July 2019

Managing India’s growing energy demand will be a major challenge through till 2030. The
country imports over 80 per cent of its crude and over 30 per cent of its gas, and
demand is slated to grow along with economic growth. Soon, India will be the world’s
second-largest energy importer. Policymakers must find ways to accelerate domestic production of
fuels and improve the downstream infrastructure to meet the target of reducing imports by 10 per
cent by 2022 and 50 per cent by 2030.

The past two fiscal years have seen crude production falling while production of gas is stagnating.
However, changes in upstream exploration and production (E&P) policies should translate
into higher domestic production over the next five years. In the meantime, there has been activity
downstream in the city gas distribution (CGD) segment. In addition, players are investing in new
technology and new refining capacity. The pipeline segment and the LNG storage segment are two
areas where a policy push is required to stimulate capacity creation.

Upstream, the new Open Acreage Licensing Policy (OALP) has received affirmation from bidders,
and the new Discovered Small Fields [DSF] Policy has also triggered interest. Changes in the
production sharing formula are also more investor friendly and E&P should attract more bids, since
the creation of the National Data Repository and the National Seismic Programme also help in providing
easy access to data on sedimentary basins. Three rounds of bidding have been launched
under the OALP with the government committing a substantial Rs 15 trillion for block development.

The DSF Policy is also designed to encourage investment, with blocks offered through open
and transparent competitive bidding which has attracted private investment.
CGD activity has accelerated with awards across 130 new geographical areas. But CGD rollouts
will need supporting pipeline infrastructure and more LNG capacity. This is a segment where
there could be a capacity crunch. Construction of new pipelines has been slow and there is a need
to stimulate investment. Apart from financing, impediments such as slow environmental clearances,
land acquisition and right-of-way clearances need to be addressed.

Global prices of oil and gas have been quite volatile due to a combination of factors. While
global growth is expected to slow down, leading to softer demand, there are fears of supply disruptions,
given US tensions with Iran and Venezuela. The US has increased its domestic production,
but at the same time, the OPEC and Russia have implemented production cuts to balance
supply and demand. Higher prices impact India’s import bill negatively, and this creates the
imperative to improve production.

The recent policy initiatives should significantly improve matters. Enabling regulations will help
ensure a level playing field for the future. The sector outlook is certainly positive since higher
demand should stimulate supply-side activity and provide a huge opportunity. The issues here
include timely and consistent policy implementation to give investors comfort, since there are high
execution risks associated with the huge capital expenditures typical of the sector. This will be critical
for India’s long-term energy security.

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