India’s demand for oil and gas is only partly met by domestic production. The country imports over 75 per cent of its crude oil requirement and 35-40 per cent of its gas needs. This reliance on imports renders the economy vulnerable to global adversities that impact energy markets. However, recent times, marked by low crude prices, have been very favourable for net importing countries such as India. Lifting of sanctions on Iran, new bilateral ties with net oil and gas exporters, as well as overseas acquisition of petroleum assets have been other pluses for achieving energy security. On the domestic front though, the production scenario remains grim, due to a host of factors such as ageing fields, low prices leading to downward revisions of budgets by exploration and production companies, etc.
Indian Infrastructure examines the domestic production and supply of crude oil, natural gas and other petroleum products, and highlights import dependencies…
Crude oil
During 2015-16, India produced 36.95 million tonnes (mt) of crude oil, thereby registering a slight decline over the 37.46 mt produced in the preceding fiscal year. During the first two months of the current fiscal (2016-17), crude oil production was reportedly around 6 mt, roughly the same level recorded during the first two months of 2015-16. Considering the overall trend during the past five fiscal years (2011-12 to 2015-16), crude oil production registered a decline of 0.15 per cent.
There are various factors responsible for the low production of crude oil. Production from the major fields, particularly in the western offshore and onshore fields in Gujarat and the Northeast, is low as these fields are old. Besides, no major discoveries have been made in the recent past. Further, challenges associated with the development of marginal and deepwater fields in terms of technology transfer, logistics, isolated structures and the viability thereof continue to impact the output.
Looking at the company-wise scenario, India’s largest crude oil producer, the Oil and Natural Gas Corporation’s (ONGC) output remained stagnant, producing 22.37 mt in 2015-16, only 0.47 per cent higher than the preceding fiscal’s output. The shortfall was primarily due to a delay in the commencement of production from the B127 cluster at Mumbai High, less condensate produced due to lower gas receipt as the BPB process complex was shu down, less air injection in the Santhal and Lanwa fields (besides a decrease in water supply and power shutdown), low gas injection pressure, power shutdown and closure of wells in Assam, and closure of wells in the Ramdad area due to low offtake. Another major oil producer, Oil India Limited (OIL) also reported a decline. The company produced 3.23 mt of crude oil in 2015-16, 5.45 per cent lower than the 2014-15 production levels.
Private and joint venture (JV) companies (the key ones being Cairn India, Reliance Industries Limited [RIL] and the Gujarat State Petroleum Corporation [GSPC]) together produced 11.36 mt of crude oil, which was 3.64 per cent lower than the output registered in 2014-15. The following were the reasons for the decline in production by key producers: natural decline in the Ravva and Mangala wells and the underperformance of the Bhagyam well in RJ-ON-90/1 (Cairn); under-performance of wells in the Krishna-Godavari (KG)-D6 basin (RIL); issues with regard to completion of wells in KG-OSN-2001/3 and higher water cut in CB-ONN-2000/1 (GSPC).
The shortfall in crude oil production is compensated by imports, which stood at 202.85 mt in 2015-16, much higher than the 189.43 mt imported in 2014-15. Much of this was propelled by the global crude oil glut that pushed down the price of the resource to less than $30 per barrel. The import of crude oil in India has increased from 163.59 mt in 2011-12 to over 200 mt at present.
Natural gas
Natural gas production (gross figures) in India for 2015-16 was 32.25 billion cubic metres (bcm), a decline from the 33.66 bcm recorded in 2014-15. For 2016-17 (April and May), the total natural gas production was reported to be 5.14 bcm, a marginal decline from the level recorded in the preceding fiscal’s corresponding period (5.52 bcm). During the five-year period from 2011-12 to 2015-16, the production of natural gas declined from 47.55 bcm to just over 32 bcm.
Some of the important factors responsible for a shortfall in the production of natural gas are a sharp decline in production in the KG deepwater block operated by RIL, a natural decline in major gas producing fields like Bassein and M&S Tapti, delays in the commencement of production from eastern offshore fields, a fire incident in GAIL (India) Limited’s Tatipaka gas pipeline and lower gas uptake by consumers, particularly in Tripura, Assam and the Cauvery basin.
With regard to imports, during the period 2011-12 to 2015-16, liquefied natural gas (LNG) consumption increased from 15 billion cubic metres (bcm) to 21 bcm. The cumulative import of 4,224 million metric standard cubic metres (mmscm) for the first two months of the current fiscal year – April and May 2016 – was 44.4 per cent higher than the 2,925 mmscm imported in the corresponding period in 2015-16.
In the current scenario marked by low crude and renegotiated LNG prices, the resource is increasingly replacing domestically produced gas, as reflected by its share in total gas consumption in the country. In 2011-12, about 27 per cent of the gas consumed in India was LNG, and its share rose to 46 per cent in 2015-16.
Other petroleum products
In 2015-16, the total production of petroleum products in the country stood at 231.27 mt (provisional) – about 5 per cent higher than the 220.47 mt recorded in 2014-15. During the past five years (2011-12 to 2015-16), the production of petroleum products registered a compound annual growth rate of over 3 per cent. For 2016-17 (April and May), the production of petroleum products was reported to be 39.63 mt, higher than the 35.91 mt recorded during the corresponding period of 2015-16.
India not only imports but also exports other petroleum products. The total import of petroleum products for 2015-16 was 28.3 mt, significantly higher than the 21.3 mt that was registered during the preceding fiscal year. Liquefied petroleum gas imports account for over 30 per cent of total imports. The total exports of other petroleum products in 2015-16 were 60.53 mt, a fall from 63.93 mt during 2014-15. Petrol and diesel combined account for over 67 per cent of total exports.
Exploration status
One of the most anticipated developments in the exploration and production (E&P) space is the forthcoming round of the New Exploration and Licensing Policy (NELP-X), now revised to the Hydrocarbon Exploration and Licensing Policy (HELP). This long-awaited round is expected to offer 46 blocks to domestic and foreign investors.
Thus far, nine NELP rounds have been conducted. Of the 254 awarded blocks, 111 are onland, 62 are offshore shallow water blocks and 81 are in deepwater areas. As a result of exploratory activities undertaken, several unexplored and poorly explored areas, in offshore and deepwater areas in particular, have been appraised through geophysical surveys and exploratory drilling.
The overall experience has been mixed, with success achieved only in the initial NELP rounds. The later rounds were mired with issues such as grant of clearances and details of tax structures. As many as 117 exploration blocks under the NELP have been reported to be affected due to delays in the grant of petroleum exploration licences by state governments. Reviewing the blocks awarded under the NELP (it has been 17 years since its introduction), E&P activities are ongoing in 87 blocks (as per the Ministry of Petroleum and Natural Gas’s annual report for 2015-16). With regard to overall figures, taking into account the pre-NELP period and the NELP rounds, E&P activity in 125 blocks is in progress.
Under the nine rounds of NELP bidding held so far, the committed exploration investment is about $11.73 billion. As against this, an investment to the tune of $15.4 billion has been expended by contractors for exploration activities – mainly 2D/3D seismic surveys and exploratory drilling – in the awarded blocks. In addition, expenditure of about $9.66 billion has been incurred by contractors for carrying out development activities – drilling and setting up of production facilities.
Outlook
While the present scenario, marked by low crude prices, definitely bodes well for net importing oil and gas countries such as India, a focus on increasing domestic production (and thus reducing reliance on imports in the long run) must rank high on the country’s priority list. Crude oil and gas prices are governed by many factors and generally are volatile in nature. High oil prices allow companies to earn higher profits, encouraging them to carry out extensive oil E&P activities. Due to falling oil prices, these upstream players may restrict/reduce the outlay on exploration and development activities (to cope with the low-price market). They may also resort to other cost-cutting measures to maintain profitability. However, this can be looked at as an opportunity for further exploration, as the cost of oilfield services and equipment also declines in a low oil and gas price regime.
On the government front, some recent policy decisions are expected to ratchet up domestic production levels. Recent decisions such as levying oil cess on an ad valorem basis (instead of the fixed Rs 4,500 per mt), and providing marketing and pricing freedom for the 28 high pressure high temperature/deepwater discoveries are likely to incentivise investments in oil and gas production.
Besides, field redevelopment, development of marginal fields on the cluster concept, monetisation of small and marginal discoveries in onshore areas through service contracts or outsourcing, expeditious development of new discoveries, fast-track development of new and marginal fields, use of modern technology for maximising production from mature fields and enhancing well productivity, prioritisation of wells with high potential and drilling campaigns for non-associated gas are some ways to significantly enhance domestic hydrocarbon production in the long run.
