FUTURE THOUGHT OF BUSINESS, 2012

A WIPRO THOUGHT LEADERSHIP INITIATIVE

Research partner: Frost & Sullivan

FUEL ON FIRE

This explorative study endeavors to identify the trends, opportunities and challenges that confront the oil and gas industry in India.

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Several tectonic shifts are shaping the future of the oil and gas industry. This paper, both identi es these megatrends and outlines their impact in the coming years.

Table of contents
PREFACE: Oil & Gas IndustryFuture Thought of Business Introduction Indian Oil & Gas Evolving Market Dynamics Megatrends in the Indian Oil & Gas Industry 01 03 04 09

INDIA OIL & GAS SECTOR MEGATRENDS

Harvesting the Unconventional and Inaccessible Demand Shift Emergence of Super-Consolidated Operating Companies (SCOCs) and International Owner Companies (IOCs) Digital Oil Fields Innovating to Zero Competition from Alternate Sources

10
11 15

17 19 20 22

CONCLUSION

25

OIL AND GAS

THE PRIMARY INGREDIENT IN INDIAS ENERGY MIX

PREFACE
OIL & GAS INDUSTRYFUTURE THOUGHT OF BUSINESS
Oil & Gas forms a major part of the primary energy mix. The Indian economy though developing at a fast pace, is faced with consistent energy challenges. Across the world there have been numerous shifts in the tectonic plates giving way to major trends that are shaping the industry. Wipro and Frost & Sullivan ventured into this endeavor to gain signi cant insights into these industry trends. This paper identi es key MEGATRENDS that are expected to have an impact and shape the future of the Oil & Gas industry in the coming years. What is a MEGATREND? Megatrends are global, sustained and macro-economic forces of development that impact business, economy, society, cultures and personal lives thereby de ning our future world and its increasing pace of change. Methodology Selection of unique trends through macro-economic analysis, interviewing select industry stakeholders and accessing Frost & Sullivans global knowledge banks/analysts. Respondents Pro le Interviews were conducted amongst major industry stakeholders namely Oil & Gas companies, O&G service providers, Utilities, and Industry Consultants. Key Takeaways This paper presents a comprehensive analysis of the various MEGATRENDS that are pertinent to the Oil & Gas Industry. The key focus is on Exploration & Production activities and trends across the globe. This paper also highlights the need for standardization and transformation of O&G services space.

Shashidhar GV
Head - Oil & Gas Vertical, Client Relationship Group Wipro Infotech

01

THE DEMAND FOR O&G WILL SURGE

India and China alone will account for half of all growth by 2035

INTRODUCTION
The global energy demand is poised to increase by one third over the next 25 years, reaching 17 billion tonnes of oil equivalent by 2035. India and China alone are expected to account for half of this growth. Besides, India is projected to displace the United States as the worlds second largest coal consumer by 2025. Over 60% of the rise is expected from the power sector, re ecting the enormous demand for electricity in India.

Evolution of Primary Energy Demand in India (2010 to 2035)

2010

2035

0 Oil Nuclear energy

500 Natural gas Hydro electricity

1,000 Coal Renewables

1,500

Source: World Energy Outlook 2001, International Energy Agency & BP Statistical Review 2012

03

FUELING GROWTH

Indian Oil & Gas Evolving Market Dynamics

BRINGING GROWTH TO THE SURFACE. To keep the pace of the economy going, the industry must look further, drill deeper and nd more effective ways of meeting demand.

04

The Indian oil and gas sector is one of the core industries in India and has very signi cant forward linkages with the entire economy. The Indian economy has been growing steadily and the momentum is likely to continue in the years to come. This would translate into India's energy needs growing many times going forward. Hence, here is an emphasized need for wider and more intensive exploration for new nds, more ef cient and effective recovery, a more rational and optimally balanced global price regime. With soaring GDP, Indian primary energy consumption has grown at a yearly rate of over 6.5% over the past decade, against the global growth rate of around 2.5%. India is the fourth largest in terms of primary energy consumption in the world after US, China and Russia. Securing supplies is expected to remain on top of Indias energy agenda for the foreseeable future.

The countrys crude oil consumption has grown at an average rate of 5% between 2007 and 2011 against the world average of less than 0.5%. Growth in domestic demand of petroleum products has been at the rate of 3.7 % during this period, driven mostly by industrial and transportation sector growth. The additional growth in crude oil consumption has been driven by signi cant additions to domestic re ning capacities, which have been utilized to enhance product exports. On the supply side, domestic production of crude oil has practically remained at in the recent years. Requirement of imported crude oil has grown in excess of 7% between 2001 and 2010 to bridge the widening domestic demand-supply gap. India imported 1.7 million tonnes of crude oil in 2011 (the worlds fth largest net importer).

Crude Oil Production Vs Consumption

Domestic Production Domestic Consumption

Quantity ( Mn Tonnes)

133.4

144.1

153.7

156.2

162.3

36.1

36.1

35.4

38.9

40.4

2007

2008

2009

2010

2011

Year

Source: BP Statistical Review

05

The countrys gas consumption has grown at an average rate of 5% between 2007 and 2011 against the world average of less than 0.5%. India produced 46 billion cubic meter (bcm) natural gas in 2011, which is still far below the actual demand in the country. Indias natural gas supply has been adversely impacted in 2011 due to fall in KG D6 production. This shortfall has forced the government to opt for LNG imports at comparatively higher international prices. Indias LNG imports increased 26 percent in the rst half; with the country forecast to double its gas to up to 2016 (to around 400 million cubic meters a day) with domestic supply only expected to

supply half of this forecast demand. India needs to secure additional supply of LNG on a long-term basis, especially in view of less-thananticipated domestic supply and possible shortage of LNG after a couple of years. Indias high reliance on LNG is expected to increase further, which will pose signi cant risks in a scenario of tight LNG supply demand, leading to low availability and high spot prices of LNG. The domestic natural gas production is likely to grow at a CAGR of 5% over the decade on account of expected recovery in KG D6 production and increase in production from their sources

Natural Gas Production Vs Consumption

Domestic Production Domestic Consumption 61.9 51.0 40.1 41.3 50.8 39.2 30.1 30.5 46.1 61.1

Quantity ( Mn Tonnes)

2007

2008

2009

2010

2011

Year
Source: BP Statistical Review

06

An Overview on Oil Subsidies in India

India has traditionally subsidized energy with the objective of shielding its consumers from international price instability and providing energy access for its citizens, especially the poor. However, energy subsidies place a heavy burden on government budgets. The petroleum sector is one of the most heavily subsidized energy sources in India. Over time there have been considerable reforms in the pricing of petroleum products, alternating between free market and controlled regimes. In June 2010, the Indian Government deregulated the price of petrol (OMCs can only change prices every fortnight, and only after seeking approval from the government). However, prices for diesel, kerosene and domestic LPG continue to be regulated. The subsidy, however, covers only a part of the difference between the cost price (including marketing costs) and the selling price of these three petroleum products, thereby resulting in Under-recoveries for the OMCs.

Calculation of Under-recoveries DOMESTIC LPG & KEROSENE

COST PRICE

DEPOT PRICE

FISCAL SUBSIDY

UNDER RECOVERY

DIESEL
COST PRICE DEPOT PRICE UNDER RECOVERY

Source: Petroleum Panning and Analysis Cell (PPAC)

07

Prevailing subsidies and under-recoveries as percent of desired price

69%

48%

28%

Diesel

Domestic LPG

PDS Kerosene

Source: PPAC (Jan. 16, 2012) Note: The data per tains to prices applicable on Jan. 16, 2012. "Desired Price" refers to the sum of re nery gate prices, transport charges and marketing margins paid by OMCs.

Subsidies have multiple effects on the governments budget. The rst and easiest to identify is the impact on the scal balances of the country. The scal subsidy to the petroleum companies in 201011 was $637 million. In addition to the scal subsidy, the government also grants assistance to the OMCs in the form of cash and oil bonds to share the under-recovery burden. In 20102011, this assistance amounted to $8,995 million (Source: MoPng, 2011). Subsidies also encourage diversion and malpractice in the energy sector (eg. kerosene diverted to adulterate more expensive transport fuels / subsidized LPG cylinders diverted for commercial usage and for use as an automobile fuel). Besides, subsidies not only adversely affect the cash ow and pro tability of oil companies but also hinder the upstream sector from investing in improving and expanding their exploration and production operations. Obliterating price controls and undoing subsidy programs would lead to: 1. An improvement in the governments nances and also lead to other development related expenditures. 2. Reduce the borrowing and interest expenditure of re ning and

marketing companies and at the same time allow upstream companies to invest in expansion activities. 3. Encourage downstream companies to invest in developing cleaner grades of automotive fuels. 4. Facilitate and encourage private players to enter the retail market for petroleum products, which in turn will lead to a more competitive market. 5. Create a competitive market between different types of fuel and may even encourage a shift towards cleaner and more ef cient forms of energy. However, removal of subsidies would lead to an increase in fuel prices which, in turn, will have a direct impact through higher fuel prices and an indirect impact through the effect on prices of other commodities. It is thus critical that any step towards reforming the subsidies be coupled with adequate measures to mitigate the impact on poor households.

08

Mega-Trends in the Indian Oil & Gas Industry

HIGH

Innovating to Zero

Harvesting the Unconventional and Inaccessible Demand Shift

Impact

MEDIUM

Digital Oil elds Emergence of SCOCs & IOCs

Competition from Alternate Sources

LOW MEDIUM HIGH

Likelihood of Occurance

A BURNING ISSUE
Indias high reliance on LNG is expected to increase further, which will pose signi cant risks in a scenario of tight LNG supply demand, leading to low availability and high spot prices of LNG.

09

GOING UNCONVENTIONAL

India Oil & Gas Sector Megatrends

As the economy grows relentlessly, it is imperative to identify alternative means of quenching its thirst for fuel.
10

HARVESTING THE UNCONVENTIONAL AND INACCESSIBLE

Increased spend on exploration in off-the-beaten track zones Deep-sea drilling

SUB-TRENDS

Enhanced efforts to recover the very last drop from producing assets

Enhanced Oil Recovery

Evaluation and development of alternate hydrocarbon resources Shale Gas, Coal-bed Methane (CBM) and Underground Coal Gasi cation (UCG)

Unconventional oil is produced or extracted using techniques other than the conventional (oil well) method. Oil industries and governments across the globe are investing in unconventional oil sources due to the increasing scarcity of conventional oil reserves. Although the depletion of such reserves is evident, unconventional oil production is a less ef cient process and has greater environmental impacts than that of conventional oil production.

Increased spend on exploration in off-the-beaten track zones Deep-sea drilling

While a lot of exploration activity has taken place in the on-shore and shallow basins of the country, deep-water and ultra-deep-water drilling hold a key to considerably increase the domestic oil and gas production. Going forward, deep sea drilling is likely to witness an incremental 75 out of 233 (32%) blocks awarded under eight rounds of New Exploration Licensing Policy (NELP) were in deep-water, clearly demand in the next 2-3 years, exploration on the east coast over the next 7-10 years and increased lower end of deep-water drilling. indicating the GoIs intent to explore opportunities in the deeper basins to ensure energy security.

Production Sharing Contracts (PSCs) Under NELP

60

Total Blocks

45

Numbers

30 15

0
0) ) 3) ) 6) 98 02 05 00 00 00 07 0) 19 20 20 (2 (2 (2 20 01 1( V( 1( 11 1V V1 1( (2 P11 PV1 1X N EL P11 (2 01 1) ) ) N
Source: BP Statistical Review

P-

P-

P-

EL

P-

EL

EL

EL

EL

P-

EL

EL

EL

P-

V1

11

Enhanced efforts to recover the very last drop from producing assets Enhanced Oil Recovery
With an objective of energy security by achieving self-suf ciency through increased indigenous production, GoI has set itself targets to increase the recovery factor to 40% by 2025 from its existing elds. The ongoing EOR projects at Mangala and Bhagyam elds are expected to produce around 30% STOIIP by 2030 over conventional methods.

Oil Recovery (India)

40%

28%

Going forward Focus on ultimate oil recovery, Moving towards dif cult resources, Life-cycle planning, Investment in R&D, Capability development, Step-wise implementation and Energy security are likely to be the key enablers for EOR.

Global IOR/EOR maturity and deployment

Polymer Smar t Water ooding

Technology Development

Steam Assisted Gravity Drainage

Gas Injection

Polymer

Hybrids Surfactant Foams High-Pressure Air Injection In-Situ Combustion Microbial

Maturity
Source: World Petroleum Council: Of cial Publication 2010

12

Evaluation and development of alternate hydrocarbon resources Shale Gas and Coal-Bed Methane (CBM)
In the recent past there has been an increased impetus by the Indian government as well as major O&G rms to focus on alternative hydrocarbon resources. Shale gas is one of the unconventional alternate resources that has emerged as a possible means to compliment declining conventional fuels. A study by US Energy International Agency estimates Indias shale gas reserves at about 290 trillion cubic feet (TCF), of which 63 TCF could be recovered. This volume would help bridge the domestic gas demand, tagged at 391 million standard cubic meters per day by 2025-26.

SHALE GAS BASIN IN INDIA

us

Ba

sin

No

r th

er

Assam Basin

Ind

Cambay Basin

Be

ng

a lB

sin

Krishna Godavari Basin

13

GOVERNMENT OF INDIA
Collaboration with US on technical and regulatory aspects Framing of shale gas policy for shale block auction by mid-2012

Indias gas de cit situation, strong prospects of shale gas reserves in the country and good results from ONGCs pilot project will prompt sector participants to prepare aggressively. Going forward technology migration on multiple platforms from US to India and favorable policies (like lower cost of land lease and lower service costs) are likely to expedite the commerciality of domestic shale gas production.

UPSTREAM PSUs
Pilot drilling projects initiated by ONGC in Damodar basin Seismic studies being initiated by oil in the Assam-Arakan basin

PREPARING FOR ACTION

OTHER CORPORATES
GAIL, IOC, BPCL and OIL are also looking at acquiring shale gas prospects abroad for gaining experience

PRIVATE COMPANIES
RIL has acquired interests in 3 shale gas companies in the US. An important clause in these deals is an option for RIL to be the operator for the block

Source: Various Media report/MOSL

India has the 4th largest proven coal reserves and is the third largest coal producer in the world making it an ideal investment hotspot for CBM projects. According to Directorate General of Hydrocarbons India, the deposits in major coal elds contain approximately 168 TCF of CBM. Only one out of 33 CBM blocks allocated is producing gas.

Commercial production has been delayed over pricing of the gas in three other discoveries. The rest have either been relinquished because of technical and land acquisition issues or are awaiting clearance. Going forward CBM is likely to be considered as a potential (and much cleaner) replacement for CNG in the automotive segment.

Major World CBM Reserves (in TCF)

2000 1800 1600 1400 1200 1000 800 600 400 200 0 100 40 25 75 700 720 1030 1300 1040 1730

da

Ind ia

ia

Ch ina

ra ine

UK

as k

za kh sta

Ru ss

US

na

Al

Ca

Uk

Source: BP Statistical Review, Frost & Sullivan Analysis

Indian oil companies have limited technical and monetary bandwidth for exploration and development activities in deep-seas and alternate fuels. This creates a plethora of opportunities for strategic investors having relevant technical expertise and nancial muscle to invest in the country through partnerships with local public and private sector companies.

14

Ka

Au

str

ali

DEMAND SHIFT SUB-TRENDS

Emerging economies are gaining signicance on account of their increased share in total global consumption

Global and up-coming rening hot-spots attracting crude demand

Increasing industrialization in emerging economies, escalation of energy ef ciency implementations in developed economies and emergence of new sources of supply are leading to a situation where the entire global demand equation would change. Energy generation,

petrochemicals, automobiles and industries are all major consumption drivers for Oil & Gas. The demand equation for these drivers has changed considerably in the past, and is expected to maintain this shift in the future.

Emerging economies are gaining signi cance on account of their increased share in total global consumption
According to the IEA for the rst time oil demand in the developing world is expected to overtake that of developed countries in 2013. This trend is expected have a signi cant impact on the energy markets across the world. Demand in non-OECD countries is expected to reach 45 million barrels a day (b/d) next year which is 600,000 b/d more than the OECD countries. Growing population, strong income growth and increase in energy intensive activities in countries like India and China have pushed up the demand for oil.

MToE 15000 12000

5610 6100

OECD Countries (Excluding Japan and South Korea) Former Soviet Union China
1500 1380 2580 1050 2480 1000 800 1100

9000 6000 3000 0

5170

India Asia (Including Japan and South Korea) Latin America Middle East Africa

1200 1600 650 1600 550 520 650

2070 830 2080 750 700 650

2010

2020

2030

Source: IEA World Energy Outlook, Frost & Sullivan

15

Increase in re nery closures in developed countries paves way for emerging markets
Legend

20 05

Europe & Eurasia 10.1 5.4 7.2 Mn barrels/day China North America 19.9 20.7 21.0 Middle East 6.5 7.3 7.9 India 2.2 2.6 5.4 7.2

10.1

3.7

Africa S. & Cent. America 6.3 6.4 6.7 2.9 3.2 3.3 Rest of Asia Paci c 14.6 13.9 13.8

Source: BP Statistical Review2011; Frost & Sullivan Analysis

Most markets have shifted to excess supply with many US and European re ners responding by capacity closures and the delay, scaling back or cancellation of additional capacity construction. The impact in the Asian region has been cushioned by ongoing economic growth in China and India, but there has been some capacity closure and some scaling back in re nery construction in the region.

The majority of additions to global re ning capacity continue to be in the Asian region. Going forward, with new re ning facilities coming up in China, Middle East and South East Asia, Indian re ning companies are expected to look at exploring opportunities to secure oil assets for supply assurance and sustenance.

16

20 00

20 10

EMERGENCE OF SUPER-CONSOLIDATED OPERATING COMPANIES (SCOCs) AND INTERNATIONAL OWNER COMPANIES (IOCs)

SUB-TRENDS

Increasing investment by SWFs into Hydrocarbon Exploration & Production (E&P) assets in other geographies

Enhanced pace of M&As for IOCs

Operating companies are nding that it is easier to acquire/merge with regional and smaller players, as compared to discovering new assets, as a means to enhance their revenues. Additionally, it is expected that Sovereign Wealth Funds (SWFs) will increasingly invest with aggression

in assets in other geographies as part of risk mitigation measures. This is expected to result in the development of SCOCs and International Owning companies, leading to a rede nition of the value chain as it is known today.

Increasing investment by SWFs into Hydrocarbon Exploration & Production (E&P) assets in other geographies
Given the continuing uncertainties with regard to supplies, the acquisition of energy assets overseas and diversi cation of the oil and gas supply base assumes greater urgency. Establishing a strong foothold in the industry requires moving into other geographies. With limited oil reserves in India, ONGC Videsh Ltd (OVL) has been spearheading this movement by commissioning multiple exploration & production projects outside India. HPCL, BPCL, OIL, IOCL and GSPC are the other prominent companies having secured assets abroad to ensure energy security. Going forward, the government plans to use disinvestment earnings to set up its own version of a Sovereign Wealth Fund (SWF) that will team up with state-run companies for acquiring overseas raw material and energy assets.

Oil & Gas Production Abroad

Oil Production (MMT)
8

Gas Production (BCM)

4 2

0 2008 2009 2010 2011

Source: Oil Natural Gas Corporation Videsh Limited

17

Enhanced pace of M&As for IOCs

NOTABLE M&A ACTIVITIES IN THE INDIAN OIL AND GAS SECTOR
Indian Firm RIL Heramec Global Partner BP Stealth Ventures, Canada Details 50:50 JV on sourcing and distribution Heramec sold 15% stake in its hydrocarbon blocks in Cambay Basin Essar Oil Stanlow Oil Re nery Essar Oil acquired Stanlow from Shell UK for $350 million giving access to the UK market Rheochem India Newpark Resources, USA Newpark Resources acquired 70% stake in Rheochem India
Source: Global Oil and Transactions Review 2011, E&Y, Frost & Sullivan

With the pressing need to address demand-supply disparity, as well as establish a global foothold, the Indian oil & gas sector has been witnessing numerous M&A activities lately. There have been both inbound and outbound covenants, namely BPs $7.2bn acquisition of a 30% stake in Reliance Industries upstream assets and the consummation of the Cairn Vedanta deal for $8.67bn. Primarily inbound agreements are focused towards sharing technical expertise as well as access to high growth markets. The natural gas sector witnessed quite a lot of buzz with regards to M&A activities. GAIL (India) recently signed a deal with Cheniere Energy in the US for securing longterm LNG supplies. The company to establish a presence in the global trading and marketing sphere recently set up a trading desk in Singapore. For its Kochi LNG Terminal, Petronet LNG secured supplies of 1.5mtpa from the Australian Gorgon LNG project.

The need of the hour is for Indian oil and gas companies to bridge the ever increasing demand supply gap. With the ever changing global dynamics, it is but natural for Indian players to follow suit to remain competitive. Disaggregation of the value chain is expected in the coming years. Customized operating models for regionalized demand will be the way forward. Competitive advantage will come from technology specialization and leadership, leveraging scale, better management of nancial risk, and increasing access to the global talent pool and other resources. In the upstream, success is likely to come from focusing on innovation in dif cult raw-materials exploration. In the downstream, companies that focus on regions rather than countries will create more value, and here the need for operational excellence will be ever greater.

18

DIGITAL OIL FIELDS

SUB-TRENDS

Increased emphasis on information management by O&G companies to ensure process optimization

Emergence of cross functional disciplines enabling data transparency in order to establish an ef cient energy enterprise

Owing to shortage of expert manpower, graying workforce and stringent safety regulations, upstream organizations have been forced to rede ne their existing business models. There has been an increased emphasis on integrating information technology to the petroleum business to improve operational safety, optimizing hydrocarbon production and discovering reserves to maintain a competitive edge.

Increased emphasis on information management by O&G companies to ensure process optimization

Modeling

Field Optimization

Process Management

Real Time Data Management

Enterprise Business Solutions Asset Management

Centralized Maintenance Assignment

Source: Frost & Sullivan

Historically, Indian O&G companies have relied on legacy systems and proprietary technology that has enabled its employees to manage and understand data. However owing to the changing industry dynamics globally and with the information technology complimenting every strategic decision, companies have decided to focus more on systems that can bridge the gap between strategic and operational decision support.

19

Emergence of cross functional disciplines enabling data transparency in order to establish an ef cient energy enterprise

Production Optimization Technical - Drilling, G&G, Production, Reserve

OIL & GAS ENTERPRISE INTELLIGENCE

Operational Optimization Operational - Process Control, Maintenance, Safety and Environment. Financial Optimization Financial - Budget, Supply Chain, Human Capital
Source: Frost & Sullivan

Although the prime focus is to gather information in real time in order to establish decision making framework, the need to integrate cross functional disciplines namely nancial, operational and technical information is imperative. Field engineers are now expected to consider the cost and revenue implications of their technical decisions. In order to achieve this they will need access to information from back-end system, well histories, maintenance records, budgets and actual cost.

INNOVATING TO ZERO SUB-TRENDS

Greater investment in technologies and measures to reduce emissions and increase ef ciency e.g. Carbon Capture and Sequestration (CCS)

Hydrocarbon producers embrace unconventional, alternate sources of energy in a bid to re ect a cleaner and greener brand image

The pressure on conventional energy companies to take on responsibility for their external environment is expected to increase into the future. These companies, which were predominantly dealing with hydrocarbons, are expected to now evolve into "total energy solutions" providers, by embracing alternate and unconventional

sources of energy. The world is striving hard to go green. As this revolution gains momentum, the Oil & Gas industry is faced with a conundrum of not only reducing pollution, but also reducing waste.

20

Greater investment in technologies and measures to reduce emissions and increase ef ciency e.g. Carbon Capture and Sequestration (CCS)
Although slow, there has been a considerable amount of interest generated in India on Carbon Capture and Sequestration (CCS) owing to the pressing need to reduce its carbon footprint.

1200 1000 800 600 400 200 0 OECD NA OECD Europe OECD Paci c China & India 29 14 590 320 7 950

1260

2000 1800 1600 1400 1200 1000 800 600 400 1130 1170

1760

280 21 29 Non OECD

475 62 OECD NA 16 OECD Europe 14

530 19 China & India 20 Non OECD

200 0

OECD Paci c

Number of Projects in 2020 Number of Projects in 2050

Number of Projects in 2010-2020($bn) Number of Projects in 2010-2050 ($bn) Source: BP Statistical Review, Frost & Sullivan Analysis

In 2011, NTPC in collaboration with Toshiba Corp had signed to build a pilot CCS project in India by setting up a 5 MW plant. Since the technology is relatively new, it requires considerable amount of investment and funding from the government. In Dec 2011, India along with China, Ghana, UAE and South Africa was eliminated as

eligible countries for Clean Mechanism Development (CDM) funding for CCS under the terms that it no longer can be characterized as least developed countries (LDC). Going forward, CDM investments in countries like India & China will determine the world energy mix and the demand pattern.

Hydrocarbon producers embrace unconventional, alternate sources of energy in a bid to re ect a cleaner and greener brand image
ONGC in 2010, announced $110 million to promote research and development of renewable energy sources. This was primarily to offset the losses incurred in the differential pricing between the imports and domestic fuels. ONGC primarily is looking to expand their renewable base to the rural areas in India owing to its high growth potential. IOCL has also ventured into the alternative energy space such as wind, solar and bio-fuels. It has the largest captive plantation of over 1,000 hectares which is being used for bio-fuel production which is underway in Madhya Pradesh and Chattisgarh. Furthermore IOCL has also invested in wind energy with a 21MW wind power project in Kutch district, Gujarat.

21

COMPETITION FROM ALTERNATE SOURCES SUB-TRENDS

Increasing focus to attain energy independence through investments in alternate sources of energy, primarily renewables

Focus on UMPPs, nuclear and hydel generation on account of non-availability of gas for power generation

The perennial increase in oil prices and energy security are major drivers for investments in alternate sources of energy (including both nuclear and renewables). Additionally, with the recent recession, and historic precedents, net-energy-importing countries have realized a

critical need to reduce their interdependence on conventional fuel. This is leading to an emergence of alternate sources, which in some cases, has already resulted in countries reaching a 25% penetration by alternates.

Increasing focus to attain energy independence through investments in alternate sources of energy, primarily renewables
There have been signi cant developments in the renewable space in India over the last two decades. The country was the rst in the world to set up a ministry of non-conventional energy resources in the early 80s. The share of renewable energy as on Mar. 2012 was around 12.3% of the total generation capacity. There has also been an exponential increase in Indias investment in renewable energy which is fast out-pacing the rest of the world. In 2011, investments reached around $12.3 bn, 62% higher than that invested in 2010. India accounts for 4% of global investment in clean energy.

% Share of Renewables in Overall Installed Capacity (India)

22% 15% 7.8% 8.9% 9.7% 10.7% 12.3%

3.2%

5.0%

5.9%

2005

2006

2007

2008

2009

2011

2012

2020 (F)

2030 (F)

Source: CEA, MNRE, media reports & F&S Analysis

22

World New Investment in Renewable Energy by Region, 2011 ($bn)

EUROPE UNITED STATES 50.8 22.5 32.5 92.3 67.9 101 37.4 CHINA 52.2 44.5

2009 2009 2010 2011 EUROPE 6.7 5.5 3.1

2010

2011

2009

2010

2011

INDIA 12.3 4.2 7.6

2009 BRAZIL 7.5 7.3 6.9

2010

2011 2009 2010 2011 Asia Paci c (Excl. India and China) 21.1 18.4 12.1

2009

2010

2011 2009 2010 2011

Source: Bloomberg New Energy Finance, UNEP, Frost & Sullivan

Distributed/decentralized renewable power projects using wind energy, biomass energy, hydro power and hybrid systems are being established in the country to meet the energy requirements of isolated communities and areas which are not likely to be electri ed in the near future.

23

Focus on UMPPs, nuclear and hydel generation on account of non-availability of gas for power generation
The Indian economy has been growing at a brisk rate and this is likely to continue over the next 15 to 20 years. To sustain this growth, increase in power generation capacity becomes imperative. As domestic gas is on the decline and international gas prices remain high and volatile, nancial viability of gas-based power projects is a matter of concern. A gas-based power plant becomes unviable if gas prices rise above US$10-12. Need for capacity addition through gas-based stations is on account of their suitability to function as peaking stations, shorter construction periods, lesser strain on resources such as land and water, considerable environmental bene ts relative to coal-based power and diversi cation of fuel supply /energy security risks. Current domestic and international market environment for natural gas suggests that there are far too many uncertainties with regard to availability and/or price of natural gas. However, due to the lack of availability of gas in the country GoI continues to focus on coal based, hydel and nuclear generation to meet the growing power requirement. With plans charted out for ultra-mega power plants (UMPPs) and nuclear power plants, the contribution of gas based generation to the fuel mix is likely to be very low through 2030.

Low schedules for gas based generation coupled with the problem of gas supply shortages to various gas based stations, the gas based generation had a negative growth rate of 5.64% during April 11 March 12 corresponding to the same period last year.

24

CONCLUSION
The Oil & Gas companies are facing numerous challenges at the moment namely in terms of: 2. Strategic Alliances Although not a new trend, major IOCs and NOCs must increasingly look at having strategic partnerships such as asset sharing, supply chain management, etc. which will help them alleviate risk in this age of mass consolidation. 3. Ef cient Cost Management By optimizing cost across value chain, outsourcing, debt or capital restructuring. 4. Reducing risk Through well-structured contingency plans to improve the ability to detect, prevent and resolve any critical issues. 5. Personnel Management Major companies should start by engaging cross pollination of employees by recruiting from other countries, employing best practices, talent sourcing and acquisition by partnering with educational institutions.

the constant reminder to improve ef ciency with evolving regulations and increasing demand in energy alternatives This would mean a revamp in strategies by many companies in order to stay competitive. To address challenges and remain at the top, major O&G rms have to adopt some of the best practices namely: 1. Innovation Technology innovation is the key deciding factor which will make or break a company. From harvesting the unconventional, increasing the ef ciency, reducing costs as well as focusing on alternate energy.

STARING DOWN A BARREL.

Oil and gas companies are going to face stiffer challenges as they go along. Unless innovation, cost management and other best practices are adopted immediately, the going will undoubtedly remain tough.

About Wipros Energy, Natural resources and Utilities (ENU) SBU:

Wipros Energy, Natural resource and Utilities (ENU) Strategic Business Unit (SBU) has over the last decade established itself as a trusted partner to clients across the globe to address their business challenges using its deep industry domain competency and technology expertise. It has over 6600 dedicated consultants serving businesses in the oil & gas, metals, mining, agriculture products, water, natural gas and electricity industries. Having a strong relationship with over 40 customers spread across America, Europe, India, Middle East, Southeast Asia, Australia and New Zealand, the ENU SBU has been continuously investing in building competencies to help them Do Business Better. Recently, Wipro has acquired SAICs Global Oil and Gas business unit, thereby strengthening Wipros portfolio in Consulting, System Integration and Outsourcing Services to Global Oil majors with signi cant domain capabilities in the areas of Digital Oil Field, Petro-technical Data Management and Petroleum Application Services, reinforcing its focus on this vertical.

About Frost & Sullivan

Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break todays market participants. Our Growth Partnership supports clients by addressing these opportunities and incorporating two key elements driving visionary innovation: The Integrated Value Proposition and The Partnership Infrastructure. throughout all phases of their journey to visionary innovation including: research, analysis, strategy, vision, innovation and implementation. foundation upon which visionary innovation becomes possible. This includes our 360 degree research, comprehensive industry coverage, career best practices as well as our global footprint of more than 40 of ces.

For more than 50 years, we have been developing growth strategies for the global 1000, emerging businesses, the public sector and the investment community. Visit http://www.frost.com for more information.

About Wipro IT Services:

Wipro IT services is a part of Wipro Limited (NYSE:WIT), a leading Information Technology, Consulting and Outsourcing company, that delivers solutions to enable its clients do business better. Wipro delivers winning business outcomes through its deep industry experience and a 360 view of Business through Technology helping clients create successful and adaptive businesses. A company recognized globally for its comprehensive portfolio of services, a practitioners approach to delivering innovation and an organization wide commitment to sustainability, Wipro IT services has 130,000 employees and clients across 54 countries. For information visit www.wipro.com or mail reachus@wipro.com

DO BUSINESS BETTER
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