Oil and gas account for 41 percent of India’s energy consumption and there is unlikely to be any significant scaling down of dependence on these fuels in the next five to ten years.
New analysis from Frost & Sullivan, Strategic Analysis of Oil and Gas Sector in India, finds that the output of the Indian oil and gas sector was 184.3 million tonnes oil equivalent in 2008 and expects this to reach 339.6 million tonnes oil equivalent in 2015.
“To meet this considerable demand, the oil and gas sector is expanding its refining capacity to drive output and export of petroleum products,” says Frost & Sullivan Industry Analyst Siddhartha Saha. “However, this is likely to widen the gap between domestic demand and supply of crude oil.”
A substantial increase in the domestic supply of natural gas and reduced prices of liquefied natural gas (LNG) are likely to encourage gas consumption in power, fertilizer, city gas distribution, and other industrial segments. Owing to the rising consumption of oil and gas, the Government has framed favorable policies to promote exploration and production. This move has caused a quantum leap in domestic natural gas supply. Government policies have also supported the growth of export-oriented refining capacity in the country.
Natural and technological limitations in enhancing global oil production are likely to restrain supply from keeping pace with the demand. This, in turn, could lead to a continued increase in the base-level prices of crude oil.
“In India, the pricing of petroleum products and natural gas continues to be regulated by the government,” observes Saha. “Though international crude oil prices have come down in the short term, they are expected to rebound and rise in a sustained fashion in the long term.”
The oil and gas sector will have to strategize to deal with volatile prices on the supply side and government-regulated product prices in the coming years.
With margins under pressure, Indian refiners have begun to integrate with value-added products such as petrochemicals and invest in methods to improve distillate yields. Moreover, in response to the regulated product prices in the domestic market, the private sector refiners have moved to sell major shares of their products in the export market.
“As crude prices have increased, the spotlight is on widening the gross refining margins by up-grading heavy gas oils and vacuum residue to fuel products,” notes Saha. “To gain additional revenue, Indian refineries are also integrating horizontally to venture into the production of more value-added products.”
Strategic Analysis of Oil and Gas Sector in India is part of the Energy & Power Growth Partnership Services program, which also includes research in the following markets: APAC generator sets market, Chinese power plant market, European nuclear power sector, world alkaline battery market. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.
According to Platts, a leading global provider of energy and commodities information, China consumed 33.23 million metric tons of oil in May, up a strong 6% from the same month in 2008. The data means Chinese demand has shown a year-on-year increase for a second consecutive month, evidence that demand for fuel in the world’s second largest oil-consuming nation is in recovery. In April, Chinese oil demand rose for the first time in six months. However China’s own crude oil production slipped by more than 1% in May.
“Falling crude oil production in China means its rebounding demand is having a disproportionally large affect on international oil trading. China imported 17.09 million metric tons – about 4 million barrels a day of crude oil last month. That was the second highest month of crude oil imports into China, ever,” said Dave Ernsberger, senior editorial director for Asia at Platts.
According to industry market research firm IBISWorld, US crude oil production meets only about one-third of its oil requirements; the rest is imported. Despite overall growth, industry revenue is expected to slump by about 41% in 2009 –in response to much lower crude oil and natural gas prices. However industry performance is expected to gain ground during the outlook period in response to rising oil and gas prices and higher levels of output.
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