In brief: natural gas production in India
Regulation of natural gas production
Ownership and organization
What is the ownership and organizational structure of natural gas production (other than LNG)? How does the government derive value from natural gas production?
There is no legal exclusivity for the public sector in the natural gas sector. Private or non-governmental entities can participate fully in the natural gas sector and develop both upstream and downstream. However, the level playing field is currently uneven, as the majority of existing natural gas infrastructure is owned and operated by public entities.
The government derives value from upstream operations by:
- a share of the natural gas or petroleum, or both, produced (after adjustment for cost sharing allowed under the applicable agreement);
- royalties, license fees and rents related to mining land leases;
- surface rent payable to the State Government;
- in addition to (1), (2) and (3), for pre-National Exploration Licensing Policy (NELP) oilfields through administered pricing and the allocation of gas to designated buyers, thereby allowing the provision of low cost for entities and production as needed by the government; and
- in addition to (1), (2) and (3) for NELP and post-NELP by regulating price discovery to ensure availability of locally produced gas at comparatively lower cost.
Describe the legal and regulatory framework and any relevant authorizations applicable to the exploration and production of natural gas.
In 1992, the government decided to allow private participation in the upstream segment of the oil and gas industry and decided to divest several discovered and developed oil and gas fields of medium and small size to joint ventures formed between selected private participants and the Oil and Natural Gas Company. However, it took about five years for the government to formulate and adopt a comprehensive exploration licensing policy, NELP was announced in the fiscal year 1997 to 1998.
Prospecting and exploration for oil and petroleum is governed by the Oil Fields (Regulation and Development) Act 1948 and rules made thereunder. Exploration and production of oil and petroleum in relation to offshore areas is authorized by the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Areas Act 1976 (80 of 1976) which provides the granting of a license by the government to explore and exploit the resources of the continental shelf and the exclusive economic zone. Initially, details relating to the control and regulation of exploration were governed by the Petroleum Grants Rules 1949, which were established under the Oil Fields (Regulation and Development) Act 1948. However, these rules were superseded in 1959 by the Petroleum and Natural Gas Act. Rules 1959, which govern the field of oil and petroleum exploration. Regulatory control over oil exploration and extraction is extensive and no one may undertake any form of oil exploration or oil extraction without obtaining a prospecting license or an oil mining lease, which is granted under the Oil Fields (Regulation and Development) Act 1948. to be read with the Petroleum and Natural Gas Rules 1956.
A prospecting license or petroleum mining lease must contain the terms and conditions specified in the Petroleum and Natural Gas Rules 1956. In addition to the terms and conditions specified in the Petroleum and Natural Gas Rules 1956, a prospecting license or petroleum mining lease may contain terms and conditions agreed between the concessionaire or lessee, as the case may be, with the government central. Even where an exploration license or petroleum lease is to be issued by the state government, the additional terms thereof would be those agreed between the central government and the licensee or lessee. The central government has an obligation, where the license or lease is to be executed by the state government, to consult with the state government before executing any agreement regarding additional terms and conditions of the license, but apart from this duty to consult, the license issued by the state government shall contain the additional agreement between the licensee or lessee and the central government. The state government does not have, under the Petroleum and Natural Gas Rules 1959, independent power to impose terms and conditions in any license or lease it issues.
The Direction Générale des Hydrocarbures is the regulatory agency that controls upstream operations in the natural gas sector. The Petroleum and Explosives Safety Organization oversees safety-related issues with respect to storage and related equipment used in natural gas operations.
Upstream operations are subject to the production sharing contract that would have been signed, which provides for the settlement of disputes by arbitration.
With respect to mining leases, the Petroleum and Natural Gas Rules 1959 specify that any dispute relating to:
- right asserted by the licensee or lessee under the license or lease;
- any breach alleged to have been committed by the Licensee or Lessee of any term of the License or Lease or any penalty proposed to be imposed;
- fees, royalties or rents payable under the license or lease; Where
- any other matter or matter relating to the license or lease shall be settled by arbitration under the Arbitration and Conciliation Act 1996, by two arbitrators, one appointed by the government and the other by the licensee licensee or the affected lessee, with the arbitrators appointing an umpire in the event of a dispute or impasse between the arbitrators.
However, if there is an arbitrary action by the government which is not amenable to arbitration, then the written jurisdiction of the High Courts may be appealed to.
In addition, foreign investors have access to investor protection clauses provided in bilateral investment treaties.
Unconventional gas production
Are there different rules or restrictions on unconventional natural gas production (including hydraulic fracturing)?
Coal bed methane had a distinct framework; however, with the notification of the Hydrocarbon Exploration and Licensing Policy (HELP), conventional and unconventional natural gas production is now regulated under a common exploration and production framework.
Deposits and guarantees required
Are participants required to provide bonds or guarantees to be issued with a gas exploration or storage license?
Under the NELP and HELP, the production sharing contract by which the right to undertake the exploration and production of natural gas is acquired, provides bank guarantees as performance security. Under the Petroleum Exploration License and Petroleum Exploitation Lease, a security of Rs 50,000 must be deposited with the Central Government as per Rule 11 of the Petroleum and Natural Gas Rules 1959.