Oil and gas industry in India


The oil and gas industry in India dates back to 1889 when the first oil deposits in the country were discovered near the town of Digboi in the state of Assam. The natural gas industry in India began in the 1960s with the discovery of gas fields in Assam and Gujarat. As on 31 March 2018, India had estimated crude oil reserves of 594.49 million tonnes and natural gas reserves of 1339.57 billion cubic meters.
India imports 82% of its oil needs and aims to bring that down to 67% by 2022 by replacing it with local exploration, renewable energy and indigenous ethanol fuel. India was the third top net crude oil importer of 205.3 Mt in 2018.

History

The first oil deposits in India were discovered in 1889 near the town of Digboi in the state of Assam.
The natural gas industry in India began in the 1960s with the discovery of gas fields in Assam and Gujarat. Natural gas gained further significance after the discovery of large reserves in the South Basin fields by ONGC in the 1970s.

Reserves

As of 31 March 2018, India had estimated crude oil reserves of 594.49 million tonnes, declining by 1.59% from the previous year. The largest reserves are found in the Western Offshore , and Assam. The estimated reserves of natural gas in India as of 31 March 2018 was 1,339.57 billion cubic meters, increasing by 3.87% from the previous year. The largest reserves of natural gas are located in the Eastern Offshore and the Western Offshore.

Distribution of reserves by state/region

The following table shows the estimated crude petroleum and natural gas reserves in India by state/region as on 31 March 2017.
RegionCrude oil reserves
Share of oil Natural gas reserves
Share of gas
Arunachal Pradesh1.520.250.930.07
Andhra Pradesh8.151.3548.313.75
Assam159.9626.48158.5712.29
Coal Bed Methane00106.588.26
Eastern Offshore40.676.73507.7639.37
Gujarat118.6119.6362.284.83
Nagaland2.380.390.090.01
Rajasthan24.554.0634.862.70
Tamil Nadu9.001.4931.982.48
Tripura0.070.0136.102.80
Western Offshore239.2039.60302.3523.44
Total604.101001,289.81100

Strategic petroleum reserves

Building petroleum reserves like underground tank storage, above-ground tank storage, and fully developed and ready-to-exploit in situ reserves is a lucrative proposition for an oil-importing country like India as the oil exporters charge exorbitant prices when the oil demand is little more than supply. The Indian Strategic Petroleum Reserve is an emergency fuel store of total 5 million tonne or of strategic crude oil enough to provide 10 days of consumption which are maintained by the Indian Strategic Petroleum Reserves Limited. Strategic crude oil storages are at 3 underground locations in Mangalore, Visakhapatnam and Padur with ready access to the refineries on the east and west coasts. Another method to build up strategic petroleum reserve at low cost is to develop a proven oil field for higher oil extraction rate and keeping it reserved for full production on an intermittent basis when the global oil price cross the set upper limit.
Two more SPRs will add strategic petroleum reserves of 12 days in addition to 10 days of reserves achieved in Phase I. These SPRs under Phase II will be located at Chandikhol in Odisha and Padur in Karnataka. Indian refiners maintain 65 days of crude storage, and when added to the SPR storage planned and achieved takes the Indian crude storage tally to 87 days. This is very close to the storage of 90 days mandated by IEA for member countries. The total storage figure is excluding the storage capacity of petroleum products with the marketing agencies and bulk consumers. India is also considering to store crude oil in other countries.

Oil and gas imports

India is heavily dependent on crude oil and LNG imports with 82.8% import dependence for crude oil and 45.3% for natural gas/LNG. The net foreign exchange outgo is 63.305 billion US$ in the financial year 2017–18 on account of crude oil imports. India generated 35.2 million tons of petroleum products from indigenous crude oil production whereas the consumption of petroleum products is 204.9 million tons. Similarly India generated 31.7 bcm natural gas locally against the consumption of 58.1 bcm. LNG price is linked to the prevailing crude oil price in global markets.
India is the third biggest oil importer after US and China in 2018 and expected to occupy second place surpassing the US in 2019. In the year 2019, US is going to become net exporter of LNG, LPG, crude oil and its products from its shale oil production boom. Shale oil production cost would be the lower ceiling price for the crude oil in international trade as its substantial production is consumed internally in US.
Due to lack of adequate petroleum reserves, India has to depend mostly on crude oil imports in near future till its renewable energy resources such as solar, wind, hydro and bio-mass are exploited adequately to achieve energy security by replacing the petroleum products consumption which are also major contributors to the air pollution. In such adverse situations, India has to proactively play a major role in global crude oil trade as swing oil producer by using its limited crude oil production base to bring down the high price of crude oil fixed by OPEC+ and the Big Oil. International crude oil prices vary steeply for a small mismatch between global supply and global demand. To become swing oil producer, India should enhance crude oil extraction rate twice of the normally designed rate for continuous extraction from its developed oil fields and extract crude oil on intermittent basis only when crude oil prices exceed a preset upper ceiling value instead of continuously extracting oil.
Also, India and China being major oil importers, both countries should coordinate for mutual benefit while trading in global oil markets to moderate the crude oil price and nullify the oil pricing power of OPEC, etc. Normally, crude oil pricing and gold pricing exhibit opposite trends in global trading. India should also procure crude oil in futures market by hedging gold.

Crude oil trading

By transacting in crude futures trading in MCX or BSE, crude oil products consumers in India can hedge their risk while purchasing the crude oil products in Indian currency. The futures trading is cash settled on expiry date taking WTI crude or Brent crude settlement price as reference.
The quality of crude oil which is imported by India from Persian Gulf is called Indian Basket crude. It is weighted average of Dubai and Oman and the Brent Crude crude oil prices. However the exporting countries charge premium or give rebate on the Indian Basket price by declaring official selling price depending on market conditions every month.

Production

India produced 35.68 MTs of crude petroleum in 2017–18. India accounted for 0.92% of world oil production in 2016–18. Production of crude petroleum in India had a CAGR of 0.63% between 2008–09 and 2017–18. India also produces petroleum products and produced 254.40 MT in 2017–18, a growth of 4.46% over the previous year. Among petroleum products, high speed diesel oil accounted for 42.41%, followed by motor gasoline. The production of natural gas was 31.73 billion cubic meters in 2017–18, growing by 60.86% over the previous year. India accounted for 0.77% of world natural gas production in 2016–17.
ONGC is developing the KG-DWN-98/2 block in Krishna-Godavari Basin with capex of about US$5,076 million leading to Peak oil production from the field to the extent of 78,000 bpd and natural gas @16 million metric standard cubic meter per day or 5.84 million tons oil equivalent per year. The capex works out to nearly US$14.5 per barrel only for 5 years production period. ONGC has already developed from the proved oil and gas reserves to the extent of 462.12 MMTOE at very low capex comparable with that of OPEC countries. Oil fields in Rajasthan state are emerging as a major oil and gas producer.
India has deployed 159 rigs and drilled 545 production wells during 2017-18 which stands globally fifth but the oil and gas production is not commensurate with the wells drilled.

Petroleum refining

As on 31 March 2018, there were 23 crude oil refineries in India, of which 18 were state-owned, 3 were privately owned and 2 were joint ventures. The total oil refining capacity in India stood at 248 MMT, rising from 234 MT in the previous year. Refineries in India processed 251.935 MMT of oil in 2017-18 achieving a capacity utilization of 106.6%. With a total refining capacity of 69.2 million tonnes per year, the state-owned Indian Oil Corporation was the largest refiner in the country by capacity. Indian Oil's refineries processed 69.001 MMT of crude oil in 2017–18.
Many refineries are using the lower end residual oil with higher sulphur content to produce more lighter oils by installing petroleum coker units. This process generates a solid fuel called Pet coke which has higher calorific value and sulphur. As developed countries have banned use of high sulphur pet coke and residual oils, these fuels further are converted in to synthetic natural gas and methanol in Methanation plants to avoid their disposal problem. Nearly 38% of residual fuel oils are consumed in the shipping sector. The International Convention for Prevention of Pollution from Ships, adopted by the IMO, has mandated that marine vessels shall not consume residual fuel oils with a sulphur content greater than 0.1% from the year 2020. Thus complete use of residual oil or pet coke in gasification unit would be part of petroleum refining complexes/plants in future to avoid waste products disposal.
Due to COVID-19 pandemic, refineries are forced to operate at lower capacities as the demand for petro products have fallen steeply. After the implementation of IMO rules restricting use of high sulfur fuel oil by the marine vessels, the prices of HSFO have fallen so low compared to crude oil and using it has become more economical by the advanced refineries with vacuum distillation and coker units to produce gasoline, diesel, pet coke, etc. Pet coke is in high demand for use in cement production.

Consumption

India is the third largest consumer of crude oil in the world, after the United States and China. The country accounted 4.81% of total world oil consumption in 2016–17. The estimated total consumption of crude oil in India rose from 160.77 MMT in 2008–09 to 251.93 MMT in 2017–18 with a CAGR of 4.59%. High speed diesel oil accounted for 39.3% of total consumption of all types of petroleum products in 2017–18, followed by petrol, petroleum coke, liquefied petroleum gas, and naphtha. The country accounted for 1.41% of total world natural gas consumption in 2016–17. The largest consumers of natural gas are the fertilizer industry, power generation, and the use of natural gas as a domestic fuel for transportation. Natural gas is consumed for both energy and non-energy related uses.

Electricity generation

Crude oil and natural gas are the second and third largest sources of electricity generated in India, after coal. Crude oil accounted for 10.34% and natural gas accounted for 8.7% of the total electricity produced in 2017–18. As on 23 October 2015, the installed capacity of gas-based power plants in India was 25,057.13 MW, accounting for 7.9% of the total installed capacity. Diesel is a minor source for electricity generation in India. The total installed capacity of diesel-based power plants in utility sector of India is 927.89 MW accounting for a mere 0.3% of total installed capacity.
Excluding the utility sector DG sets, there are more than 90,000 MW DG sets installed for back up power needs which is nearly 36% of the total installed capacity in utility sector of India. In addition, there are innumerable DG sets of capacity less than 100 kVA to cater to emergency power needs during the power outages in all sectors such as industrial, commercial, domestic and agriculture.
India's electricity sector consumed 24.28% of the natural gas produced in the country in 2016–17.

Foreign trade

India is the third largest oil importer after the United States and China and is highly dependent on imports of crude oil. The net imports of crude oil rose from 132.78 MTs during 2008–09 to 220.43 MTs during 2017–18. Despite the dependence on imports, India has developed sufficient processing capacity over the years to produce different petroleum products. As result, India is now a net exporter of petroleum products. The export of petroleum products increased from 38.94 MT in 2008–09 to 66.83 MT during 2017–18. The import of petroleum products was 35.46 MT in 2017–18, decreasing by 2.28% from the previous fiscal. The gross import of natural gas increased from 8.06 BCM in 2008–09 to 19.87 BCM in 2017–18, recording a CAGR of 9.44%.
India has an 82.8% import dependence for crude oil and 45.3% for natural gas/LNG. The net foreign exchange outgo is 63.305 billion US$ in the financial year 2017–18 on account of crude oil imports. India generated 35.2 million tons of petroleum products from indigenous crude oil production whereas the consumption of petroleum products is 204.9 million tons. Similarly India generated 31.7 bcm natural gas locally against the consumption of 58.1 bcm.

Oil imports by source country

India was the third largest crude oil importer in the world in 2018. The country spent an estimated to import 228.6 million tonnes of crude oil in 2018–19. The following countries were the 15 largest sources of crude oil imports into India in 2018.
RankCountryImport value
1Iraq$23 billion
2Saudi Arabia$21.2 billion
3Iran$13 billion
4Nigeria$9.6 billion
5United Arab Emirates$8.9 billion
6Venezuela$7.4 billion
7Kuwait$5.7 billion
8Mexico$3.7 billion
9Angola$3.4 billion
10United States$2.8 billion
11Malaysia$2.4 billion
12Oman$1.7 billion
13Brazil$1.5 billion
14Qatar$1.2 billion
15Russia$1.2 billion

Taxation and pricing

In India, the pricing of fuel varies by state, though central taxes still are part of the pump price of fuel. The Central and state government's taxes make up nearly half of petrol's pump price. The Central govt has different taxes, which amount to about 24–26% of the final cost. The states taxes vary, but on average end up making about 20–25% of the final cost. In addition royalty and oil development cess is collected on oil and natural gas produced locally. As a result, approximately 50% of the pump cost goes to the government in the form of different taxes.
For example, in Bengaluru, Karnataka as of May 16, 2011, price of petrol is per litre. Out of this, go to Govt of India in the form of excise and customs tax. is collected by state government in the form of sales tax and entry tax. Thus, a total of is collected due to various taxes.
For Delhi petrol per liter price on April 2, 2018, the price charged to dealers was, while central govt excise tax and cess was, state govt VAT was and dealer commission was. So the price of petrol for the end user was.
The natural gas purchase price from the state-owned producers, like ONGC and Oil India Ltd, is fixed by the government based on prices prevailing in USA, Russia, UK and Canada. The purchase price would be cut to around US$2.5 per million British thermal unit for the six-month period beginning April 1, 2020 compared to US$3.23 for the earlier period. In March 2020, India announced that is increasing taxes on petrol and diesel to raise government revenues.
In March 2020, global crude oil consumption fell substantially causing oil prices to decline steeply due to COVID-19 pandemic. However, Indian government has not passed the benefit to the retail buyers /consumers.

Petrol stations in India

has 60,799 petrol stations as of November 2017. 26,849 of these belong to Indian Oil,14,675 to Bharat Petroleum and 14,161 to Hindustan Petroleum. IOCL has more petrol stations than both Canada and the UK. The Punjab state of India has approximately 3,300 petrol stations, and the state of Haryana alone has more than 2,500 petrol stations. Many additional auto LPG and CNG stations have been planned due to high crude prices.
Reliance Industries Ltd, Essar Oil, Shell India and ONGC have also opened petrol stations in India. Shell currently has 88 petrol stations in India.
As of October 2014 Essar has 2,225 petrol stations in India which are supplied with petrol and diesel from its refinery in Vadinar, Gujarat.
Indraprastha Gas Limited has started exclusive CNG fuel stations in India, particularly in the capital city Delhi. In recent years, state oil marketing companies have started rural petrol stations which are established in the interior villages, meant to help farmers and constructed with minimal investment. These stations sell pesticides, seeds, lanterns, and other goods that are needed by farmers besides petrol and diesel.
The details of the petrol stations owned by various companies in different states of India as of 31 March 2016 are:
Oil Company/State/UTIOCLHPCLBPCLOthers RIL/Essar Oil/Shell/ONGCTotal
Andhra Pradesh11999297202103050
Arunachal Pradesh48071671
Assam5039112965788
Bihar1351475610752511
Chhattisgarh481329275231108
Delhi189971070393
Goa3136470114
Gujarat12747387716013384
Haryana13346663851512536
Himachal Pradesh218109627396
Jammu & Kashmir2211301340485
Jharkhand496265319711151
Karnataka18038889661793836
Kerala885587457802009
Madhya Pradesh12958149172433269
Maharashtra1846154216783535419
Manipur69012485
Meghalaya116233912190
Mizoram3032136
Nagaland45391269
Odisha748314414841560
Punjab16858786101433316
Rajasthan16309778193103736
Sikkim16723147
Tamil Nadu1991115813172364702
Telangana9116445651082228
Tripura6202367
Uttar Pradesh3394137413135356616
Uttarakhand24216611429551
West Bengal1119488563742244
Andaman & Nicobar1000010
Chandigarh201110041
Dadra & Nagar Haveli11114531
Daman & Diu11107331
Lakshadweep00000
Puducherry7939326156
Grand Total253631380213439358656190