Bridging the Gap: Demand and supply analysis and outlook

Demand and supply analysis and outlook

India’s demand for crude oil has shown continuous growth over the past four years. As per data available from the Petroleum Planning and Analysis Cell (PPAC), the domestic consumption of petroleum products has grown at a compound annual growth rate (CAGR) of 6.7 per cent from 158.4 million tonnes (mt) in 2013-14 to 204.9 mt in 2017-18 (all figures mentioned for the year are provisional). This has been driven by a rapidly growing economy, which has consistently shown a GDP growth of over 6 per cent since 2013-14.

Domestic production of crude oil has, however, not been able to keep pace with this growth. Domestic production of crude oil plus condensate has, on the contrary, declined from 37.8 mt in 2013-14 to 35.7 mt in 2017-18. This has been mainly due to a fall in output from key wells operated by state-owned Oil and Natural Gas Corporation (ONGC) Limited and Oil India Limited (OIL) and other fields being operated under production sharing contracts (PSCs).

To meet this gap in demand and supply, India has resorted to importing crude oil. Imports of crude oil increased from 189.2 mt in 2013-14 to 220.4 mt in 2017-18, growing at a CAGR of 3.9 per cent. This led to an increase in India’s dependence on imports – from 77.6 per cent in 2013-14 to 82.8 per cent in 2017-18. This has also affected India’s oil import bill. Till 2016, India’s oil import bill was supported by a softer price of crude oil. However, with crude oil prices rising from 2016, the oil import bill has started to inflate. India’s crude oil imports in terms of value increased from $64 billion in 2015-16 to $87.8 billion in 2017-18. With crude oil prices expected to rise further, the oil import bill is expected to increase to $109 billion in 2018-19.

The net production of natural gas after flare and losses declined from 94.7 million metric standard cubic metres per day (mmscmd) in 2013-14 to 86.9 mmscmd in 2017-18. The consumption of natural gas, however, has shown a consistent rise over the same period. Total natural gas consumption increased from 141.8 mmscmd in 2013-14 to 159.1 mmscmd in 2017-18, growing at a CAGR of 2.92 per cent. To meet this gap between demand and supply, India has resorted to imports of liquefied natural gas (LNG). Imports of LNG increased from 47.1 mmscmd in 2013-14 to 72.1 mmscmd in 2017-18, a CAGR growth rate of 11.2 per cent.

Consumption trends: Key growth areas

The key petroleum products consumed in India during 2017-18 include high speed diesel (HSD) at 81.1 mt, followed by petcoke and motor spirit (MS) petrol at 26.2 mt each. This was followed by liquefied petroleum gas (LPG) and naphtha which recorded sales of 23.3 mt and 12.5 mt respectively.

With the government clamping down on the sale of petcoke in the National Capital Region, sales are expected to be affected. Other states are also planning such initiatives due to highly polluting emissions that petcoke generates. With the government’s focus on extending LPG connections to more rural women under the Pradhan Mantri Ujjwala Yojana (PMUY), the sale of LPG is expected to increase. As per data available from the PPAC, demand for HSD is expected to increase to 110.8 mt by 2021-22. This will be followed by MS and LPG at 33.6 mt and 24.8 mt respectively. However, demand for petcoke is expected to reduce to 17.1 mt while demand for naphtha is expected to increase to 15.4 mt during the same period.

Key consuming sectors

The top three consumers for natural gas are the fertiliser, power and city gas distribution (CGD) sectors. Depending upon availability, the Ministry of Petroleum and Natural Gas (MoPNG) allocates domestic natural gas to various sectors as per the gas allocation policy. Domestic gas is first allocated to priority sectors such as CGD, fertilisers, power, LPG, etc. Consumers other than those in priority sectors mainly use imported LNG.

Natural gas is the most suitable feedstock for producing urea. Over 93 per cent of the existing urea feedstock capacity in the country is gas based. Thus, the fertiliser industry continued as the leading consumer of natural gas, accounting for over 30 per cent of the country’s total natural gas consumption in the country during 2016-17. This was followed by the power and CGD sectors, which accounted for around 23 per cent and 14 per cent of the consumption.

Besides natural gas, other refined petroleum products also saw a surge in demand. HSD saw significant demand from the transport sector, which accounted for over 7 per cent of the total HSD consumed in the country during 2016-17. However, the largest HSD consumers were resellers and retailers who consumed over 85 per cent of the total HSD sold during 2016-17.

With the PMUY expanding the reach of LPG to remote villages, the domestic segment accounted for the maximum consumption and accounted for over 87 per cent of total LPG consumption during 2016-17. This was followed by the industrial segment which accounted for over 8 per cent.

Plans to increase domestic production

To meet the government’s target of reducing dependence on oil and gas imports to 67 per cent by 2022 (from 82.8 per cent in 2018), the country is taking a slew of initiatives to develop its oil and gas resources. The MoPNG introduced a number of policies and reforms aimed at increasing domestic output. These include policies such as the Discovered Small Fields [DSF] Policy and the Open Acreage Licensing Policy (OALP).

Under the second round of DSF auctions, DSF-II, which were approved on February 7, 2018, 60 discovered small fields/unmonetised discoveries are being offered to be developed. Together, these discoveries hold estimated reserves of 194.65 million metric tonnes of oil equivalent (mmtoe). Under DSF-I, 31 contract areas are being offered for development. Under the first round of the OALP (OALP-I), the MoPNG offered over 85 per cent (2.8 million square km) of the country’s 3.14 million square km of hydrocarbon sedimentary area for auction. The Directorate General of Hydrocarbons received 110 e-bids for the 55 blocks on offer by the May 2, 2018 deadline. Going forward, once the blocks offered in these bidding rounds are developed in the next four to five years, the country’s domestic oil and gas production is expected to get a significant boost.


The demand for petroleum products and natural gas is expected to grow on the back of high energy demand to meet the growing needs of the economy. According to the BP Energy Outlook 2018, India’s energy consumption is expected to increase at a CAGR of 4.2 per cent from 2018 to 2040, which is faster than all the major economies in the world. India is also expected to overtake China as the largest growth market for energy by the late 2020s and would account for 11 per cent of global energy consumption in 2040. Under this scenario, it becomes important that the country’s domestic oil and gas reserves are developed to grow hand in hand with the expected increase in demand. This would also help India to bring down its oil and gas import bill. Once the blocks offered in the OALP and DSF bidding rounds come into production, the domestic production of oil and natural gas is expected to rise significantly.