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Oil and Gas industry Potentiality and a Review on Indian Oil & Gas Industry

600619_401466619899193_1680317767_nBy Saif Alam Siddiqui for Maeeshat

For the maintenance of industrial civilization in its current configuration Petroleum is vital to many industries thus is a critical concern for many nations. The petroleum industry encompass the global processes of exploration, extraction, refining, transporting and marketing petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). The industry is usually divided into three major components: upstream, midstream and downstream.  The world today is consuming around 90 mn bpd  of oil,  and in the general context that we are running out of conventional sources of oil in about four year’s time, we will need to find around an extra 20mn bpd – and that is on the assumption that there is no level of GDP growth globally. However, if we see any economic growth we will see an increase in global oil demand.

Oil includes crude oil, condensates, natural gas liquids, refinery feed stocks and additives, other hydrocarbons (including emulsified oils, synthetic crude oil) and petroleum products (refinery gas, ethane, LPG, aviation gasoline, motor gasoline, jet fuels, kerosene, gas/diesel oil, heavy fuel oil, naphtha, white spirit, lubricants, bitumen, paraffin waxes and petroleum coke).  Oil accounts for a large percentage of the world’s energy consumption, ranging from as low of 32% for Europe and Asia, up to a high of 53% for the Middle East.  Other geographic regions’ consumption patterns are as : South and Central America (44%),  Africa (41%), and  North America (40%).

The world consumes 30 billion barrels (4.8 km³) of oil per year, with developed nations being the largest consumers. The United States consumed 25% of the oil produced. The production, distribution, refining, and retailing of petroleum taken as a whole represents the world’s largest industry in terms of monetary value.

The Premier players of the Oil and Gas Industry

Top 10 largest world oil companies by reserves
Rank Company Worldwide Liquids Reserves (109 bbl) Worldwide Natural Gas Reserves (1012 ft3) Total Reserves in Oil Equivalent

Barrels (109 bbl)

1 Saudi Aramco 260 254 303
2 National Iranian Oil Company 138 948 300
3 Qatar Petroleum 15 905 170
4 Iraq National Oil Company 116 120 134
5 Petróleos de Venezuela 99 171 129
6 Abu Dhabi National Oil Company 92 199 126
7 Kuwait Petroleum Corporation 102 56 111
8 Nigerian National Petroleum Corporation 36 184 68
9 Libya NOC 41 50 50
10 Sonatrach 12 159 39

Top 10 largest world oil companies by production

Company Production (106 bbl/d)
Saudi Aramco 11.0
National Iranian Oil Company 4.0
Kuwait Petroleum Corporation 3.7
Iraq National Oil Company 2.7
Petróleos de Venezuela 2.6
Abu Dhabi National Oil Company 2.6
Petróleos Mexicanos 2.5
Nigerian National Petroleum Corporation 2.3
Libya NOC 2.1
Lukoil 1.9

Indian Oil & Gas Market scenario

As an emerging Economy let us analyze in the Indian context and have the review of market in the current years and years ahead India is the world’s fourth largest consumer of primary energy and accounts for about 4.6% of the world’s energy consumption after China, US and Russia. India is tremendously growing energy demand has made the country an energy leader on the global platform with more than 28 billion tones of prognosticated (forecast) reserves. The Government of India’s New Exploration Licensing Policy (NELP) launched in 1997-98 has garnered investments over US$ 14 billion and has resulted in 87 Oil and Gas discoveries. NELP has encompassed all the ingredients of a favorable investment climate, fiscal stability, transparency of the rule of law, contract stability, minimal policy induced uncertainties and a stable legal and regulatory framework.

The refining sector in India has also undergone a silent transformation wherein the country emerged as a major export hub. With a refining capacity of 215 million metric tones per annum (MMTPA), exports of petroleum products have now crossed 60 million tones (MT), raking)gather(-in revenues of about US$ 60 billion. ‘Petroleum products’ have emerged as the single largest component of merchandise exports from India.

Production and Consumption – Key Statistics The hydrocarbons sector is continuously undergoing changes and policy modifications are in-tune with them. Natural gas is rapidly contributing to the energy requirements owing to commercial development of coal bed methane, shale gas, underground coal gas and gas hydrates.  President Pranab Mukherji anticipates that natural gas usage will increase significantly in the years to come while urging the need to connect various parts of India with gas pipelines so that economic benefits of natural gas reach to all. The Government of India (GoI) is also lending full support to companies acquiring overseas Oil & Gas assets and imports of liquefied natural gas (LNG).

Diesel & Petrol

Petroleum products are India’s biggest export earner, fetching revenue of about US$ 59 billion annually. Export of these products stood at 28.9 MT during April-September 2012, according to the petroleum ministry’s data wing, the Petroleum Products Planning and Analysis Cell (PPAC).  During 2011-12, the consumption of petroleum products was about 148 million metric tones (MMT) showing an import dependence of more than 75%. Diesel consumption, which makes up for more than 40%  of the fuel sales, registered a growth rate of 7.2% at average 87,000 barrels per day (b/d) in September and October 2012 wherein automobile sector contributed majorly


India’s shale gas reserves are at about 290 trillion cubic feet (TCF), of which 63 TCF could be recovered, according to a study by US Energy International Agency. Shale gas is natural gas formed from being trapped within shale formations. Natural gas sector constitutes about 9.8% of primary energy consumption which is projected to grow up to 20% by 2025 as per Indian Hydrocarbon vision. About 65% of natural gas consumption is accounted by power and fertilizer sectors. Petroleum and Natural Gas Regulatory Board chairman S. Krishnan stresses on the need to evolve a strategy to meet significantly higher share of energy needs from natural gas and take its contribution in the country’s energy basket from 9.8% to 25%  in the medium term.  The production of natural gas in India was 135 million metric standard cubic meters per day (MMSCMD) during 2011-12.

Oil & Gas – Key Developments and Investments

ONGC Videsh Ltd (OVL) has decided to invest around US$ 5 billion to acquire ConocoPhillips’ 8.4% stake in the Kashagan field off North Caspian Sea. The deal, marking OVL’s biggest acquisition ever, is expected to be closed in the first half of 2013 and it would enable OVL venture into the largest oil-proven North Caspian Sea of Kazakhstan.

Indian energy firms have earned honor by getting placed in the 2012 Platts Top 250 Global Energy Company Rankings. Of the 12 Indian companies represented in the 250, six have managed to make it to the top 50 fastest growing companies wherein Cairn India took the top slot as the fastest-growing company not just in Asia but in the world. Indian companies were much ahead in both categories – the independent power producers (IPP) and gas utility – with NTPC Ltd and GAIL (India) topping their respective regional segments, Platts ranking indicated.

Public sector Bharat Petroleum Corporation Ltd (BPCL) plans to infuse a capital outlay of Rs 45, 000 crore (US$ 8.26 billion) over 2012-17 to enhance its refining capacity and upstream operations. The company seems to be very up-beat about its Mozambique discovery and intends to monetize the gas finds by proposing to set up two LNG plants of 5 million tones per annum (MTPA) capacity each. BPCL is also expanding its Kochi Refinery at a cost of over Rs 20, 000 crore (US$ 3.67 billion) wherein the capacity would boost from 9.5 MTPA to 15.5 MTPA and the company would diversify into the petrochemical sector to manufacture niche products.  India’s premier oil exploration and production company, ONGC, plans to invest Rs 11 lakh crore (US$ 201.83 billion) between 2013 and 2030 and expects to produce 130 MT of oil and oil equivalent hydrocarbons in 2030. The company would use its assets abroad to meet half of its requirements to accomplish this goal while a substantial part of the investments would go into exploring ‘domestic, yet-to-find’ reserves Reliance Industries Ltd and Venezuelan state oil company Petroleos de Venezuela, SA have inked a 15-year heavy crude oil supply deal along with a memorandum of understanding (MoU) according to which the two partners would further develop Venezuelan heavy oil fields. RIL is to explore upstream options for joint participation in heavy oil projects of the Orinoco Oil Belt, according to the MoU. RIL is estimated to invest around US$ 8 billion to develop the oil fields and it is contemplating to invest about US$ 20 billion from 2012-13 till 2015-16 on sectors including petrochemicals and refining NYSE-listed Marsh & McLennan Companies’ Indian subsidiary Marsh has launched its insurance broking and risk management services for India’s energy sector. The company, which deals in insurance broking and risk management, is targeting the increasing risk and insurance needs of the Indian Oil & Gas sector

Oil & Gas – Government Initiatives

India has been very active in Oil & Gas exploration and production activities on the global front and the Government has played vital role in sustaining the country’s strategic position.  India and Canada have mutually agreed to share efforts in energy sector, particularly exports of Canadian oil and natural gas as well as renewable energy cooperation while Iraq is set to become India’s strategic energy partner.  On the similar lines, Indian companies have been invited by the Government of Turkmenistan to explore hydrocarbon at its Caspian Offshore region. Indian companies that expressed interest over the proposal include ONGC Videsh and GAIL (India). Kakageldy Abdullaev, Acting Minister of Oil and Gas Industry and Mineral Resources of Turkmenistan held discussions with India’s Petroleum Minister S. Jaipal Reddy over the same. Further, India has also evinced interest to set up fertilizer and petrochemical units in Mozambique.

The Indian Government is planning to incentivize energy firms to explore and produce natural gas domestically by extending them similar fiscal incentives which are currently available to only crude oil producers, President Pranab Mukherjee said. Currently, tax incentives are given for crude oil production while similar fiscal concessions are denied to gas producers.  Jaipal Reddy has also informed that before India launches its tenth bidding round of Oil & Gas exploration blocks by the end of 2012, the Government would implement a more investor friendly regime – both for investment and from point of view of pricing. The modulations would be based on the recommendations made by the Rangarajan committee, which is analyzing existing production sharing contracts and matters related to pricing of gas.

Oil & Gas – Road Ahead

Majorly driven by transportation and industrial sectors, demand for oil is anticipated to raise immensely by 2020 while domestic power and fertilizer industries are projected to drive the demand for natural gas in the country. Given the recent exploration and development efforts undertaken in India, domestic production of Oil & Gas is expected to increase substantially. Furthermore, development of technologies enabling efficient use of fossil fuels coupled with use of renewable energy sources could help in filling the demand-supply gap for Oil & Gas. The Government has already started taking initiatives to reduce the country’s dependence on imports by encouraging exploration of alternate fuel sources such as coal bed methane (CBM), gas hydrates, hydrogen fuel cell, and blending of bio-fuels.

Supply will Increase

The World oil trade will be transformed over the next five years.  The hydrocarbon industry would result from a major shift in the regional distribution of oil demand and supply growth.  Despite some supply shortfall in 2012, the growth in supply will rise by a strong 9.3mn barrels a day over the next five years. The North America’s oil sands and light-tight crude will account for 40% of the increase while Iraq will account for 20% of global supply growth in that period.  Most of the medium term growth is set to come from the America which has had its industry rejuvenated by new advanced extractive technologies applied to light, tight oil deposits in the US and the Canadian oil sands that had “exceeded earlier expectations.” Amongst OPEC producers, Iraq stands out and Iraqi production has reached new heights.  Its production capacity is expected to enter a new growth phase, which could continue even beyond the forecast period, while Libyan production recovery in 2012 defied expectations and Saudi Output surged to 30 year highs. The oil market has been hit by supply shortfalls in the Last few years which arose from the Libyan Civil war in 2011.

(Saif Alam Siddiqui can be contacted at saifalam89@gmail.com)

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