crude oil prices drop.


ECONOMIC FACTORS
This industry is extremely open; trade flows are large compared to production. And there is
considerable overlap between oil production and refining internationally, and to some extent in
India. So we begin with a brief discussion of the international petroleum industry and its
components refining being one of them.
Petroleum is extracted from underground reserves; then it is cracked or refined into end
products for various uses. The industry thus has two parts: an oil exploration and production
industry upstream and a refinery industry downstream. Most oil producers also own refineries.
But the reverse is not true; a high proportion of oil is sold to refinery companies that do not
produce crude oil.
Sedimentary rocks in which hydrocarbons are trapped often hold gas, sometimes in association
with crude oil and sometimes alone. It consists mostly of methane, which is lighter than air and
toxic. It therefore requires airtight tanks for storage and similarly leak-proof pipes or trucks for
transport, which raise its capital costs. Associated gas was flared in early years of the industry; it
is still flared at remote or minor wells where the cost of its collection and transport would be
high, or often reinjected into the oilfield to maintain pressure which forces oil up to the surface.
But where the quantities are large enough, natural gas is mined and traded. It is mainly used as
an industrial, domestic and vehicular fuel.


Motor vehicles run almost exclusively on petrol and high-speed diesel oil, both fuels derived
from mineral oil although they can be modified to run on certain biofuels. Vehicles are so
widely dispersed that they require an extensive distribution system for these two refinery
products. As motor vehicle use has spread across the world, it has brought along with it petrol
pumps, logistics, storage and supply of fuels. There is thus a third part of the petroleum industry
downstream from refineries which distributes the products. It is owned by refineries in most
countries. But this is not inevitable. Some countries have distribution chains that are independent
of producers and refiners; and in countries which do not have refineries, distribution is
undertaken by either local or foreign oil companies.
Oil has collected in pools and seeps for thousands of years. The Chinese are recorded as having
extracted oil from wells 800 feet deep through bamboo pipes in 347; they used it to evaporate
brine and make salt. American Indians used to put it to medicinal uses. Persians, Macedonians
and Egyptians used tars to waterproof ships. Babylonians used asphalt in the eighth century to
construct the citys walls, towers and roads. But the easily available oil was not put to any mass
use because the crude itself was not a good fuel; it gave out much soot and smoke. A distillation
process using a retort was invented by Rhazes (Muhammad ibn Zakariya Razi) in Persia in the
9th century; liquid heated in it vapourized, passed through a curved spout and condensed in
another container. The process could be used to make kerosene; but it was more often used to
make alcohol and essence of flowers for perfume. It was a batch process, its fuel consumption
was high, and it was not equally efficient at distilling kerosene from all crudes.
A more efficient and reliable distillation process came out of a series of inventions after 1846.
The last invention was the invention of oil fractionation in 1854 by Benjamin Silliman, a
professor of science in Yale. It used a vertical column which separated components more
efficiently, and which could be used continuously.
Oil was first produced in Titusville, Pennsylvania (USA) in 1859 by one Edwin L Drake, who
refined it into kerosene, which was then used as an illuminant. Electricity did not emerge as an
illuminant till the Edison Electric Light Company was founded in 1878. Well into the 20th
century, kerosene, gas and electricity continued to compete as illuminants. Whilst the use of gas
as an illuminant has virtually disappeared, a large population, especially in India, continues to
use kerosene as illuminant.
The invention of the motor car by Karl Friedrich Benz in 1885 created a market for petrol, a new
refined product (petrol is called Benzin in Germany, but is not named after Karl Benz). In 1898,
Rudolf Diesel invented an engine in which oil was ignited by compression; the diesel engine he
invented came to power larger vehicles, principally trucks and buses. Diesel engines used a
different fuel, which was named diesel oil. After this, the production and use of motor vehicles
spread rapidly in the United States, especially after 1908 when Henry Ford began mass
manufacture of his Model T; and petroleum and diesel oil became the most important refined
products, first in the US and progressively across the world.
However, only a certain proportion of crude oil can be converted into motor fuels. The demand
for kerosene, the original distillate extracted from crude oil, has gone down with the spread of


electricity. So other refined products have been developed, and non-vehicular uses developed for
them. Some of the products differ little from motor fuels; for instance, naphtha, extensively used
to make nitrogenous fertilizers and chemicals, is little different from petrol; and jet fuel is very
similar to kerosene. Thus, refineries find markets for their products in many industries other than
motor transport .
The Industry in India
India imports three-quarters of the crude it refines. It exports refinery products ; its net exports
are roughly ten per cent of production. The government operates an elaborate set of cross-
subsidies to insulate domestic from international prices; such cross-subsidies have serious effects
on the finances of the Indian companies involved, and influence competition amongst them. The
oil companies, both public and private, are so large a part of the economy that the cross-subsidy
regime cannot be sustained in all circumstances; sooner or later, the government has to bring
domestic prices closer to international prices. Hence the state of competition in the international
market and international prices are important for the domestic market.
I give an introduction to refinery technology, products, and the markets they serve. In ,briefly
describe the global exploration, production and refining industries. In, we describe the Indian
market structure in terms of the companies operating in it, their products and markets. In outline
the market structure in exploration and production, user industries, refining and gas respectively.
In, turn to the major barriers to competition and to the steps that need to be taken if greater
Indias economic growth is contingent upon the growth of the Indian steel industry.
Consumption of steel is taken to be an indicator of economic development. While steel continues
to have a stronghold in traditional sectors such as construction, housing and ground
transportation, special steels are increasingly used in engineering industries such as power
generation, petrochemicals and fertilisers. India occupies a central position on the global steel
map, with the establishment of new state-of-the-art steel mills, acquisition of global scale
capacities by players, continuous modernisation and upgradation of older plants, improving
energy efficiency and backward integration into global raw material sources.
Steel production in India has increased by a compounded annual growth rate (CAGR) of 8
percent over the period 2002-03 to 2006-07. Going forward, growth in India is projected to be
higher than the world average, as the per capita consumption of steel in India, at around 46 kg, is
well below the world average (150 kg) and that of developed countries (400 kg). Indian demand
is projected to rise to 200 million tonnes by 2015. Given the strong demand scenario, most global
steel players are into a massive capacity expansion mode, either through brownfield or greenfield
route. By 2012, the steel production capacity in India is expected to touch 124 million tonnes and
275 million tonnes by 2020. While greenfield projects are slated to add 28.7 million tonnes,
brownfield expansions are estimated to add 40.5 million tonnes to the existing capacity of 55
million tonnes.
Steel is manufactured as a globally tradable product with no major trade barriers across national
boundaries to be seen currently. There is also no inherent resource related constraints which may
significantly affect production of the same or its capacity creation to respond to demand


increases in the global market. Even the government policy restrictions have been negligible
worldwide and even if there are any the same to respond to specific conditions in the market and
have always been temporary. Therefore, the industry in general and at a global level is unlikely
to throw up substantive competition issues in any national policy framework. Further, there are
no natural monopoly characteristics in steel. Therefore, one may not expect complex competition
issues as those witnessed in industries like telecom, electricity, natural gas, oil, etc.
This, however, does not mean that there is no relevant or serious competition issue in the steel
industry. The growing consolidation in the steel industry worldwide through mergers and
acquisitions has already thrown up several significant concerns. The fact that internationally
steel has always been an oligopolistic industry, sometimes has raised concerns about the anti-
competitive behavious of large firms that dominate this industry. On the other hand the set of
large firms that characterize the industry has been changing over time.
Trade and other government policies have significant bearing on competition issues. Matters of
subsidies, non-tariff barriers to trade, discriminatory customs duty (on exports and imports) etc.
may bring in significant distortions in the domestic market and in the process alter the
competitive positioning of individual players in the market. The specific role of the state in
creating market distortion and thereby the competitive conditions in the market is a well-known
issue in this country.
This report proceeds as follows.
Section 2 of the report provides a brief over view of the performance and structure of the Indian
steel industry by analysing published secondary time series data on certain key indicators.
Market structure is analyzed using indicators such as number of players and their respective
shares in total production, share of public and private players in the total production/sales,
production capacity of major players, etc. Given the heterogeneous nature of the product this
analysis is done for the various segments of steel that constitute the relevant market. This
analysis is a precursor in identifying segments where competition may be an issue of concern to
allow for a pointed analysis. The report documents policy and institutional structure governing
the steel industry in India and the role played by the Government in the development of this
industry.
The report examines issues of competition of steel industry in India, by identifying the
structurally inherent and the market determined positions of various steel firms specifically to
see their market power, vis--vis both their final consumers as also those within the steel
industry. The issues emerging out of the size and market shares, specifically taking into
consideration the investment aspects are also discussed in this section. The other issue of
significant importance in the context of competition is the command over natural resources that a
few players possess and that enable a significant cost advantage over the rest in the market.
These are the result of government policies of the past, to support growth of a particular industry.
These preferential policies and their impact on competition are also analysed in this section.
Concludes with a discussion on state of the competition in the Indian steel sector pointing to a
few key recommendations for the Competition Commission of India. Provide data on the sector,
and briefly discuss international conditions, and provide an historical overview.


In Brief
This study finds little evidence of any cartelization or joint pricing behaviour on the part of the
incumbents. It finds that government intervention, and slow responsiveness to changing
conditions has contributed to shortages in the past, which in turn leads to action by the
incumbents that look like, but is not, anti-competitive behaviour. Unequal access to raw
material, as well as export/import curbs, are the key issues affecting the creation of a level
playing field. It is the last two as well as ready availability of information on costs and prices
across the value


TECHNOLOGICAL EFFECTS
Timely, hands-on guide to environmental issues and regulatory standards for the petroleum
industry Environmental analysis and testing methods are an integral part of any current and
future refining activities. Today's petroleum refining industry must be prepared to meet a
growing number of challenges, both environmental and regulatory.
Environmental Analysis and Technology for the Refining Industry focuses on the analytical
issues inherent in any environmental monitoring or cleanup program as they apply to today's
petroleum industry, not only during the refining process, but also during recovery operations,
transport, storage, and utilization. Designed to help today's industry professionals identify test
methods for monitoring and cleanup of petroleum-based pollutants, the book provides examples
of the application of environmental regulations to petroleum refining and petroleum products, as
well as current and proposed methods for the mitigation of environmental effects and waste
management. petroleum technology, refining, and products, and reviews the nomenclature used
by refiners, environmental scientists, and engineers. environmental technology and analysis, and
provides information on environmental regulation and the impact of refining.
Coverage includes:
* In-depth descriptions of analyses related to gaseous emissions, liquid effluents, and solid waste
*A checklist of relevant environmental regulations
* Numerous real-world examples of the application of environmental regulations to petroleum
refining and petroleum products
* An analysis of current and proposed methods of environmental protection and waste
management
Efficient reliable and competitively priced energy supplies are prerequisite for accelerating
economic growth. India is currently worlds fifth largest consumer of energy accounting for
3.9% of worlds annual energy consumption. USA, China, Russian federation and Japan are the
top four consumers. Indias import dependence on crude oil and petroleum products is more
than 70%. Realization of high economic growth aspirations by the country in the coming
decades, calls for rapid development of energy market.


The India Hydrocarbon Vision-2025 report, which encapsulates Governments long-term
policy for this sector enunciate therein the long-term policy covering exploration, refining,
marketing infrastructure, gas and all other related matters in the hydrocarbon sector. The
national endeavor is to bridge the ever-increasing gap between demand and supply of petroleum
products in India by intensifying exploratory efforts for oil and gas in the Indian sedimentary
basins and abroad supported by other alternative sources of energy like Coal Bed Methane
(CBM), Gas Hydrates, Coal Liquefaction, Ethanol and Bio-diesel etc.
New Exploration Licensing Policy (NELP), over the last 6 years there has been a significant
growth in E&P activities in India. There have been several successes. These finds will require
state of the art technologies to extract the hydrocarbons as well as highly skilled and competent
professionals to manage the industry. The E&P industry today is using cutting-edge
technologies to locate hydrocarbons and optimize efficiency in production. These technologies
include the use of complex reservoir modeling and simulation, nuclear magnetism, sonic & ultra-
sonic technologies, magnetic resonance, advanced chemical engineering, fluid mechanics,
telecommunication, process engineering etc.
As easy oil has become a thing of the past, the industry is moving towards frontier areas to
increase production. The high value of the end product has led to significant technological
developments to tap resources in offshore environs of deep and ultra deep water (from 300-3500
meter water depth).Heavy oil consists of over 40% of the hydrocarbon resources in the world.
This oil does not flow at surface conditions. Optimizing the recovery of hydrocarbons from
existing producing fields (called brown fields) remains an existing challenge. Current
recovery rates in India need considerable enhancement. These are just some examples of the
E&P challenges that are found in India and an opportunity for the use of state of the art
technologies and developing manpower for meeting these challenges.