Oil and Gas

Introduction

Oil and gas sector is among the eight core industries in India and plays a major role in influencing decision making for all the other important sections of the economy.

India’s economic growth is closely related to its energy demand, therefore, the need for oil and gas is projected to grow more, thereby making the sector quite conducive for investment.

The Government has adopted several policies to fulfil the increasing demand. It has allowed 100% Foreign Direct Investment (FDI) in many segments of the sector, including natural gas, petroleum products and refineries among others. Today, it attracts both domestic and foreign investment as attested by the presence of Reliance Industries Ltd (RIL) and Cairn India.

India has been the fourth-largest Liquefied Natural Gas (LNG) importer since 2011 after Japan, South Korea, and China.

Investments

According to the data released by Department for Promotion of Industry and Internal Trade Policy (DPIIT), the petroleum and natural gas sector attracted FDI worth US$ 7.82 billion between April 2000 and March 2020.

Following are some of the major investments and developments in the oil and gas sector:

  • On September 15, 2020, PM Mr Narendra Modi inaugurated three petroleum sector projects in Bihar worth more than Rs 900 crore (US$ 122 million)
  • In March 2020, Indian Oil Corp (IOC) began supply of the world’s cleanest petrol and diesel across the country with all its 28,000 petrol pumps dispensing ultra-low sulphur fuel a good two weeks before the April 1 deadline.
  • Indian Oil Corporation (IOC) plans to invest Rs 500 crore (US$ 71.54 million) at Chitradurga in Karnataka.
  • ExxonMobil and ONGC signed a memorandum of understanding (MoU) for offshore blocks.
  • Oil and Natural Gas Corporation (ONGC) has raised US$ 300 million under the External Commercial Borrowing route.
  • In December 2019, INDMAX refining technology owned by Indian Oil Corporation Limited (IOCL) was licensed to Naftna Industrija Srbije (NIS) of Serbia.
  • In November 2019, winter-grade diesel suitable for extreme winters launched.
  • MoU signed between NSIC & ARAMCO Asia for development in Oil & Gas Sector.
  • Foreign investors will have opportunities to invest in projects worth US$ 300 billion in India as the country looks to cut reliance on oil import by 10% by 2022 according to Mr Dharmendra Pradhan, Minister of Petroleum and Natural Gas, Government of India.
  • ONGC was going to invest Rs 17,615 crore (US$ 2.73 billion) on drilling oil and gas wells in 2018–19.
  • As of March 2019, Brookfield was going to acquire Reliance Gas Transportation Infrastructure, now known as East West Pipeline (EWPL) for Rs 13,000 crore (US$ 1.80 billion).

Government Initiatives

Some of the major initiatives taken by the Government of India to promote oil and gas sector are:

  • As per Union Budget 2019–20, Indian Scheme ‘Kayakave Kailasa’, the Ministry of Petroleum & Natural Gas has enabled SC/ST entrepreneurs in providing bulk LPG transportation. State run energy firms, Bharat Petroleum, Hindustan Petroleum and Indian Oil Corporation, plan to spend US$ 20 billion on refinery expansions to add units by 2022.
  • The Government is planning to set up around 5,000 compressed biogas (CBG) plants by 2023.
  • The Government is planning to invest US$ 2.86 billion in the upstream oil and gas production to double natural gas production to 60 bcm and drill more than 120 exploration wells by 2022.
  • Government of India is planning to invest Rs 70,000 crore (US$ 9.97 billion) to expand the gas pipeline network across the country.
  • In September 2018, Government of India approved fiscal incentives to attract investment and technology to improve recovery from oil fields, which is expected to lead to hydrocarbon production worth Rs 50 lakh crore (US$ 745.82 billion) in the next 20 years.
  • State-run oil firms are planning investment worth Rs 723 crore (US$ 111.30 million) in Uttar Pradesh to improve the LPG infrastructure in a bid to promote clean energy and generate employment according to Mr Dharmendra Pradhan, Minister of Petroleum and Natural Gas, Government of India.
  • A gas exchange is planned in order to bring market-driven pricing in the energy market of India and the proposal for the same is ready to be taken to the Union Cabinet according to Mr Dharmendra Pradhan, Minister of Petroleum and Natural Gas, Government of India.
  • The Oil Ministry plans to set up bio-CNG (compressed natural gas) plants and allied infrastructure at a cost of Rs 7,000 crore (US$ 1.10 billion) to promote the use of clean fuel.

Achievements

Following are the achievements of the Government during 2019–20:

  • The energy trade between India and US is likely to touch US$ 10 billion in FY20.
  • As on March 01, 2020, Gas Authority of India Ltd. (GAIL) had the largest share (71.61% or 11,411 kms) of the country’s natural gas pipeline network (16,324 kms).
  • With 8,748 kms of refined products pipeline in India, IOC was leading the segment with 51.25% of the total length of product pipeline network as on March 01, 2020.
  • As on April 01, 2020(P), there were 24,670 LPG distributors (of PSUs) in India.
  • The total number of OMC (oil marketing company) retail outlets increased to 66,817 at the beginning of April 2020(P) from 59,595 at end of FY17.
  • Under City Gas Distribution (CGD) network, 86 Geographical Areas constituting 174 districts in 22 States/ Union Territories are covered
  • OMCs delivered 6.8 crore LPG cylinders to Pradhan Mantri Garib Kalyan Package (PMGKP) beneficiaries by May 20, 2020.

Road Ahead

Energy demand of India is anticipated to grow faster than energy demand of all major economies on the back of continuous robust economic growth. India’s energy demand is expected to double to 1,516 Mtoe by 2035 from 753.7 Mtoe in 2017. Moreover, the country’s share in global primary energy consumption is projected to increase by two-fold by 2035.

Crude oil consumption is expected to grow at a CAGR of 3.60% to 500 million tonnes by 2040 from 221.56 million tonnes in 2017.

Natural Gas consumption is forecast to increase at a CAGR of 4.18% to 143.08 million tonnes by 2040 from 58.10 million tonnes in 2018.

Diesel demand in India is expected to double to 163 million tonnes (MT) by 2029–30.

Note: Conversion rate used in April 2020, Rs 1 = US$ 0.013123

References: Media Reports, Press Releases, Press Information Bureau, Ministry of Petroleum and Natural Gas, Petroleum Planning and Analysis Cell, News Articles, International Energy Agency

Note: ^As per BP Energy Outlook 2019