The Future of Oil and Gas in India

futureofoilandgas

The present is an interesting time for the oil and gas industry. While turmoil is far from being new to the field, the present brings an unprecedented challenge in the form of sustainability. 

While an overwhelming majority of systems in the world continue to be heavily dependent on oil and gas and their derived products, the growth of alternative and renewable sources of energy is on the rise. Undoubtedly, the future is much more promising for sustainable sources of energy than it is for less eco-friendly options such as oil and gas. However, this is not necessarily true in the short term.

The shift from oil and gas to other sources of energy requires numerous reforms of fundamental infrastructure and systems across the board. Executing these reforms is extremely capital-intensive, making this shift a rather gradual one, especially in capital-poor economies such as India. In the meantime, the oil and gas industry is expected to continue growing. This article will explore what the industry can expect in India during the coming year.

Oil and Gas Projections

According to data published by the Government of India, India is the world’s third largest energy and oil consumer after the US and China. Between 2017 and 2040, the projected oil demand in India is expected to grow at a CAGR of 4.2%, even though the net quantities of oil demanded will be significantly lower than that of China or the US.

India is among the top 5 importers of oil and gas, respectively, in the world. In 2019, the country was the world’s second largest importer of net crude oil. However, government plans and policies in recent times show a concerted effort to focus heavily on reducing India’s oil and gas import dependency. As a result, although the domestic demand for oil and gas is set to grow rapidly, the import demand is expected to drop. 

India has witnessed a steady increase in the consumption as well as production of oil and gas. Domestic demand for petroleum products is expected to grow at a CAGR of 10%, reaching 244.960 MT by 2021-22.

During April-October 2020, the cumulative crude oil production stood at 19,110 TMT, whereas the natural gas production for the same period was 18,646 TMT. The government has taken serious efforts to ensure a sharp rise in the number of LPG connections, adding 4.64 lakh new LPG connections in December 2020 alone. Currently, approximately 16,788km of natural gas pipelines are operational, with another 12,672km under development. 

Despite the government’s best efforts to reduce import dependency, the nation’s ability to become energy-independent is heavily threatened by the fact that its oil reserves will prove to be insufficient to meet its demand. There is, therefore, a three-pronged approach in place to address India’s energy import dependency. This approach presents the opportunities as well as challenges that the oil and gas industry is likely to face in the short term in India.

Challenges in the Oil and Gas Sector

The three-pronged approach to reduce India’s import dependency consists of the following prongs:

  1. Boosting the domestic exploration and refining sector
  2. Increasing the use of gas and building ethanol-blending capacity
  3. Developing alternative energy production and consumption systems

Let us analyse each prong to understand whether it is an opportunity or a challenge to the growth of the oil and gas industry in India.

Growth of Domestic Exploration & Production

India’s total consumption of oil and gas is approximately 200MT, of which just about 35MT is produced domestically. To import the remaining quantity annually, the country spends upwards of $100bn every year. The point of boosting domestic exploration and production (E&P) is to cut down this expenditure as far as possible as well as to secure the country’s energy independence.

Untapped oil fields and resources have been lying dormant in Andhra Pradesh, Gujarat, and off the coast of Tamil Nadu due to vested interests in addition to a lack of investment. In an attempt to address this, since 2018, the Government of India has been running two major policies, namely the Open Acreage Licensing Policy (OALP) and Hydrocarbon Exploration and Licensing Policy (HELP). So far, investments worth $75mn have been secured through four OALP-facilitated bid rounds.

As of 2018-19, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), and Reliance Industries (RIL) together made up for as much as 66.7% of India’s total refining production. Thanks to OALP and HELP in the time since as well as in the near future, it is expected that other players will take the mantle and at the very least, offer the big 3 some tough competition on that front.

Boosting Gas Use and Ethanol-Blending Capacity

Indian oil reserves are unlikely to be able to meet the market demand, but India does have significant gas reserves that can bolster the nation’s energy independence. Government schemes subsidizing the use of natural gas for cooking, transport, and more are playing an instrumental role in switching oil consumers over to using gas instead. Simultaneously with boosting domestic gas production and building gas pipelines upwards of 12,000 km, this is likely to take some burden off the oil industry.

Research has shown that blending ethanol with petrol reduces the emissions created during consumption. It also helps control the rapidly growing demand for oil, which is a huge benefit for India’s efforts to reduce its oil imports. In a bid to hit two birds with one stone, the Indian government has approved 20% ethanol blended petrol for distribution across the country. This move is likely to further limit the massive growth in demand for oil.

Growth of Alternative Energy

The Government of India is determined to make good on its commitments to the global Sustainable Development Goals. Accordingly, a wide range of activities is being undertaken to boost the development and use of affordable and sustainable alternative energy sources, especially solar and wind energy. You can read more about this in our blog about renewable energy.

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Opportunities for Growth

The Cairn – Ravva block in coastal Andhra Pradesh and the CB-OS/2 block in Cambay, Gujarat, together have the capacity to generate 1.25MT of oil (or equivalent) per year. The latter by itself can produce up to 2.5% of India’s entire annual domestic production. However, complications created by vested interests, trust deficits, and disagreements between stakeholders with regard to revenue sharing are keeping the fields from being actively harvested. 

There are two massive reserves off the shore of Tamil Nadu – the PY-1 Gas Field and the PY-3 Oil Field. PY-1 has an estimated potential of producing 12 million standard cubic feet per day (MMSCFD), while PY-3 has a reserve of 20 million barrels. The latter can contribute an incremental 1% to domestic production by itself. Complications between stakeholders in both these fields means that they are also left mostly untouched.

All four of these reserves present excellent opportunities for corporations that can now step in to make the most of these opportunities with the help of the government’s OALP and HELP policies.