The oil and gas industry in India is growing at a rapid pace. The country is currently the world’s third largest energy consumer. India’s economic growth is closely related to its energy demand; therefore, the need for oil and gas is projected to grow even further, making the sector conducive for investment.
India is expected to be one of the largest contributors to non-Organisation for Economic Cooperation and Development (OECD) petroleum consumption growth globally. Crude oil imports rose sharply to $101.4 billion in 2019-20 from $70.72 billion in 2016-17. As of May 2021, the sector’s total installed provisional refinery capacity stood at 249.9 million tonnes (mt), and Indian Oil Corporation Limited (IOCL) emerged as the largest domestic refiner, with a capacity of 69.7 mt. India is planning to double its refining capacity to 450-500 mt by 2030 as diesel demand is expected to reach 163 mt by 2029-30.
Liquefied natural gas (LNG) imports in the country currently account for about one-fourth of the total gas demand, which is estimated to double over the next five years. In order to meet this rising demand, the country is planning to increase its LNG import capacity to 50 mt in the coming years.
The city gas distribution (CGD) segment is also growing rapidly. The Petroleum and Natural Gas Regulatory Board (PNGRB) is preparing to come out with the eleventh round of CGD bidding, following which 50-100 additional districts will be added to the CGD network. The eleventh bidding round is being planned around a new pipeline being constructed from Angul in Odisha to Mumbai in Maharashtra to ferry natural gas between the east and west coasts.
Indian Infrastructure reviews the key developments across the sector, the impact of the Covid-19 pandemic, the sector’s response to existing challenges, and the road ahead…
Impact of Covid-19
The Indian oil and gas industry has been impacted significantly by the Covid-19 pandemic, mainly due to a widespread demand decline and a downward spiral in crude oil prices. So far, the industry has responded well to this unprecedented crisis, ensuring continuous operations and availability of different fuels across almost the entire country. However, despite the strong response to the challenges, many industry experts believe that the sector’s recovery is expected to take longer and be more protracted than anticipated.
The oil and gas sector was moving towards recovery from the third quarter onwards of 2020-21; however, the second wave of the Covid-19 pandemic derailed its progress. The fall in volumes was not as severe as during the nationwide lockdown during the first wave; however, the slowing down of industrial activity, a reduction in transportation and passenger mobility, and migrant labour leaving cities during the months of April and May 2021 together had a considerable impact on the CGD sector.
The need of the hour for the oil and gas industry is to rise beyond the specifics of the Covid-19 response and focus instead on what industry constituents could do to stay afloat and emerge stronger in the challenging economic scenario. Managements across companies should focus their thinking on the medium-to long-term opportunities. This requires the industry to fast-forward the building of organisational capabilities along three interconnected dimensions.
The industry also needs to review its business continuity plans. Companies that seize the opportunity and start thinking of the pervasive changes needed in their operating models, using a combination of an agile operations mindset, a long-term view and partner ecosystems will emerge stronger as the situation improves.
On the investment front, a slew of initiatives have been taken by the government to ensure that the industry is able to grow manyfold in the coming years. The government has allowed 100 per cent foreign direct investment in many segments of the sector, including natural gas, petroleum products and refineries.
In February 2021, the central government announced its plans to invest around Rs 7.5 trillion ($102.49 billion) in oil and gas infrastructure in the next five years. Further, under the Union Budget 2021, it allocated funds worth Rs 124.8 billion ($1.71 billion) for direct benefit transfer of liquefied petroleum gas (LPG) and Rs 10.78 billion ($147.31 million) for feedstock subsidy to Brahmaputra Cracker and Polymer Limited for implementing the Assam Gas Cracker Complex.
Company-wise, IOCL has announced various investment plans. It is planning to invest Rs 1.43 trillion to double its oil refining capacity to 150 mt by 2030. IOCL also announced plans to invest Rs 16.89 billion in new projects in Andhra Pradesh – Rs 15.22 billion in petroleum product infrastructure and Rs 1.67 billion in LPG storage facilities. Meanwhile, ONGC is planning to invest more than $500 million in Mumbai High.
India has also set a target of $100 billion worth of investments in gas infrastructure by 2022. This would include setting up regasified LNG terminals and pipeline projects, completing the gas grid and setting up CGD networks in more cities. The CGD segment is expected to see investments of up to Rs 900 billion in the next seven to eight years as more and more regions are brought under the CGD network.
As far as the policy framework is concerned, the government has introduced various initiatives to make the oil and gas sector more lucrative for stakeholders. Under the Union Budget 2021, the finance ministry announced that 10 million additional LPG connections will be provided under the Pradhan Mantri Ujjwala Yojana. Meanwhile, the Ministry of Petroleum and Natural Gas released a draft LNG policy that aims to increase the country’s LNG regasification capacity from 42.5 million tonnes per annum (mtpa) to 70 mtpa by 2030 and 100 mtpa by 2040.
In another major development, the Cabinet Committee on Economic Affairs has allowed the Abu Dhabi National Oil Corporation to commercially use 50 per cent of the oil it had stored in Indian underground strategic reserves. This flexibility will encourage the company to store more oil in the three strategic petroleum reserves built at Visakhapatnam, Mangaluru and Padur, and will act as insurance against supply and price disruptions.
In the CGD segment, the PNGRB has released the regulations for the determination of the transportation rate for compressed natural gas. These regulations will apply immediately at the end of a period of exclusivity from the purview of a common or contract carrier pursuant to PNGRB. Further, in December 2020, the Ministry of Environment, Forest and Climate Change identified about 1,644 industrial units spread across 50 industrial areas in Delhi for switching over to piped natural gas (PNG) owing to their high levels of pollution. All industrial units were switched to PNG by January 31, 2021.
The road ahead
Government support for the oil and gas sector has been immense, as various policies and investment plans have been announced that will ensure sustainable growth of the sector in the coming decade. It is now up to the major players in the industry to take advantage of these initiatives and create an ecosystem wherein they can grow individually and also facilitate the development of the sector as a whole.
Most Indian oil and gas companies formulate in-depth operational plans based on a deterministic view of the future. Over the years, companies have set up strong organisational value chains (assets, supply chains, customer touch points, etc.) to operate in different parts of the country. It is interesting to note that while companies have built elaborate operating processes to sense and react to safety incidents, they have not necessarily done the same for other business events. However, going forward, they need to encourage sensing and divergent thinking behaviour from the ground up, thus enabling them to look around corners, constantly scan the external environment, evaluate implications well in advance, and take the necessary actions.