Environmental Regulations on Oil and Gas Industry in India

Profile of the Author: Kanav Bharti Gupta is a third year student in ICFAI Law School, The ICFAI University Dehradun and has a keen interest in Criminal law, Labour law and Intellectual Property Rights.

India is one of the most rapidly growing economies in the world and is predicted to make a shift from developing to developed nations within two decades. One of the major industries working for the same is the oil and natural gas (hereinafter referred to as O&NG) industry. In India, the O&NG industry has huge potential and contributes over 15% to India’s GDP. The landscape in the O&NG sector promises to be dynamic with scope for the growth of business entities. This industry has always attracted foreign direct investments, and according to data released by the Department of Industrial Policy and Promotion (DIPP)[1], the petroleum and natural gas sector attracted FDI worth US$ 6.86 billion between April 2000 and September 2017[2]. With 3.14 million sq. km of potential reserves lying unexplored until 2016, India’s potential in the oil and gas sector is immense and there exists vast headroom for new discoveries.[3] This article lays emphasis on the regulations within the O&NG industry and how the country is developing through the same.

What regulations govern the Oil and Gas Industry?

There are a vast number of statutes that govern the O&NG Industry in the country and how the various organizations have to function. The ones having a major impact are:

1. The Petroleum Act, 1934[4]: This act regulates the import into India, transfers within, storage, production, refining and blending of petroleum and deals substantially with midstream activities.
2. The Petroleum and Natural Gas Rules, 1959[5]: These rules provide a framework for grant of exploration licenses and mining leases, and together with the Petroleum Act, 1934, regulate the sale and distribution of petroleum and petroleum products. ƒ
3. The Petroleum and Natural Gas Regulatory Board Act, 2006[6]: This act provides for the setting up of the Petroleum and Natural Gas Regulatory Board 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). ƒ
4. The Oilfields (Regulation and Development) Act, 1948: This act constitutes the basic statute for licensing and leasing of petroleum and gas blocks by the Government of India, empowering the same with broad authority to make rules providing for the basic regulation of oilfields and for the development of mineral oil resources. Along with Petroleum Rules, the Oilfields Act governs the grant of Production Exploration Licenses and mining leases. ƒ
5. The Mines Act, 1952 (the Mines Act) and Oil Mines Regulations, 2017: These detail provisions relating to the health, safety and welfare of workers in oil mines. The Mines Act also highlights the duties of owners, agents and managers and the penalties in cases of contravention of the provisions.
6. The Petroleum and Natural Gas (Safety in Offshore Operations) Rules, 2008 (the PNG Safety Rules): The PNG Safety Rules have been framed under the Oilfields Act and prescribe safety standards and measures to be taken for the safety of offshore oil and gas operations. The PNG Safety Rules provide for the manner of preparation of information and records; various consents and intimations in relation to the offshore installations; safety, health and environment measures, etc., and prescribe the penalties for contravention of the PNG Safety Rules.
7. Hydrogen Exploration and Licensing Policy (HELP): HELP[7] aims to enhance domestic oil and gas production by encouraging exploration in sedimentary basins, and introduces a number of measures including a uniform license regime for conventional as well as non-conventional hydrocarbons, open acreage licensing policy, a revenue-sharing model and freedom in marketing and pricing (subject to certain limits).

All these statutes and policies lay the foundation stone for the functioning of the said organizations and play a key role in sustainable development and making India’s presence noticeable in the global arena when it comes to the O&NG industry. Despite all the provisions and the policies that envisage the operations of the industry, certain issues arise that play their part as well.

What is the cause of concern and what is the solution?

Three major challenges for the oil & gas industry are as follows:

1. Reducing costs to remain competitive - Producing crude oil and refined products at a lower cost to stay competitive on the market is one of the industry’s major challenges. Optimizing production systems and environmental utilities on currently operating sites is, therefore, a priority for the oil industry. This maximizes production efficiency, reduces the costs of extraction and refining and thereby offsets the exploration costs.
   
2. Improving performance to ensure the valorization of assets  - To sustain their supply of crude oil or gas, oil companies are looking to extend the life of mature sites but are also compelled to seek new sources of oil or gas for which extraction, transport and refining are much more complex and costly. For that, they aim to achieve 100% reliability of their plants: no unplanned shutdowns, increased throughput, secure industrial assets.
   
3. Improving the Environmental footprint to meet the increasingly stringent standards - The oil and gas industry is a major consumer of water and energy resources and is therefore subject to increasingly stringent environmental standards. This constrains them to rethink extraction, production and distribution methods in order to obtain or maintain their license to operate. They also have to provide guarantees and ensure transparency in the environmental management of their activities.

Due to such challenges, the O&NG companies usually find themselves deviating from the provisions that have been laid down and engaging in malpractices with mala fide intentions. The same should not be the case as it not only impacts the country’s own GDP but also disrupts its stand in the global markets.

The companies can always engage in certain contracts with the central government in order to minimize their chances or release their IPOs to the general public to get liquidated funds.

Conclusion

The Oil and gas sector has been identified as a key metric that will drive future GDP growth. From an economic and financial perspective, investment in O&NG is lucrative, with substantial prospects in India. Given the growing demand for crude oil in India and its wide application in household and industrial activities, it is apparent that there will be major investments in this industry in future. The Government of India has recently revamped the regulatory framework in the upstream sector with a view to attracting foreign investment and this is also consistent with the government’s objective to facilitate ease of doing business in India. While the Government of India resolves teething issues in the O&NG sector, the landscape in the O&NG sector promises to be dynamic with scope for the growth of business entities.

[1]https://dipp.gov.in/

[2] Fact sheet on Foreign Direct Investment, available on http://dipp.nic.in/sites/default/files/FDI_FactSheet_June2017_2_0. pdf (accessed on January 8, 2018)

[3] India’s time to capitalize on oil and gas sector’ (published on December 22, 2017), http://www.livemint.com/ Opinion/FjMgDDggOkPZ05qounbRjM/Indias-time-tocapitalize-on-oil-and-gas-sector.html (accessed on January 8, 2018)

[4]http://petroleum.nic.in/sites/default/files/lrbody.pdf

[5]http://petroleum.nic.in/png-rules-1959

[6]https://www.pngrb.gov.in/the-act.html

[7]http://petroleum.nic.in/india%E2%80%99s-new-hydrocarbon-exploration-and-licensing-policy-help-launch-cera-week-2017

FAQ: Which government is the law-making authority for the oil and natural gas industry?

Answer: The central government or the Union Government is the law-making authority with the Ministry of Petroleum and Natural Gas at the pinnacle of things.

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