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Indian Oil and Gas Industry: an overview

September, 2013

Introduction

After liberalisation in 1990s, India witnessed an unforeseen economic growth, which was majorly driven by demographic changes, rapid industrialisation and a robust, service-oriented business environment. Indian gross domestic production (GDP) enhanced more than 3.3 times from 2002 to 2012.

Subsequently, flourishing economy gave way to increase in the country’s energy demand which has risen by more than 70 per cent. With a humungous surge in automobiles, power and fertilisers, oil and gas (O&G) as a source of energy acknowledges more than 45 per cent of the country’s total energy consumption. As per the industry experts, India is on its way to become the third largest energy consumer in the world by 2020.

Over the last few years, Indian Government has also played a pivotal role in strengthening the core industrial sector. For instance, the introduction of the New Exploration Licensing Policy (NELP) was aimed at intensifying activities in O&G exploration, while the administration allowed 100 per cent foreign direct investment (FDI) in the sector.

India’s O&G sector is a promising one as there is a huge untapped potential basin while many large blocks offshore are unexplored. India’s total hydrocarbon reserves are projected to be around 2 billion metric tonne of Oil Equivalent (bmtoe). Also, the reserves-to-production ratio for the country works out to be 25 years with the current oil production level of around 815,000 barrels per day (bpd) and estimated reserves of 1.2 billion metric tonne (bmt). Analysts foresee a bright future for the gas sector as well wherein reserves-to-production ratio is over 30 years (the current production level being around 40 billion cubic metres [bcm] per annum on an estimated reserves base of around 1,500 bcm).

Thus, there lies a great opportunity for international and domestic companies to participate in the industry’s growth and derive benefits out of it.

Key Statistics

  • Crude oil output stood at 3.18 million metric tonnes (mmt), or 751,700 bpd, according to data released by the oil ministry.
  • India’s refining capacity is 215.066 million tonnes per annum (mtpa) and is ranked fourth in the world. This figure is projected to increase to 232.3 mtpa by the end of FY14 and 310.9 mtpa by the end of FY17. India is also a net exporter of petroleum products such as petrol, diesel, jet fuel and naphtha.

    The country’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalent (mtoe) currently, to around 1, 500 mtoe, according to the oil ministry.

  • Refinery throughput also recorded a remarkable growth in July 2013. Refinery throughput increased by 4.8 per cent to 19 million tonnes (mt) in July 2013, as per the data released by Petroleum Planning and Analysis Cell (PPAC). This growth was driven by better capacity utilisation by Indian refiners who utilised 104.8 per cent of their installed capacity in the reported month.

Diesel & Petrol

India is the world's fourth-largest petroleum consumer and Crude oil production, as indicated by the core sector index, accounts for over 5 per cent of India's index of industrial production (IIP).

The country consumed 5.4 mt of diesel in July 2013, according to data compiled by the Centre for Monitoring Indian Economy (CMIE).

Gas

  • India's natural gas aggregated to 3.01 bcm in July 2013.
  • Gas output from all sources is anticipated to be around 105 million metric standard cubic metres per day (mmscmd) in 2013-14 and is expected to touch 175 mmscmd by 2016-17, stated M. Veerappa Moily, the Petroleum and Natural Gas Minister. 

    Recently, the Cabinet Committee on Economic Affairs has agreed upon a gas pricing formula suggested by the C. Rangarajan panel. This would come into effect from April 2014 and is expected to offer the explorers nearly double the price for natural gas than what it is at present.

Key Developments and Investments

  • Indian engineering major Larsen & Toubro's hydrocarbon business has been awarded orders worth Rs 807 crore (US$ 126.6 million) for petrochemical complexes of oil companies in the country. The scope of projects envisages jobs for supply of cracking furnace modules and parts, supply of equipment, engineering, procurement and construction execution of cryogenic ethylene package, civil, structural, mechanical, electrical and instrumentation for petrochemical complexes of oil companies in India.

    L&T's recently installed subsidiary, L&T Hydrocarbon Engineering, aims at making a space in global hydrocarbon business.

  • In a bid to mark its debut in the Indian O&G sector, Saudi Aramco, the world's biggest oil producer, intends to buy up to 30 per cent stake with a crucial management role in a huge petrochemicals project in Gujarat. The company is negotiating terms with ONGC Petro additions Ltd (OPaL). The behemoth has planned an investment of around Rs 19, 500 crore (US$ 3.06 billion) for the Indian project.
  • Cairn India, the largest private oil producer, plans to invest US$ 3 billion in its energy assets in the country, major portion of which would be deployed to develop the potential Barmer block. Barmer Rajasthan is India’s biggest oilfield to which Cairn is the operator. The company might increase crude production from Barmer blocks from the current 180,000 bpd to 210-215,000 bpd by the end of 2013-14.

Government Initiatives

In order to cure the adverse effects of natural calamity that recently happened in the state of Uttarakhand and to bring it back on the track of progress, the Uttarakhand Government has inked a Memorandum of Understanding (MoU) with Indian Oil Corporation and SIDCUL. The agreement aims at the development of natural gas and renewable energy infrastructure in the state.

Indian Oil and the State Government will jointly work-out on an action plan on enhancing the natural gas and renewable energy infrastructure in Uttarakhand, which will eventually facilitate a greater boost to the state’s social-economic development.

Meanwhile, Gujarat Info Petro Ltd, a subsidiary of Gujarat State Petroleum Corporation, has inked an MoU with Hungary-based Cason Engineering Plc. Cason develops, manufactures and implements systems for gas distribution network monitoring. This agreement would offer automation services for O&G companies in India.

Road Ahead

The Indian Oil Ministry anticipates that the country’s energy demand would expand by more than double by 2035; from less than 700 mtoe today to around 1, 500 mtoe. Thus meeting this requirement is highly essential to ensure the nation’s economic growth. The Indian Government is not only working towards self-sufficiency in this regard, but is also devising operating philosophies and favourable framework of policies that would be instrumental for exploring and developing of energy resources in the most efficient way.

Exchange Rate Used:INR 1 = US$ 0.01568 as on September 11, 2013

References:Media Reports, Press Releases.