Oil & Gas Sector – An Analysis

Recently, Government has formed an expert panel for time-bound resolution of disputes in oil & gas sector.

Background

• The oil and gas sector is among the eight core industries in India and plays a major role in influencing decision making for all the other important sections of the economy.
• India has a flourishing crude oil refining industry with an annual capacity of 249.40 MMT, making it the second largest refiner in Asia (as of Apr 1, 2019).
• India’s economic growth is closely related to energy demand; therefore the need for oil and gas is projected to grow more, thereby making the sector quite conducive for investment.
• The Government of India has adopted several policies to fulfill the increasing demand. The government has allowed 100 per cent Foreign Direct Investment (FDI) in many segments of the sector, including natural gas, petroleum products, and refineries, among others. Today, it attracts both domestic and foreign investment, as attested by the presence of Reliance Industries Ltd (RIL) and Cairn India.
• Annual oil consumption stood at 69 million barrels per day (MBPD) and 54.20 billion cubic meters (bcm) of gas. By 2035, India’s energy demand is expected to double to 1,516 Mtoe from 753.7 Mtoe in 2017. According to the International Energy Agency (IEA), India is expected to account for almost one-third of the global growth in energy demand by 2040.

Key Problems

• Declining domestic crude production:Most of the producing fields (in Cambay, Assam-Arakan and Mumbai Offshore) are maturing or have already matured. Due to inadequate new oil and gas discoveries and subsequent development, India is witnessing a decline in crude production.
• Large crude import bills: In 2018-19, India imported more than 80% of its crude consumption and spent in excess of $110 billion.
• Inadequate transmission & distribution infrastructure: India needs to invest heavily in midstream and downstream sector to overcome infrastructure constraints in LNG, gas pipelines and CGD.
• Technology constraints:The country needs investment in exploring and developing Category-2 and Category-3 basins. However, Indian operators do not have the requisite technology and experience in this area.
• Low share of MNCs:Despite being one of the largest consumers of energy, India has a low share of MNCs in the domestic market.
• Environmentally friendly fuels: India continues to rely heavily on coal and petroleum products to meet its energy needs.

Government Initiatives

Some of the major initiatives taken by the Government of India to promote oil and gas sector are:

• The Government of India is planning to set up around 5,000 compressed bio gas (CBG) plants by 2023.
• Government of India is planning to invest Rs 70,000 crore (US$ 9.97 billion) to expand the gas pipeline network across the country.
• In September 2018, Government of India approved fiscal incentives to attract investments and technology to improve recovery from oil fields which is expected to lead to hydrocarbon production worth Rs 50 lakh crore (US$ 745.82 billion) in the next twenty years.
• State-run oil firms are planning investments worth Rs 723 crore (US$ 111.30 million) in Uttar Pradesh to improve the liquefied petroleum gas (LPG) infrastructure in a bid to promote clean energy and generate employment, according to Mr Dharmendra Pradhan, Minister of Petroleum and Natural Gas, Government of India.
• A gas exchange is planned in order to bring market-driven pricing in the energy market of India and the proposal for the same is ready to be taken to the Union Cabinet, according to Mr Dharmendra Pradhan, Minister of Petroleum and Natural Gas, Government of India.
• The Oil Ministry plans to set up bio-CNG (compressed natural gas) plants and allied infrastructure at a cost of Rs 7,000 crore (US$ 1.10 billion) to promote the use of clean fuel.
• Government has formed an expert panel for time-bound resolution of disputes in oil & gas sector

Achievements

• Construction of around 13,500 km long gas pipeline is under way, at the end of 2018.
• Under City Gas Distribution (CGD) network, 86 Geographical Areas constituting 174 districts in 22 States/ Union Territories are covered
• As of December 5, 2018 more than 58.3 million connections have been released under Pradhan Mantri Ujjwala Yojana (PMUY).

Suggestions

• Reduce oil cess on nomination era blocks and rationalisation of royalty rates to boost domestic production.
• Provide impetus to renewable energy production to reduce crude import dependence
• Build road map for a gas-based economy in order to achieve the vision of increasing the share of gas in the energy mix to 15% by 2030
• Development of pipeline infrastructure by the government for a gas trading hub to be functional in India
• Bring gas, diesel and petrol under the GST

Conclusion

• Energy demand of India is anticipated to grow faster than energy demand of all major economies, on the back of continuous robust economic growth. Consequently, India’s energy demand as a percentage of global energy demand is expected to rise to 11 per cent in 2040 from 5.58 per cent in 2017.
• Crude oil consumption is expected to grow at a CAGR of 3.60 per cent to 500 million tonnes by 2040 from 221.76 million tonnes in 2017.
• Natural Gas consumption is forecasted to increase at a CAGR of 4.31 per cent to 143.08 million tonnes by 2040 from 54.20 million tonnes in 2017.
• Therefore, India must act to set the oil and gas sector in order in the form of policy support for the sector to solve the problems and incentivize the private players to set up R&D facilities to solve technical problems.