Overview of the Oil & Gas Industry Securing Energy and Feedstock Supplies for India's Economic Rise
India's rise towards becoming an Asian economic powerhub is directly dependent on yupply with crude oil and natural gas. Yet, most of the country's feedstocks come from overseas... Can unexplored reservoirs or unconventional resources stem the tide? Here is an outlook on the Indian production of oil and gas and its effect on the economy
The Core Sector Index, which measures the output of eight infrastructure sectors, rose 2.6 per cent in August 2015, compared with 1.1 per cent in the previous month, according to recently released data. The eight sectors included in the index are coal, steel, cement, natural gas, fertilizer, crude oil, refinery products and electricity.
Seven out of the eight sectors included in the index posted positive growth with natural gas production finally bouncing back into the positive zone after many years of decline reportedly because of falling output from the KG-D6 basin field. Only steel posted negative growth at 5.9 per cent, possibly because of a flood of imports.
Indian crude oil and natural gas sector
The crude oil and natural gas sector is divided into three major segments—upstream, midstream and downstream. The upstream segment is also known as the exploration and production (E&P) sector.
Upstream: crude oil production trails consumption
India’s oil and gas demand is met by imports, which amounts to about 80 per cent. The country consumes nearly 5 per cent of the global crude oil consumption. The Indian oil and gas sector is traditionally dominated by national oil companies. The key focus area for India’s future upstream sector is to increase the domestic production by encouraging exploration to meet the demand.
The introduction of New Exploration Licensing Policy (NELP) has proved to be successful in attracting the interests of national oil companies as well as private domestic along with a few overseas players.
The crude oil production in 2014–15 (till December 2014) was about 28.171 million metric tonne (MMT). In 2014–15, the share of offshore crude oil production was about 50.2 per cent. The remaining crude oil production was from states such as Rajasthan and Gujarat. Crude oil accounts for about 28 per cent of the total energy basket of the country.
Crude oil production has more or less remained stagnant over the last few years; it is expected to increase in the coming years with new production wells coming up in 2017–18.
Natural gas production in 2014–15 (till December 2014) was about 25.319 billion cubic metre (BCM). The share of offshore natural gas production in 2014–15 was about 74 per cent. Infrastructure to import greater volume of LNG is also on the radar. This includes setting up new LNG terminals, raising existing terminal capacity and expanding the gas grid. There are plans to auction 69 small and marginal oil and gas fields to private companies with a new revenue sharing model.
Tap unconventional resources
The Directorate General of Hydrocarbons has estimated the coal bed methane resources to the tune of 92 tcf (2.61 tcm). India’s shale gas reserves stands between 300 tcf (8.5 tcm) and 2,100 tcf (59.5 tcm).
Unexplored reserves – hindering the growth of domestic production
India is the fourth-largest energy consumer internationally, its sedimentary basins remain underexplored and the oil and gas production has been relatively stagnant. India has 26 sedimentary basins covering an area of 3.14 million km2. These sedimentary basins are divided into four categories based on their degree of prospectivity.
- Category 1—Refers to established commercial production. There are seven basins under category 1 and deep water areas producing crude oil and natural gas in India.
- Category 2—Known accumulation of hydrocarbons but no commercial production as yet.
- Category 3—Indicated hydrocarbon considered geologically prospective.
- Category 4—Uncertain potential, which may be prospective by analogy with similar basins in the world.
The introduction of NELP has proved to be successful in attracting the interests of national oil companies as well as private domestic along with a few verse as players. India is the fourth largest energy consumer internationally.
The refining industry in India comprises of:
- 1. Public Sector Undertaking
- Refineries (PSUs)
- 2. Private Sector Refineries
- 3. Joint Venture Refineries
The Indian petroleum refining industry comprises of both private and public companies. There are around 22 refineries in India with a total installed capacity of 215 million metric ton per annum (MMTPA).
Public sector accounts for 19 numbers (including two joint venture refineries) and three belongs to the private sector. There is a wide gap between the private and public sector refiners in respect of product-mix, refining margin, capacity, pricing and market.
Refining capacity and production trend for last 3 years
Over the years, there has been considerable increase in the refining capacity in India. But in 2014 and 2015, there has been no substantial capacity expansion.
Private sector refineries grew at CAGR (Compound Annual Growth Rate) of 12.48 per cent from 43.6 to 88.3 MMTPA between 2008 and 2014. The refining capacity of the country is projected to reach 307 MMTPA by the end of 2016–17 as per the Draft Report of Working Group on Refinery for the 12th Plan.
Majority public refineries in India have capacity below 10 MMTPA
Private sector refineries are less in number with larger capacities while public sector refineries are more in number with small capacities. Most of the public sector refineries have capacity below 10 MMTPA, whereas all the three private sector refineries have capacity equal to or above 20 MMTPA. Private sector refiners are able to take advantage of scale economies, whereas public sector refiners lag behind in this respect.
Securing supplies is expected to remain on top of India’s energy agenda for the future. While exploration activity has taken place on land and in shallow basins across the country, deep water and ultra-deep water oil and gas resources hold the key to substantially increase domestic production.
Expansions are being planned for tapping foreign investment in export-oriented infrastructure, including product pipelines and export terminals.