The story so far: Parliament’s winter session has remained chilly as a stand-off continues between the Centre and Opposition over the indictment of Indian businessman Gautam Adani by the US Department of Justice (DoJ). The Rajya Sabha had listed the Oilfields (Regulation and Development) Amendment Bill, 2024 for passage on Monday (December 2, 2024), but the Upper House was quickly adjourned for the day without any legislative business being conducted. The Bill had been introduced in the Upper House during the Monsoon session.
“This Bill aims to ensure policy stability for oil and gas producers and allow international arbitration,” said Union Oil Minister Hardeep Singh Puri while speaking at the Geo India 2024 conference on November 15. Promising private sector companies ‘zero interference’ by the government, Mr. Puri also said that the Bill would enhance India’s domestic output and cut down its reliance on oil imports.
According to the Centre for Monitoring Indian Economy (CMIE), India’s oil and petroleum imports for the past three quarters have been worth ₹4,121,787.4 million, ₹4,294,979.6 million and ₹3,130,294.1 million respectively. This is worth at least thrice the country’s quarterly oil and petroleum exports.
“For India to reduce its import dependence, the increase in domestic production must outpace the country’s rapidly growing energy demand,” explains Vivek Rahi, Partner, KPMG in India, adding, “Imports have largely remained unchanged in spite of policy measures aimed at boosting domestic production—such as the Hydrocarbon Exploration and Licensing Policy (HELP), the Discovered Small Fields (DSF) policy, gas pricing reforms, and reduced royalty rates for deepwater, ultra-deepwater, and high-pressure/high-temperature areas.”
Here’s a look at the proposed amendments and how they will affect India’s oil industry.
Mineral oils definition and lease expanded
Currently, the petroleum industry is burdened by delays in obtaining environmental and forest clearances, complexities in land acquisition, absence of comprehensive standards, procedures, and guidelines for operational and safety compliance, explains Mr. Rahi.
“India is believed to hold yet-to-find potential of 13 billion tons of oil equivalent. This bill addresses two critical issues to help India exploit these resources – separation of petroleum and mining activities and expanding the definition of mineral oils,” he says,
In the Oilfields (Regulation and Development) Act, 1948, petroleum and natural gas were the only two defined as mineral oils. This Bill expands the definition to include coal bed methane, oil shale, shale gas, shale oil, tight gas, tight oil, and gas hydrate, but does not include coal, lignite and helium occurring in the petroleum process. Subsequently, the Bill alters the previously used mining lease to introduce a ‘petroleum lease’ which allows companies to explore, prospect (search for oil and gas fields), produce, make merchantable, and dispose of mineral oils. Mining leases in use will remain valid.
“The broader definition (of mineral oils) enables the efficient exploration, development, and production of both conventional and unconventional hydrocarbon resources without any policy confusion,” says Mr. Rahi, adding, “This (separation of leases) eliminates redundant or irrelevant approvals, streamlining the regulatory framework.”
Expands Centre’s regulatory powers, decriminalises offences
Under the Act, the Centre was empowered to regulate the grant, terms and conditions, and time period of leases, production, storage and conservation of mineral oils and collecting royalties, fees and taxes for mineral oils. This Bill expands the Centre’s powers to include framing rules for lessees to reduce emissions, sharing of oil production and processing units, merger of leases and resolving disputes on leases.
With India and the energy sector’s focus on green technology, this Bill also urges oil companies to use oilfields for other purposes like hydrogen production, carbon capture utilization and storage or coal gasification.
Explaining how this is reflected in the current practices of the oil and gas industries, Mr. Rahi says, “The global industry is increasingly prioritizing decarbonization with methane capture, carbon capture, utilization and storage (CCUS), and other low-carbon technologies.” Acknowledging that the current viability of such projects is subject to challenges, he adds, “government support, in the form of a policy direction to begin with and possible incentives in the future, could make these projects sustainable.”
Further, the Bill also decriminalises offences related to the above-mentioned petroleum activities, such as those pertaining to invalid leases and non-payment of royalties; however, it increases the monetary fine for them from Rs. 1000 to Rs 25 lakhs.
Refuting any claims of avenues for misuse of the decriminalisation clause, Mr. Rahi stresses that it has been a long-standing demand of the industry, as many operators are increasingly outsourcing specific operations to optimize costs. “By shifting from criminal penalties to administrative fines for minor infractions, companies can focus on compliance and operational improvements without the fear of severe legal consequences. This will foster a more predictable environment, encourage innovation, and streamline the regulatory process,” says Mr. Rahi.
Opening up no-go areas to oil exploration
The Centre has allowed oil exploration within previously defined no-go areas, such as those near missile testing sites. In a recent bid, 1.36 lakh square kilometers of area was being offered, of which 38% had been previously marked no-go area, said Mr. Puri. This Bill is an attempt by the Centre to “catch up and make up for somewhat tardy or slow focus on implementation in the past” as oil exploration and production was not in focus for previous governments, says Mr. Puri.
“While these reforms are designed to enhance exploration and production, achieving a meaningful reduction in import dependency will require a sustained and significant growth in domestic production, particularly in oil, natural gas, and deployment of renewable energy,” Mr. Rahi says.
Published – December 02, 2024 05:21 pm IST
