India’s energy requirement is primarily met through crude oil, natural gas, coal and renewable energy. The oil and gas sector is among the eight core industries in India, influencing its overall economic and industrial activities. The oil and gas sector plays a dominant role in the energy mix. As of 2022, India is the third-largest consumer of oil in the world. The sector is witnessing steady growth, backed by policy reforms and initiatives aimed at increasing exploration and production, as well as stabilising gas prices. Despite this, the sector has faced turmoil in the past year due to geopolitical tensions between Russia and Ukraine, which have disrupted the supply and impacted prices significantly.
Production, consumption and imports
Crude oil production in the country has been on a decline for the past few years. It marginally decreased from 29.7 million tonnes (mt) in 2021-22 to 29.2 mt in 2022-23. However, compared to 2020-21, when crude oil production stood at 30.5 mt, it has witnessed a 4.26 per cent decrease. This is primarily due to a lack of new major discoveries and the fact that the fields are old and ageing, which hampers production significantly as output from these mature wells reduces. Meanwhile, the production of petroleum products registered an increase of 4.8 per cent from 254.3 mt in 2021-22 to 266.5 mt in 2022-23. As for natural gas, the production stood at 34,450 mmscm in 2022-23, 1.25 per cent higher than in 2021-22 (34,024 mmscm). Oil and Natural Gas Corporation (ONGC) has recently signed agreements with ExxonMobil, Chevron and Total Energy for collaboration in the exploration of technologically challenging, deep and ultra-deepwater areas in western and eastern offshore locations.
In terms of natural gas consumption, there was a decline of 6.53 per cent in 2022-23 at 59,969 mmscm from 64,159 mmscm in 2021-22. Gas consumption in India decreased in 2022-23 as higher prices pushed consumers towards alternative fuels. Further, the Russia-Ukraine war led to supply disruptions, forcing GAIL to ration supplies. Meanwhile, the consumption of petroleum products increased from 201.7 mt in 2021-22 to 222.3 mt in 2022-23, registering a growth of nearly 10 per cent. This growth in the consumption of petroleum products has been driven by the increased demand for high-speed diesel, which recorded a growth rate of 12.1 per cent. High-speed diesel is the largest contributor, with 85.9 mt consumption recorded during 2022-23, while motor spirit consumption stood at 34.9 mt with a growth rate of 13.4 per cent over 2021-22.
India heavily relies on imports to meet its oil and gas demand, and is one of the largest importers of crude oil globally. In 2022-23, the country’s crude oil imports were registered at 87 per cent. To ensure energy security, India diversifies its sources of oil imports, with significant imports from countries such as Russia, Iraq, Saudi Arabia, Iran and the UAE. India is a significant importer of natural gas as well. In 2022-23, the gas sector imports were registered at 44 per cent as opposed to 48 per cent in 2021-22. The country imports liquefied natural gas (LNG) through long-term contracts and spot purchases from various countries such as Qatar, Australia, the US and Russia. These imports can be attributed to the gap between domestic production and demand.
Growing gas infrastructure
With the increasing demand for natural gas in India, the city gas distribution (CGD) network is expanding rapidly. As of April 30, 2023, the number of CNG stations in the country stood at 5,710, marking a threefold increase over 2017-18 (1,424). Meanwhile, the total PNG connections (domestic, industrial and commercial) in the country have crossed 11 million, which is more than double the number in 2017-18. Additionally, India’s existing LNG terminal capacity stands at 47.7 million tonnes per annum (mtpa). The country has the fourth largest LNG terminal capacity, further compounded by Adani Total Private Limited’s recently commissioned Dhamra LNG terminal, adding 5 mtpa to India’s LNG capacity of 42.7 mtpa.
After the successful conclusion of the 11th CGD bidding round, the Petroleum and Natural Gas Regulatory Board (PNGRB) plans to launch a fresh round soon. In June 2023, PNGRB announced plans to offer eight geographical areas in a new round. These are Arunachal Pradesh, Meghalaya, Manipur, Mizoram, Nagaland, Sikkim, the union territories of Jammu & Kashmir and Ladakh. The 12th CGD bidding round will present opportunities for gas utilities, pipe suppliers and other relevant stakeholders.
Update on pipeline infrastructure
The natural gas pipeline infrastructure serves as an economical and secure mode of transporting natural gas by connecting gas sources to markets. The gas pipeline grid determines the structure of the gas market and its development. Therefore, the concept of an interconnected National Gas Grid has been envisaged to ensure adequate availability and equitable distribution of natural gas across all regions of the country. According to the Petroleum Planning and Analysis Cell (up to March 2023), a 15,823 km long natural gas pipeline network is operational in the country, with an additional 6,099 km partially commissioned network. In order to ensure widespread availability of natural gas in the country, approximately 12,000 km of pipelines (excluding tie-in connectivity, dedicated and STPL) are under construction. This would ensure the availability of natural gas across all regions and foster uniform economic and social progress. As of June 2023, the country’s operational crude oil pipeline spans 10,420 km, with a capacity of 147.9 mtpa.
Budget allocations and investment landscape
The central government allocated funds worth Rs 410.07 billion to the Ministry of Petroleum and Natural Gas (MoPNG) under the Union Budget 2023-24, an increase of 21 per cent over the revised allocations of 2022-23. Of the total allocation, Rs 528.8 million has been earmarked under establishment expenditure of the centre, Rs 57.10 billion under strategic oil reserves, Rs 2.27 billion under refinery and conservation, and Rs 22.57 billion under liquefied petroleum gas subsidy. As part of the Union Budget 2023-24, Indian state-run oil companies will spend Rs 1.06 trillion ($12.95 billion), marking a growth of around 27 per cent from the revised estimates of 2022-23. Nearly half of the overall expenditure will be allocated for refineries’ expansion and upgrade, while approximately 44 per cent will be directed towards the exploration and production of hydrocarbons. In addition, the government will provide Rs 300 billion to support oil refiners and marketing companies for projects aimed at reducing emissions. Further, Rs 350 billion will be allocated towards priority capital investments to facilitate energy transition, achieve net-zero targets and enhance energy security.
In February 2023, ONGC announced plans to invest over $2 billion in drilling a record 103 wells on its main gas-bearing asset in the Arabia Sea. This is part of the company’s turnaround plan to add 100 mt to production. Further, in April 2023, the company announced plans of investing in several enhanced oil recovery and improved oil recovery (IOR) projects. With an investment of approximately $7 billion over the next three to four years, ONGC plans to reverse the years of decline in oil and gas production. Currently, up to 24 field development, enhanced oil recovery, and improved oil recovery projects are in progress to further assist in reversing the declining trend in oil and gas production.
Digital uptake
Digital deployment is a critical component for the growth of the oil and gas sector. The industry is adopting technologies such as the internet of things sensors, big data analytics and geographic information system. Supervisory control and data acquisition (SCADA) has been deployed by many CGD companies. A first-of-its-kind SCADA system based on cloud architecture has been successfully implemented at THINK Gas. The implementation of SCADA in the nucleus control centre enables the remote monitoring of assets such as CNG and city gate stations industrial and commercial customers, district regulating stations and cathodic protection of steel lines. Other companies such as GAIL Limited, Adani Total Gas Limited, Haryana City Gas Distribution Limited, Indraprastha Gas Limited (IGL), Mahanagar Gas Limited and Assam Gas Company Limited have also deployed the SCADA system. Meanwhile, gas utilities are deploying smart meters in order to avoid gas leakages and improve revenue collection. IGL has also recently ventured into the manufacturing of internet-enabled smart gas meters in collaboration with Genesis Gas Solutions to meet the rising demand for intelligent solutions that can manage demand and enable real-time metering. Meanwhile, ONGC plans to expand its exploration acreage and bring in new technologies to enhance the quality of seismic surveys and data interpretation in order to make better discoveries. Digitalisation can assist oil and gas networks in transforming their operational processes by harnessing data to leverage opportunities and maximise revenue.
Pricing scenario and other reforms
Oil prices in the international market have skyrocketed. Following the global pricing trends, natural gas prices in the country have also been rising, thereby affecting the domestic market. Oil and gas prices have been at an all-time high owing to a sharp economic recovery from the Covid-led slump and Russian supply curbs.
The substantial increase in domestic gas prices from $2.90 per metric million British thermal units (mmBtu) during October 2021-March 2022 to $8.57 per mmBtu during October 2022-March 2023 had a detrimental effect on sales and, in turn, the overall CGD business. To ensure fair pricing in the sector, the government established an expert committee under the chairmanship of Dr Kirit Parikh. Accepting the committee’s recommendations, the domestic natural gas pricing regime applicable to gas produced from nomination fields of ONGC and Oil India Limited (OIL) has been revised.
Under the new regime, the administered price mechanism for gas produced by these companies’ legacy fields will be priced at 10 per cent of the cost of crude oil imported in the country and will be subject to a floor price of $4 per mmBtu and a ceiling price of $6.5 per mmBtu. Further, the gas produced from new wells or well interventions in the nomination fields of ONGC and OIL will be allowed a premium of 20 per cent over the administered price mechanism. In April 2023, PNGRB amended its regulations to allow a unified tariff for natural gas pipelines. A levellised unified tariff of Rs 73.93 per mmBtu has been notified for all interconnected gas transmission pipelines owned and operated by authorised entities, along with the creation of three tariff zones. The primary objective is to provide benefits to consumers availing of gas in distant regions and increase the overall gas utilisation in India.
Meanwhile, with a focus on accelerating exploration activities across the country, MoPNG launched the Open Acreage Licensing Programme (OALP) Bid Round-VIII, offering 10 blocks for international competitive bidding. The last date for the submission of bids was July 5, 2023. The award of OALP Round-VIII blocks will further add 34,364.53 square km of acreage, bringing the cumulative exploration acreage under OALP to 242,055 square km. With the cabinet approving a series of critical gas pricing reforms and enabling exploration activities, India is forging a path towards a sustainable, affordable and secure energy future for its citizens. Additionally, these reforms are incentivising investment in India’s exploration and production segment.
Future outlook 
The oil and gas sector in India faces a challenging task of driving the economy amid the headwinds of global recession and geo-political upheaval. It is anticipated that the Indian economy will grow to $5 trillion by 2030 from the current $3 trillion, leading to an increase in energy demand. The sector faces various challenges such as the high cost of capital investment, ageing wells leading to declining production, high prices, competition from electric vehicles and delays due to approvals. Despite these challenges, according to MoPNG, India’s energy demand is expected to experience a growth rate of about 3 per cent per annum till 2040, compared to the global rate of 1 per cent. This growth will be primarily driven by demand from industries and heavy road transport.
India is also focusing on the production of bio-CNG, which will contribute to the reduction of natural gas imports, greenhouse gas emissions and agricultural residue burning. It will further help in providing remunerative income to farmers, generate employment opportunities and promote effective waste management. The country plans to establish 5,000 commercial plants by 2024-25 and produce 15 mt of bio-CNG to replace other gaseous fuels currently used in the country.
The present scenario, marked by high prices, low oil production and supply chain disruptions, does not bode well for net importing oil and gas countries such as India. However, the sector is expected to witness growth owing to the government’s support and the emphasis on increasing domestic production. India needs to prioritise building strategic oil reserves to navigate through periods of supply chain disruptions. An increasing emphasis on innovations and digital deployments will help provide clean energy options to consumers at affordable rates. Oil and gas companies are being encouraged to explore the use of hydrogen as an alternative fuel, along with the blending of hydrogen in gas pipelines through the repurposing of the existing infrastructure.
Disha Khanna