Untitled Document
  
 

Despite surging global oil prices, the global demand for liquid fuels & other petroleum7 is expected to increase from 85.0 mn barrels per day in 2006 to 106.6 mn barrels per day in 20308. Non-OECD Asian countries, mainly China & India, are expected to witness significant increase in the demand for oil & gas. The demand for petroleum products in India is estimated to grow at an annual rate of around 6% to reach the level of 370 Mtoe per annum in 2025 owing to high GDP growth rate, rapidly growing vehicle population and better road infrastructure.

On exploration & development front, given the recent exploration & development efforts under way in India (like the commencement of production from RIL’s KG Basin fields, the scheduled commencement of Cairn India’s production and the potential development of the discoveries announced by GSPC & ONGC), crude oil production is likely to increase by over 30% in the next five years. On the other hand, natural gas production is expected to more than double from the current level of about 90 MSCMPD by 2012. Moreover, the considerable activity in the exploration & production sector is expected to attract more foreign players. Nonetheless, the global economic slowdown and the consequent cut-back in capital expenditures by some oil exploration companies might have some dampening impact on the exploration & production activities.

Given that tremendous opportunity for investment exists in refining & marketing segments in the coming years, private sector companies including the foreign companies are likely to set up their projects in these segments. Further, the closure of small refineries in North America and Europe due to high compliance costs along with difficulties in obtaining permits for Greenfield refineries in these regions due to environmental concerns is expected to result into large capacity additions in emerging countries like India. While the total investment in refining is estimated at around US$ 60 bn by 2025, the investment in marketing infrastructure during the same period is estimated to be around US$ 32.0 bn.

Tax as well as other fiscal incentives (such as providing SEZ status) provided by the government to new refineries are also expected to have a positive impact on the Indian refining industry. However, the muted export demand due to global economic slowdown will continue to affect the refining sector in the current fiscal.

Further, the development of RIL’s KG Basin and other fields that are expected to supply the requisite volumes of gas for gas transmission and city gas distribution activities will help in accelerating growth of gas transmission & distribution activities in India. The fuel retailing business is also likely to witness some improvement in growth on the back of lower global crude oil prices.

The consumption of crude oil is expected to rise at a higher pace in the years to come. In contrast, the supply of crude oil might lag behind that of demand, leading to a widening demand-supply gap in the medium term. This, in turn, would increase India’s dependence on imported crude oil.

With a substantial increase in domestic exploration & drilling activities, the demand for drilling services has exceeded its supply. The shortage of drilling rigs has adversely affected the exploration & drilling activities of domestic oil companies as they are finding it difficult to complete their minimum work programme in their respective blocks allotted under NELP rounds. The shortage of drilling rigs coupled with volatility in global crude oil prices have also resulted into high raw material costs and service costs for Indian upstream companies.

Furthermore, some uncertainty on freedom to market oil & gas and the applicability of tax concessions for the production of natural gas are expected to be key concerns for exploration & production companies

Besides, there exist few more concerns which need to be addressed by the oil & gas industry in order to grow at the strong pace. The issue/challenges for the Indian oil & gas industry are:

In order to meet these challenges, the Government is promoting exploitation of alternative fuel sources such as coal bed methane (CBM), gas hydrates, hydrogen fuel cell and blending of bio-fuels. Moreover, maintenance of existing strategic reserves in oil and petroleum is required.

7 Liquid fuels & other petroleum include all petroleum products, natural gas liquids, bio-fuels and liquids derived from other hydrocarbon sources. Not
included are compressed natural gas (CNG), liquefied natural gas (LNG) and hydrogen.
8 Source: International Energy Outlook, 2009