Oil & Gas Industry In India to contribute close to 20% to GDP by 2020

India’s energy demand is expected to double to 1,516 million tonnes of oil equivalent by 2035 from 723.9 million tonnes of oil equivalent in 2016. Further, the share of India in global primary energy consumption is projected to increase by two folds by 2035.

Definition / Scope
Market Overview
Market Risks
Top Market Opportunities
Market Drivers
Industry Challenges
Technology Trends
Pricing Trends
Regulatory Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Competitive Landscape
Key Market Players
Strategic Conclusion
References
Appendix

Definition / Scope

The oil and gas industry can be broken down into three segments:

Upstream– This segment is also known as the exploration and production. It includes searching for potential underground or underwater oil, drilling of exploratory wells and producing crude oil and natural gas.

Midstream– This refers to the process of collecting, processing, storing, marketing and transporting of crude oil, natural gas and refined products.

Downstream– This refers to the refining of crude oil and selling and distribution of natural gas and products derived from crude oil such as LPG, gasoline, diesel oil, etc.

Market Overview

India is the second largest refiner in Asia. The oil refining capacity of India stood at 247.6 million tonnes on September, 2018.
India is the world’s third largest energy consumer. The energy demand is predicted to increase by 2 folds by 2035.
India also remained as the third largest consumer of oil in the world in 2017. The consumption of petroleum products increased from 194.597 MMT in FY17 to 204.992 MMT in 2017-18.
India is the fourth largest LNG importer after Japan, South Korea and China in 2017. India accounted for 5.68 per cent of global imports.
The oil and gas industry contributes over 15 per cent to the India’s GDP.

Market Risks

India is an import dependent nation in the oil and Natural Gas Sector. The domestic crude oil production is barely enough to meet even 20 per cent of oil needs. A $1 increase in price of crude costs Indian economy around $1.2 billion.
The rise in crude price is not beneficial for the economy. A $10 per barrel surge in the price of oil decreases growth by 0.2-0.3 percentage points, aggravates the current account deficit by about $9-10 billion dollars and rises WPI inflation by nearly 1.7 percentage points.

Top Market Opportunities

The 48 per cent of the India’s sedimentary areas is yet to be explored, thus presenting the opportunity in upstream segment.
India has recoverable shale gas resources of approximately 96 Trillion cubic feet, which presents opportunities for exploration firms.
There is high demand for skilled labor and oil field services and equipment.
The increasing LNG production creates opportunity for LNG terminal operation, engineering, procurement and construction services.
There is investment opportunities in pipelines as only 35 per cent of petroleum product movement happens by pipeline in India as opposed to 60 per cent in the US and other developed economies.
The Government of India is trying to push towards a gas based economy, presenting opportunities in this area.

Market Drivers

Policy Support

The government allows 100 per cent FDI in upstream and private sector refining projects. Additionally, the FDI limit for public sector refining projects has been increased to 49 per cent without any disinvestment of domestic equity in the existing PSUs.

Growing Demand

The energy demand in India grows faster than energy demand of all major economies. The demand of energy in India as a percentage of global energy demand is anticipated to rise from 5.58 per cent in 2017 to 11 per cent in 2040. Crude oil consumption and natural gas consumption is forecasted to grow to 500 million and 143.08 million respectively.

FDI

According to Department of Industrial Policy and Promotion, between April 2000 and September 2017, the petroleum and natural gas sector attracted FDI worth US$ 6.86 billion.

Industry Challenges

Price Fluctuation

Oil is a commodity and its prices keep on fluctuating. The economies of oil producing countries are dependent on the price of oil. Gasoline and raw petroleum are traded in US dollars. When the value of the dollar devaluates, the producers play with their prices to minimize the loss.

The international price of petroleum goods is hiking, thus leading excessive rise in import bill on petroleum goods in India. Over the last two years, the price of oil rose from an annual average of US$ 43 per bbl in 2016 to US$ 53 per bbl in 2017 to US$ 66 per bbl in January 2018.

Dominated by state controlled enterprises

The oil and gas industry is highly dominated by state controlled enterprises in all the segments of the industry. ONGC, OIL AND IOCL are the key players in upstream, midstream and downstream segments. The participation of private and foreign players have been limited due to regulatory frameworks.

Technology Trends

Technology is being used in oil and gas industry in projecting, scouting and fabricating oil and gas. In order to reach gas and oil trapped miles undersea and underground, drillers use seismic imaging.

Digital oilfield is being used to track, assess and manage all the information sourcing from all across the oilfield. The new normal is being used to find the quantum of natural gas and oil. Similarly, 4D seismic technology is used by petroleum geophysicists to plot and analyse latent hydrocarbon surpluses.

Pricing Trends

The below statistic show the gasoline prices around the world as of April 16, 2016. The price of gasoline in different countries ranges from few cents to around seven US dollars per gallon. The price of gasoline in India is cheaper than economies like Norway, Netherlands, Italy, UK, etc. but expensive than China and US.

Regulatory Trends

Pricing of CNG and PNG by CGD Entities (2014)– In 2014, the Ministry of Petroleum and Natural Gas examined the pricing for CNG and PNG and the disclosure of prices of the CNG and PNG commodities were made obligatory.

Integrated Energy Policy, 2006– This policy was launched in 2006 that outlines goals to deal with the challenges faced by India’s energy sector.

Domestic Natural Gas Pricing Formula, 2014– The new domestic natural gas pricing formula has been formed which will be revised on half yearly basis.

National Policy on Biofuels, 2018 – This policy has taken target of 20 per cent blending of ethanol in petrol and 5 per cent blending of biodiesel in diesel by 2030.

The other initiatives of the government are as following-

In order to encourage the use of biofuel in transport fuel, the GOI is planning to introduce a new policy. For this, the GOI is planning to raise US$ 15.64 billion in the entire value chain.
State-run oil firms are planning investment worth US$ 111.30 million to promote clean energy and improve the LPG infrastructure in Uttar Pradesh.
The GOI is planning to build a nine million tonne refinery in Rajasthan and 60 million tonne in Maharashtra.

Other Key Market Trends

The Cambay, the Damodar Valley, Cauvery and Krishna Godavari are the most potential sedimentary basins for carrying out shale gas activities in India.
India launched policy on shale gas exploration to tap the non-conventional energy resource in order to boost output.
Most of the upstream drilling and exploration work are undertaken by state-owned oil companies.
The focus of oil companies are shifting towards vertical integration for next stage of growth.

Market Size and Forecast

The consumption of petroleum products increased to 204.992 MMT in 2017-18 from 194.597 MMT in FY17, growing at 5.31 per cent.
The imports of LNG increased in India to 18.05 MMT during 17-18 FROM 18.63 MMT in 2016-17.
Oil consumption grew at a CAGR of 4.78 per cent during 2007-17 to touch 4.69 mbpd by 2017.
In FY18, total crude oil imports were worth US$ 87.37 billion as compared to US$ 70.71 billion in FY17. In the same year, crude oil imports expanded to 4.41 mbpd from 4.27 mbpd in FY17.
The gas consumption in India expanded at a CAGR of 3.4 per cent between 2007 and 2017.
Exports of petroleum products increased to 66.76 MMT in FY18P from 51.15 MMT in FY10.

Market Outlook

India’s energy demand is estimated to double from 753.7 Mtoe in 2017 to 1,516 Mtoe by 2035.
The country’s share in global primary energy consumption in expected to expand by 2-folds by 2035.
By 2040, the crude oil demand in estimated to increase over 150 per cent to 10.1 million tonnes per day.
The gas consumption is estimated to reach 143.08 bcm by 2040.

Competitive Landscape

The upstream segment is dominated by the state-owned Oil and Natural Gas Corporation of India (ONGC). ONGC is the largest upstream company in exploration and production segment, representing nearly 58.26 per cent of the country’s total output in FY 18.

ONGC and OIL together holds around 70 per cent market share in production and exploration segment. Only remaining 30 per cent is held by private players.

The midstream segment is dominated by Indian Oil Corporation Limited (IOCL). IOCL operated a 13,391 km network of crude, gas and product pipelines. It has a capacity of 1,896 mbpd of oil and 9.5 mmscmd of gas, which is around 30 per cent of the nation’s total pipeline network.

The downstream segment or the refining, processing and marketing are also dominated by the IOCL. IOCL controls 10 out of 22 Indian refineries. The first privately owned refinery, Reliance is gaining substantial market share of 30 per cent.

Key Market Players

They key international oil and gas companies operating in India includes Cairn India, Shell, BG Group and British Petroleum. The table below shows the key domestic oil and gas companies in India.

Strategic Conclusion

There is immense potential in the oil and gas industry in India. The investment in oil and gas sector is lucrative from an economic and financial perspective.

The demand of energy in India is expected to grow much faster in India as compared to other economies. The rising demand is supported by the robust economic growth of the country and various government initiatives.

Appendix

Bcm – Billion Cubic Metres
CAGR – Compound Annual Growth Rate
IOC – Indian Oil Corporation Ltd
JV– Joint Venture
Mm bbl – Million Barrels
MMT – Million Metric Tonnes
Mbpd – Million Barrels per Day
MTPA – Million Tonnes per Annum
Mmscmd – Million Metric Standard Cubic Metre per Day
Mmtpa – Million Metric Tons per Annum
US$ – US Dollar