Untitled Document
  
 

Indian oil & gas industry is mainly divided into upstream (includes exploration & production) and downstream (includes refining & marketing and distribution) segments.

Upstream

Crude Oil & Petroleum Products

Over the last few years, a considerable progress has been made in exploring the hydrocarbon potential of the sedimentary basins of India. The Eleventh Five Year Plan (2007-2012) has targeted the area under exploration at 80% of total Indian sedimentary basins’ area. So far, 26 sedimentary basins have been recognised, covering an estimated sedimentary basin area of 3.14 mn square kilometres (mn sq km). Out of this 1.35 mn sq km area is in deepwater and 1.79 mn sq km area is in onland & shallow offshore. NOCs (such as ONGC & OIL) and Private/Joint Venture companies possess 1.06 mn sq km area under Petroleum Exploration Licenses (PEL) in 18 basins.

Currently, the total prognosticated reserves of oil and oil equivalent gas (O+OEG) of the country stand at an estimated 28-32 bn tonnes2. Much of India’s crude oil reserves are located off the Western coast (Mumbai High) and in the northeast of the country (Assam), while substantial undeveloped reserves are located in the offshore Bay of Bengal and in Rajasthan state.

Further, in order to safeguard against short-term supply disruptions and enhance oil security, the Government aims strategic oil storage of 5 mn metric tonnes (MMT), spread across Mangalore (1.5 MMT), Vizag (1.0 MMT) and Padur (2.5 MMT). These strategic storages would be in addition to the existing storage of crude oil and petroleum products with the oil companies. The construction of the proposed strategic storage facilities is being managed by Indian Strategic Petroleum Reserves Limited, a special purpose vehicle, established in FY06 and owned by Oil Industry Development Board (OIDB). Moreover, to enhance the oil security, the Government is encouraging oil PSUs to acquire oil & gas exploration & production assets abroad. Indian oil PSUs currently have a presence in 18 countries. For instance, ONGC Videsh Ltd, a subsidiary of ONGC which was incorporated for international exploration & production has its presence in 15 countries including Sudan, Vietnam, Russia, Syria and Cambodia. It produced about 8.78 MMT of oil and equivalent gas from its assets abroad in FY09. The largest ever acquisition of a foreign company, Imperial Energy Plc, UK (IEC) by ONGC Videsh Ltd took place in 2008. Besides, private Indian companies like RIL and Essar are pursuing exploration and production opportunities abroad. IECOVL-IOC alliance, BPCL along with Videocon too have acquired oil assets abroad.

The significant boost in exploration & production activity in recent years can largely be attributed to the NELP, which opened up the Indian oil & gas sector for private and foreign investment (presently 100% Foreign Direct Investment (FDI) is allowed.). Under NELP, seven rounds of bids have so far being concluded and 203 Product Sharing Contract (PSC) have been signed. In the eighth round of NELP, as many as 70 blocks have been offered.

With the progress in exploration activities, several oil & gas discoveries have been made in onland and offshore area including deepwater. Oil production has already commenced from India’s first deep water oil block, D-6 in Krishna Godavari Basin (K-G Basin), during September 2008. Natural gas production has also commenced from January 2009 at a rate of 80 MMSCMD from the same block. During FY08, as many as, 67 hydrocarbon discoveries were made, with a maximum number of discoveries being made by ONGC.

With the discoveries of oil & gas being made in various basins, India has emerged as a favoured destination for companies to invest in exploration & production business. Today, in addition to the two NOCs (ONGC & OIL), more than 24 foreign companies are working in exploration & production segment. The foreign companies working in India include global majors such as BG Group, BP Plc, Eni S.p.A., Petrobras SA, Santos Ltd, Cairn Energy PLC and Niko Resources Ltd. Another significant development in recent years is the entry of the downstream companies like IOC and GAIL into upstream segment in association with ONGC & OIL. Nonetheless, due to the huge costs coupled with high risk & uncertainty involved in exploration and production activities, the number of domestic private companies is limited in this segment.

Given the boost in exploration & production activities in India, the production of oil has increased to 33,506 thousand tonnes in FY09 from 32,160 thousand tonnes in FY91. The increase in oil production seems significant in the backdrop of high global oil prices and sustained increase in domestic oil demand.

Currently, ONGC & OIL are the two dominant players in the upstream segment, accounting for around 82% share of the total domestic oil & gas production. The rest is produced by private/joint sector.

Natural Gas

The production of natural gas was almost negligible at the time of independence. However, in the late 1970s with the development of the Bombay High fields, there was a substantial increase in the production of natural gas. The natural gas production experienced further boost in the late 1980s when the South Bassein field in the Western offshore was brought to production. Presently, the production of natural gas has surged to around 87 mn standard cubic metres per day (MMSCMD). Out of this production, around 74 MMSCMD is available for sale to various consumers after internal consumption, extraction of LPG and unavoidable flaring. Much of India’s gas reserves are located in the Western offshore area. Apart from this, the onshore fields in Assam, Andhra Pradesh and Gujarat states are other major producers of gas. The dominant players in the natural gas segment are ONGC and OIL. In addition, private parties from some of the gas fields are producing gas under the production sharing contract.

To augment the domestic supply of gas, the Government has adopted multi-pronged strategy, which includes:

Transnational pipelines that are being actively pursued are:

Further, Petronet LNG Limited (PLL), a joint venture company promoted by ONGC, GAIL, IOCL & BPCL, has been formed in order to import LNG and to set up an LNG regasification plant at Dahej

Demand-Supply Dynamics

Oil production witnessed a marginal decline during FY09. On the other hand, the production of petroleum products increased by 3.9% in FY09, while production of natural gas increased by 1.4% during the same period.

Oil and gas industry forms the most important sector in any economy since it caters to a wide range of industries including petrochemicals, fertilisers, automobiles etc. Most of the demand for oil comes from the transportation sector. The industrial sector also accounts for a fairly large portion of oil consumption, mostly for use in chemical and petrochemical processes.

Consumption of petroleum products, particularly diesel, witnessed a significant moderation due to a slowdown in the domestic industrial sector, mainly automobile sector and transporters’ strike in January 2009. Growth in diesel consumption, which stood at 11.1% during FY08, moderated significantly to 8.4% in FY09. The consumption of petroleum products during FY09 was 133.4 MMT, registering an increase of 3.5% over FY08. The consumption of crude oil, however witnessed some moderation, registering a growth of 3.0% (y-o-y) during FY09 as against a growth of 6.5% (y-o-y) during FY08. The moderation in consumption of crude oil and petroleum products is primarily due to the slowdown in domestic industrial activities.

The major demand for natural gas comes from the power sector (35.1%) followed by fertilizer (28.6%), captive use/LPG shrinkage (16.4%), industrial fuel (9.7%) and petrochemicals (4.2%). Natural gas is currently the source of half of the LPG produced in the country.

Downstream

Refining

The Indian refining industry has come a long way since the Mumbai refinery of HPCL was set up post independence. Over the years, the PSU refineries have gradually increased their capacities at existing locations or constructed Greenfield refineries at new locations. Today there are around 20 refineries in the country with an existing refining capacity of about 178 mn tonnes per annum (mtpa)3. Moreover, even large expansions are being planned by Essar and PSUs like IOL, BPCL and HPCL. The major expansion plans include the Vadinar refinery of Essar, the IOC refinery at Paradeep and the planned refineries at Bina in Madhya Pradesh by BPCL and Bhatinda in Punjab by HPCL-Mittal Energy. This coupled with lower capital costs as compared to other Asian countries are expected to enable India to emerge as the global hub for oil refining. Besides, the ability of the latest refineries to process heavy, low-grade crude as well as India’s closeness to other oil-producing regions of the Middle East are expected to further help in this regard.

India already has evolved as the fifth largest economy in the world in terms of refining capacity, with a share of 3% of the global capacity. By the end of the Eleventh Five Year Plan Period (2007-2012), the refining capacity is expected to reach 240.96 MMTPA.

During FY09, the refinery production witnessed a growth of 3%, primarily due to the impressive growth of private sector production. The capacity utilisation of the Indian refineries also increased to 107.9% of the total installed capacity in FY09 from 104.8% of the total installed capacity in FY08

Marketing

In India, PSUs such as IOC, BPCL and HPCL are involved in marketing of refined oil. Decontrolling of the marketing sector from April 1, 2002 facilitated the entry of new private sector players such as Essar Oil, RIL and Royal Dutch Shell Plc. Public Sector Oil Marketing Companies like IOC, BPCL, and HPCL are also engaged in marketing of subsidised LPG in the country under the Public Distribution System (PDS).

The entire length and breadth of the country is covered through an elaborate and extensive network of 35,066 retail outlets as on 01-Apr-09. As on 01-Apr-09, there existed 9,366 LPG distributorships and 6,614 superior kerosene oil/light diesel oil (SKO/LDO) dealerships. An ambitious programme for modernisation of retail outlets to bring them at par with international standards has been initiated by the oil industry. The supply of oil and gas is carried out through railways (40%), pipelines (30%), coastal tankers (12%) and road (18%). Requirements of the industrial units are met through direct supplies. Further, a National Gas Grid is also planned.

Distribution

Distribution of petroleum products and natural gas in India is carried through a vast network of pipeline infrastructure. By FY09, India had a network of 25 product pipelines with a length of 9,893 km and a capacity to carry 63.66 MMTPA of petroleum products and 3 LPG pipelines with a length of 2,124 km and capacity to carry 4.53 MMTPA of products in place. Moreover, there are 4 crude oil pipelines of 5,559 km with a capacity to transport 45.88 MMTPA4.

2 Source: Ministry of Petroleum & Natural Gas (MoP&NG)

3 With the commissioning of Reliance Petroleum Ltd (SEZ) Refinery in Gujarat in December 2008, the total installed capacity of Indian refineries increased from 148.97 MMTPA to 177.97 MMTPA by the end of FY09.

4 Source: Ministry of Petroleum & Natural Gas