An inch forward, but miles to go

An inch forward, but miles to go

Hyrdrocarbon Exploration and Licensing Policy; oil sector

News:

Recently, the Directorate General of Hydrocarbons (DGH) has announced the completion of first round of bidding under Open Acreage Licensing Policy (OALP)

Important Facts:

1. OALP is a part of Hydrocarbon Exploration and Licensing Policy (HELP) which replaced the New Exploration and Licensing Policy (NELP). HELP was launched in 2016.
2. OALP allows companies to select the exploration blocks on its own, without waiting for the formal bid round from the Government.
3. OALP allows investors to choose particular areas they think attractive to invest in. Under NELP blocks were chosen by the government which often had only a small fraction of hydrocarbon reserves. Investors had to bid for the entire block even they were interested in a small portion.
4. Unlike NELP, HELP provides for is a uniform licensing system which will covers hydrocarbons (oil, gas, coal bed methane, shale gas and shale oil)
5. Under NELP, there was profit sharing with the government. This led to complications over what exactly constituted cost and thus profit. However, under HELP contracts are based on biddable revenue sharing.
6. Recently, 55 blocks were offered in the first round of bidding under OALP
7. The production potential of the blocks is low owing to their small sizes.
8. Problems in Oil and Gas  sector in India:

• The increase India’s domestic oil and gas production is insufficient to reduce dependence on imports.
• Ineffective enforcement of rules
• Monopoly of GAIL-India over the market– This has led to discriminatory and unfair practices

Global price rise of oil – This has put the oil marketing companies in a dilemma about whether to pass on the increases to customers or absorb the losses. However, inventory gains due to rising prices would help to offset losses.

• Crude oil and natural gas are outside the purview of GST. The inclusion of natural gas in GST would to help producers contain cost and aid in moving towards a gas-based economy.