The oil and gas sector is among the eight core industries in India. It plays a crucial role in influencing decision-making for all other crucial sections of the economy. As the economic growth of the country is closely related to its energy demand, the need for oil and gas is projected to grow more, thereby making the sector quite favourable for investment.
The central government has adopted several policies to fulfil the increasing demand. It has allowed 100 per cent foreign direct investment in many segments of the sector, including natural gas, petroleum products and refineries, among others. Currently, the sector attracts both domestic and foreign investment. According to India Energy Outlook 2021, the primary energy demand is expected to nearly double to 1,123 million tonnes of oil equivalent (mtoe), as the country’s gross domestic product is expected to reach $8.6 trillion by 2040.
Demand and supply scenario
India is fast becoming one of the largest contributors to non-Organization for Economic Cooperation and Development petroleum consumption growth globally. Crude oil import rose sharply to $101.4 billion in 2019-20 from $70.72 billion in 2016-17. As of December 1, 2020, the country’s oil refining capacity stood at 259.3 mt, making it the second largest refiner in Asia. Private companies owned about 35.29 per cent of the total refining capacity in the financial year 2019-20.
The country’s consumption of petroleum products grew 4.5 per cent to 213.69 mt during financial year 2020 from 213.22 mt in the previous fiscal. The total value of petroleum products exported from the country increased to $35.8 billion in financial year 2020 from $34.9 billion in the previous year. The export of petroleum products from the country increased from 60.54 mt in financial year 2016 to 65.7 mt in the financial year 2020.
India is poised to become the fastest growing market for natural gas and the demand is expected to triple by 2040. Natural gas imports increased to almost 50 per cent in 2019 and are projected to grow more than 60 per cent by 2040. As of December 31, 2020, Gas Authority of India Limited had the largest share (69.39 per cent or 11,884 km) in the country’s natural gas pipeline network (17,126 km).
Impact of Covid-19
S&P Global Platts has cut India’s demand for oil and gas amidst the second wave of Covid-19 that has triggered lockdowns across several states. For 2021, it now pegs the oil demand growth at 350,000 barrels per day (bpd), down from a forecast of 485,000 bpd made in February 2021 – translating into a fall of nearly 28 per cent. Meanwhile, the city gas demand dropped by 25-30 per cent during the second wave of the Covid-19 pandemic.
Weaker demand also impacted gas procurement as spot liquefied natural gas (LNG) imports have been curtailed from the beginning of April 2021. LNG carriers headed to Indian ports were diverted to other markets and many LNG vessels had to wait longer than usual to discharge their cargoes.
However, the overall impact on India’s natural gas demand in year has not been as severe as 2020, when the first wave of Covid-19 had hit and a nationwide lockdown had caused nearly 40 per cent drop in gas consumption. Once the lockdowns are lifted, the demand is expected to increase, which, in turn, will act as a catalyst for economic growth and trigger a demand uptick for oil and gas in the country. Oil demand in the second half of 2021 is expected to be 650,000 bpd higher in than the first half of 2021, driven by a more broad-based pickup in economic activity with widening vaccination roll-outs.
The road ahead
India’s energy demand is expected to grow faster than that of all major economies, on the back of continuous robust economic growth. India’s energy demand is estimated to double to 1,516 mtoe by 2035 from 753.7 mtoe in 2017. Moreover, the country’s share in the global primary energy consumption is projected to increase twofold by 2035.
Crude oil consumption is expected to grow at a compound annual growth rate (CAGR) of 3.6 per cent to 500 mt by 2040 from 221.56 mt in 2017. Meanwhile, India’s oil demand is projected to rise at the fastest pace in the world, to reach 10 million bpd by 2030, from 5.05 million bpd in 2020. Further, natural gas consumption in the country is poised to increase at a CAGR of 4.18 per cent to 143.08 mt by 2040 from 58.1 mt in 2018.
Going forward, India is also expected to expand its natural gas grid to 34,500 km by adding another 17,000 km gas pipeline. The regasification capacity of the existing 42 mt per annum (mtpa) will be expanded to 61 mtpa by the year 2022.