The oil and gas industry has been instrumental in fuelling the rapid growth of the Indian economy. The petroleum and natural gas sector which includes transportation, refining and marketing of petroleum products and gas constitutes over 15 per cent of the GDP.

Petroleum exports have also emerged as the single largest foreign exchange earner, accounting for 17.24 per cent of the total exports in 2007-08. Growth continued in 2008-09 with the export of petroleum products touching US$ 18.34 billion during April-September 2008.

In November 2008, the Cabinet Committee on Economic Affairs awarded 44 oil and gas exploration blocks under the seventh round of auction of the New Exploration Licensing Policy (Nelp-VII). The overall number of blocks brought under exploration now exceeds 200.

The allocation is likely to bring in investments worth US$ 1.5 billion.

Production

• Domestic production of crude oil has increased to 34.11 MT in 2007-08 from 33.98 MT in 2006-07.
• The production of petroleum products went up to 144.93 MT in 2007-08, from 135.26 MT in 2006-07.
• The production of natural gas went up to 32.27 billion cubic metres tonnes (BCM) in 2007-08, from 31.74 BCM in 2006-07.
• The projected production of crude oil during the 11th Five-Year Plan (2007-2012) is 206.76 MMT, while that of natural gas is 255.27 BCM.
• Production of gas from Reliance Industries' eastern offshore KG D-6 fields, with a life of 11 years, started on April 1 and will increase to 80 million standard cubic metres per day (MSCMD) by the end of the year. Production will help save US$ 9 billion in oil import.
• Cairn India will commence the commercial production of crude oil from its Rajasthan fields from September 2009. It is expecting a production of 175,000 barrels per day.

Consumption

India's domestic demand for oil and gas is on the rise. As per the Ministry of Petroleum, demand for oil and gas is likely to increase from 176.40 million tonnes of oil equivalent (mmtoe) in 2007-08 to 233.58 mmtoe in 2011-12.

Global Refining Hub

India is emerging as the global hub for oil refining with capital costs lower by 25 to 50 per cent over other Asian countries.

Already, the fifth largest country in the world in terms of refining capacity, with a share of 3 per cent of the global capacity, India is likely to boost its refining capacity by 45 per cent or 65.3 mtpa (million tonne per annum) over the next five years, according to a Deutsche Bank report. Indian companies plan to increase their refining capacity to 242 mtpa by 2011-12 from about 149 mtpa in 2007.

IOC will increase the capacity of its Haldia refinery to 7.5 mtpa by the end of the year.

Retail Sector

Increase in automobile sales has led to significant investments being made to develop and expand the petroleum retail market. According to US-based consultancy Keystone, automobile sales are likely to grow to about 20 million a year by 2030 (from the present 1 million), making India the third largest automobile market in the world.

Consequently, Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation together are planning to open over 3,000 retail outlets this year. Reliance plans to build 6,000 service stations.

Gas

Gas demand in India is dominated by the power and fertilizer sectors which account for 66 per cent of the current consumption. In 2006, the total gas demand was around 152 MSCMD. The gas demand is expected to increase to 320 MSCMD, according to a report by Ernst & Young. Significantly, the share of natural gas in the overall fuel mix is expected to increase from 8 per cent in 2006 to 20 per cent by 2025.

Reliance Industries plans to invest between US$ 5.45 billion to US$ 6.54 billion over the next three years to lay a 10,000 km-pipeline.

Investments and Acquisitions

• Public sector oil companies will spend US$ 11.33 billion next year on expanding supplies and building new transportation networks for oil and gas.
• IOC is setting up a coker plant in West Bengal at an investment of US$ 596.53 million.
• Essar Oil is investing US$ 400 million-US$ 450 million in Kenya Petroleum Refinery in Mombasa.
• ONGC will invest US$ 696 million for increasing facilities at its oilfields in Assam and Western Offshore to boost output.

Government Initiatives

The government has been taking many progressive measures to create a conducive policy and regulatory framework for attracting investments.

• Allowing 100 per cent foreign direct investment (FDI) in private refineries through automatic route and 26 per cent in government-owned refineries.
• Implementation of the NELP in 1997.
• Abolition of the administered pricing policy.
• 100 per cent FDI is also allowed in petroleum products, exploration, gas pipelines and marketing/retail through the automatic route.

Road Ahead

According to a recent CII-KPMG report India's energy sector will provide investment avenues worth US$ 120 billion-US$ 150 billion over the next five years. According to the Investment Commission of India, the total opportunity in the oil and gas sector is expected to reach US$ 35 billion to US$ 40 billion by 2012.