Tax Breaks To Help Oil & Gas Stay In Robust Shape.

The oil and gas sector meets over 45 per cent of the demand for primary commercial energy in the country and also contributes significantly to the gross domestic product. The availability of limited domestic resources, however, forces India to meet more than 80 per cent of its oil consumption through imports.

During 2010-11, India’s production is expected to grow at a robust rate of about 12.67 per cent for oil and 12.8 per cent for gas. The increase in crude oil is mainly from Rajasthan, the KG-D6 block and improved/ enhanced oil recovery projects by national oil companies.

Increase in the availability of natural gas can be attributed primarily to the KG-D6 block. This is expected to reduce our dependence on imports and increase the availability of gas to industries of strategic importance such as fertiliser and power.

India has also joined the unconventional energy bandwagon and is taking steps to create a conducive environment to exploit resources such as coal bed methane, shale gas and gasification of underground coal.

The resource assessment and policy formulation for shale gas exploration and production are expected to be in place by 2011-12. The government is also pursuing its gas hydrate programme. Although the gestation period for exploration is long, the overall prospects are quite promising.

There is significant activity in oil and gas transportation with over 8,000km of pipelines getting added by 2013-14 and LNG terminals being planned to come up along India’s coastline. These investment plans are expected to bring significant opportunities for both public and private players present across the value chain.

In the downstream sector, India is well on its way to becoming a refining hub with substantial export capacity. India’s annual crude refining capacity is expected to rise to 240mmt (million metric tonnes) by the end of 2011-12 and to 260mmt by 2016 with the exports of oil products reaching 80-90mmt by 2011-2012. This will ensure that the country meets its domestic demand and sustains high levels of exports.

The government is encouraging public sector refineries to broaden their import sources to widen the crude basket and reduce dependence on any particular country or region of the world.

The Petroleum and Natural Gas Regulatory Board (PNGRB), the downstream oil regulator, is pursuing city gas distribution bidding aggressively with an aim to cover 200 cities by 2015. It has plans to organise bidding every two-three months in the future. This augurs well for the general public as it will enhance the availability of natural gas and reduce costs for use by households (as PNG) and vehicles (as CNG).

Fuelled by the insatiable domestic demand for energy along with dynamic activities by both public sector and private players, the oil and gas sector has significant growth prospects.

A few roadblocks

Some of the key challenges faced by the sector are volatility in international oil prices, adulteration and diversion of subsidised products, high tax rates on petrol and diesel, expanding reach to remote areas of the country through use of technology, spreading coverage of LPG in small towns and rural areas, strengthening safety parameters in operations and new energy sources such as shale gas.

Additionally, challenges such as low rate of exploration success, limited pipeline infrastructure, R&D capability gap and human capital constraints such as talent shortage and ageing workforce continue to confront the sector.

Expectation from FM

The oil and gas sector is vital in sustaining the Indian growth story and achieving energy security.

Consequently, the government is expected to invigorate both the upstream and downstream sectors through measures such as tax holidays for natural gas, service tax refunds for consumption of E&P services and deductions and exemptions for farm-ins and for overseas E&P investments.

Also on the wish-list are customs duty reduction on crude oil imports, deductions for new pipeline networks, transparent and market linked pricing for petroleum products.

Anomalies in the sector are only growing with the exclusion of petroleum products from the ambit of GST (goods and services tax) — a decision which will take years, if not decades to correct.

Source : telegraphindia.com