India/Oil & Gas Establishing Local Upstream Industries – Trends on India's Oil and Gas Market

Author / Editor: Courteousy of PROCESS India / Dominik Stephan

India, being one of the fastest growing countries, registers high oil demand. However it is highly dependent on imports when it comes to oil requirement. Developments like RIL's KG D6 offshore field and shale gas projects could not fulfil the expectations, market experts say. PROCESS takes an outlook towards the trends on India's oil & gas upstream industry – can local upstream industries help to turn the tide?

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India's oil industry can not live up to expectations - can the trend to establish domestic downstream industries turn the itide?
India's oil industry can not live up to expectations - can the trend to establish domestic downstream industries turn the itide?
(Picture: Habbick)

Domestic oil and gas production dipped five per cent year on year to 86 Million Metric Tonnes of Oil Equivalent (MMTOE) in FY 12 on the back of nine per cent degrowth in gas production to 47.55 Billion Cubic Metres (BCM) following disappointments in Reliance Industries Limited’s (RIL) flagship KG D-6 block and tepid one per cent growth in crude oil production to 38 Million Metric Tonnes (MMT). Oil and Natural Gas Corporation Limited (ONGC) continues to dominate India’s Exploration and Production (E&P) landscape, accounting for approximately 55 per cent of total Oil and Oil Equivalent Gas (O+OEG) production while Oil India Limited (OIL) accounts for eight per cent and various private companies/Joint Ventures (JVs) together account for 37 per cent (FY 12).

An outlook towards Indian oil & gas upstream industry

Notwithstanding the expected modest increase in domestic crude oil production over the medium term, driven mainly by ramping up of scale by Cairn India Limited (CIL) at its Barmer block in Rajasthan and commercialisation of small to marginal other discoveries, India is expected to remain an energy deficit country with imports accounting for 76-77 per cent of total domestic crude oil demand.

The import bill on account of crude oil swelled to US$98 billion in FY 12 from US$64 billion in FY 11 due to spiraling crude oil prices and increase in volume of imports. The situation further led to the sharp increase in the country’s trade deficit. Given the inelastic demand for crude oil, the global energy price scenario would continue to remain a key determinant of the country’s import bill and in turn its trade deficit.

Following the dip in RIL’s KG-D6 gas output, the Indian market has become gas starved, which has further resulted in increase in imports of Regassified Liquefied Natural Gas (R-LNG) – despite the high costs thereof (average LNG rates of US$15-16/MMBTU vis-à-vis domestic gas prices of US$6-7/MMBTU on landed basis).