India's Leading Infrastructure Companies

India's Leading Infrastructure Companies 2015

Oil & Gas plays a major role in any country’s economy. Demand for energy has always been directly linked with a country’s economic growth. Hence, the development of Oil & Gas related infrastructure is the key for a country’s growth. According to the US Energy Information Administration (EIA), India is the fourth largest importer and consumer of oil, after the US, China, and Japan., importing US$ 165.2 bn worth of crude in 2014. According to the latest report (Jun- 14) of Petroleum Planning and Analysis, Ministry of Petroleum and Natural Gas, 78% of India’s crude oil consumption and around 30% of India’s natural gas consumption is being imported. As of FY14, India’s dependence on crude oil import is 77.6%, which is likely to grow significantly. According to a report by the Ministry of Petroleum and Natural Gas, the supply-demand gap is expected to widen by 2030 and the cost of importing oil is likely to reach US$ 300 bn. If the government does not implement significant measures to foster domestic production, India would have to bear a cost of US$ 3.6 tn to import oil until 2030. India has an untapped potential of 206 bn barrels of oil in 15 sedimentary basins. The government must tap unexplored resources to ensure sustained and continuous oil supply. Moreover, with uncertainty in the Middle East and the fluctuating prices of oil, the government must look for alternative countries to import.

The impact of low domestic supply of crude is clearly visible in the above chart. We can see that there has been very little increase in the domestic production while the demand has been mostly on the rise.

The New Exploration Licensing Policy (NELP) programme was a major initiative aimed at attracting private investment into Oil & Natural gas. Currently, 254 blocks have been allocated by NELP, of which 148 are active blocks and 106 are relinquished blocks. Around $ 21.32 billion has been invested in exploration and development activities of Oil & Gas resources. About 46 blocks are proposed to be allocated in the coming NELP X at various locations across India in 26 sedimentary basins. Around 57% of the blocks have been awarded to PSUs, 28% to private companies, and 16% to foreign companies. As per the Ministry of Petroleum and Natural Gas, the government aims to construct strategic crude oil reserves of 5.33 MMT capacity to pursue transnational Oil & Gas pipeline projects and to enhance Oil & Gas production with the assistance of exploration and production companies (E&P).

To reduce the dependency on imported oil, India needs to stimulate oil production by facilitating exploration and development of new fields and infusing efficient technology in the existing fields. If the government promotes the use of coal and other renewable resources, India can reduce its import bill to a cumulative of US$ 1.0 tn from US$ 3.6 tn as per the Ministry of Petroleum and Natural Gas.

As on March 31, 2014, the length of India’s pipeline network for crude oil transportation stood at around 9,460 km with a capacity of 129.4 MMTPA. Similarly, the pipeline network for petroleum products is 14,083 km long with a capacity of 78.3 MMTPA.

The gas pipeline network in the country is 15,340 km long, with a capacity of 395 MMSCMD. The government seeks to build a nation-wide gas grid, which would require the doubling of the existing gas pipeline infrastructure. This will enable other sectors that depend on natural gas for fuel requirements such as gas based power plants to help shift the economy to a more efficient and less polluting fuel. In the long run, this would help reduce dependence on crude oil imports.

Natural Gas is mostly imported as LNG in India as it easier and safer to transport via tankers that way. As of FY14, the LNG imports of India stood at 14257.0 MMSCM, which was achieved with the help of LNG carriers. Currently, Dahej LNG terminal, Hazira LNG terminal in Gujarat, Kochi LNG terminal in Kerala, and Dabhol LNG terminal in Maharashtra are the four active LNG terminals in India.

The Indian refining sector has been performing well, with the refining capacity almost tripling in the past 16 years (from 63.4 MMTPA to 215.06 MMTPA). At the end of the 12th five year plan, it is expected to reach 307.37 MMTPA. As of FY14, the total refining capacity of India is 215.06 MMT and the utilisation has been more than 100% for more than 10 years. The numbers of refineries have gone up to 22. India’s refining capacity has been growing due to the opening up of new refineries and petrochemical plants. Further, with many refineries working at above 100% capacity utilisation, the net utilisation of refineries is above the designed capacities. The chart below shows the growth in refining capacity of India across the past few years.

As we can see, India has more refining capacity than the domestic demand. The excess refining capacity is used to export petroleum products to the countries that lack refining capacity, which in turn helps generate FOREX for the country. During FY14, around $61.1 bn worth of petroleum products were exported, which accounted for 19.5% of total export of the country.

Demand for petroleum products is projected to increase at 4.7% p.a. during the 12th Five Year Plan, increasing consumption of POL products from 158.2 MMT in FY14 to 186.21 MMT by FY17. On the other hand, oil production during the 12th Plan would increase marginally and then decline by 3.26% towards the end of the plan. With growing imports of oil and natural gas, India must look at alternate forms of hydrocarbon energy such as Coal Bed Methane (CBM) and Shale Gas. The government has awarded 33 CBM exploration blocks and commercial production of CBM has already commenced. In the Union Budget FY15, the finance minister announced the initiation to accelerate production and exploitation of CBM reserves. The current average CBM production for FY15 (April 2014 to June 2014) is about 0.58 MMSCMD. Government has taken steps to initiate shale gas exploration and production and would take significant steps to involve the private sector.