The country’s oil and gas sector is currently at an inflection point for a number of reasons. These include a host of policy measures that have been introduced in the past 12-18 months, changing supply dynamics, government plans to promote cleaner sources of energy (such as natural gas), growing concerns about sustainability, and the ever-increasing demand. From the viewpoint of energy security, increasing thrust is being given to reducing import dependence and ramping up domestic production.
Policy focus: During the past 12-18 months, several reforms have been introduced in the hydrocarbons sector. The government has clearly spelled out its vision of reducing the country’s import dependence (on oil and gas) by 10 per cent by 2022, and has thus introduced policies aimed at increasing domestic output. The noteworthy policy measures include the introduction of the Hydrocarbon Exploration and Licensing Policy, and the launch of the National Data Repository, the Policy for Marketing and Pricing Freedom for New Gas Production from Deepwater, Ultra Deepwater and High Pressure-High Temperature Areas, and the Open Acreage Licensing Policy.
Increasing focus on exploration: At present, India imports 80 per cent of its oil requirements and nearly 40 per cent of its gas requirements. While the recent years marked by depressed crude prices made a strong economic case to import cheap crude, these low prices disturbed the revenue flow of domestic refiners. Competition too has intensified in the sector, leading refining companies to contemplate ramping up existing refining capacities to retain their export markets.
A number of plans for the establishment of refineries have been drawn up. The most significant one is the 60 million tonne per annum (mtpa) facility (two phases of 40 mtpa and 20 mtpa each) proposed to be set up at Rajapur, in the Ratnagiri district of Maharashtra. In addition, refining companies such as Indian Oil Corporation Limited and Bharat Petroleum Corporation Limited are pursuing their plans for expanding existing facilities.
Production: The current demand for oil and gas in the country outstrips supply by a wide margin. During 2016-17, India produced 36 million tonnes (mt) of crude oil, thereby registering a slight decline over the 36.9 mt produced in the preceding fiscal year. During the first two months of the current fiscal year (2017-18), crude oil production was reportedly around 6 mt, roughly the same level recorded during the first two months of 2016-17. Considering the overall trend during the past five years (2012-13 to 2016-17), crude oil production registered a decline of 1.3 per cent. Factors responsible for the low production of crude oil include ageing fields (especially in Gujarat and the Northeast) and lower-than-planned production from newly drilled wells.
With respect to natural gas, from 2013-14 to 2016-17, gross natural gas production declined at a compound annual growth rate (CAGR) of 3.42 per cent. In 2016-17, gross domestic gas production was 31,897 million metric standard cubic metres (mmscm), registering a decline of 1.09 per cent over the previous year. The net natural gas production (gross gas production excluding flare and loss by gas producing companies) too witnessed a declining trend during the period. In 2016-17, net gas production in India was 30,848 mmscm, a decline of about 1 per cent over the previous year.
In terms of production of petroleum products, in 2016-17, the total production was 242.7 mt (provisional), about 5 per cent higher than the 231.2 mt recorded in 2015-16. During the five years 2012-13 to 2016-17, the production of petroleum products registered a CAGR of about 3 per cent. For 2017-18 (April and May), the production of petroleum products was reported to be 40.8 mt, higher than the 39.6 mt recorded during the corresponding period of 2016-17.
India not only imports but also exports petroleum products. The total import of petroleum products for 2016-17 was 35.9 mt, significantly higher than the 29.5 mt that was registered during the preceding fiscal year. Liquefied petroleum gas imports account for over 30 per cent of the total imports. Total exports of other petroleum products in 2016-17 were 65.5 mt, increasing from the 60.5 mt during 2015-16.
Consumption: The demand for petroleum products has been increasing over the years. In 2016-17, India registered a 5 per cent growth in demand for petroleum products. The growth rate, however, was less than the 11 per cent recorded in the preceding fiscal year (2015-16), which was the highest during the period 2012-13 to 2016-17. As of 2016-17, demand for petroleum products stood at 194.2 mt, as against 184.7 mt in 2015-16. In the first two months of 2017-18, the consumption of oil products stood at 34.54 mt, an increase of 4.25 per cent over the corresponding period of the previous year. Diesel consumption expanded by 5 per cent during the period April-May 2017 (over the corresponding period of 2016) and was recorded at 14.47 mt. The country’s dependence on crude oil imports has also jumped to over 80 per cent to meet the growing demand.
Natural gas continues to be a minor part of India’s energy mix, accounting for only 5-6 per cent. The consumption of natural gas, however, has been rising consistently since 2014-15. In 2016-17, India’s natural gas consumption was 55,534 mmscm, in comparison to 52,448 mmscm in the corresponding period of 2015-16. This is primarily due to the higher consumption of liquefied natural gas (LNG) that is available at prices less than those of domestically produced gas.
Pipeline infrastructure: As of March 31, 2017, the operational pipeline infrastructure in the country spanned a total length of 16,150.41 km. This network had a combined design capacity of 383.81 million metric standard cubic metres per day (mmscmd).
Several gas operators are currently also involved in the development of new pipeline infrastructure. As on March 31, 2017, about 16,004 km of natural gas pipelines were under construction. Meanwhile, about 1,619 km of the under-construction pipeline length is being added to the already existing pipelines in the country. Besides, two transnational gas pipeline laying projects are also being undertaken by GAIL Gas Limited. These are the Turkmenistan-Afghanistan-Pakistan-India and Middle East-India deepwater pipeline projects. India’s share in the total capacities of these projects amounts to 38 mmscmd and 31.5 mmscmd respectively.
City gas distribution (CGD) segment: The CGD segment has witnessed mixed progress in the past few years. The network has continued to grow and fresh licences have been issued at a much faster pace. However, despite several changes in the bidding parameters to encourage participation, the response has remained lukewarm. In the past year, the Petroleum and Natural Gas Regulatory Board has granted authorisation to lay, build, operate and expand the CGD network in 16 cities covered under the sixth bidding round and one city under the seventh bidding round.
In sum
In the coming years, the hydrocarbons sector is likely to reflect the effects of the policy measures that have been taken recently. Domestic exploration and production activity is likely to pick up as the policy issues that existed earlier have been addressed. However, there is an urgent need to incentivise the midstream sector (transportation) and create the necessary infrastructure to increase the reach to consumers. While recent policy initiatives are a significant departure from the past and bode well for the sector, implementation will hold the key to overall success.
