Explained: Why India is too vulnerable to crude oil price shocks

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Updated: September 18, 2019 7:13 PM

India’s oil import bill is expected to shoot up following a terror attack on the Saudi Aramco refinery and the resultant jump in global crude prices.

oil, petroleum, natural gas, dharmendra pradhan, oil ministry, oil production, oil extraction, oil imports, import billIndia imports nearly 80 per cent of its oil requirement, while the domestic production is stagnant over the last three decades.

India’s oil import bill is expected to shoot up following a terror attack on the Saudi Aramco refinery and the resultant jump in global crude prices. India is vulnerable to price fluctuations as it imports 80% of its oil requirements, as domestic crude production has failed to keep pace with the needs of the fast-growing economy. To make things worse, almost half of its oil imports come from the troubled West Asian region. India produced 342 lakh tonne of crude oil in 2018-19  compared with 340 lakh tonne in 1988-89, according to RBI data. Its crude imports shot up over 400 per cent from 60 lakh tonne to 325 lakh tonne during the period. The country’s crude output has been contracting for the last seven years.

Reasons for shrinking domestic oil output

Technical problems such as faults in submersible pumps in some wells, sub-sea leakage in some fluid lines, loss of production due to reduced enhanced oil recovery effect, less than planned realisation from new wells and increase in water cut in certain wells are the reasons for the stagnation in oil production in the country.

Also, the output from oil wells depends on various factors such as reservoir profile, location, and geological conditions. Over a period of time, production from a well declines due to multiple reasons including ageing or maturing of the well. In India, most of the production is from aged wells.

Govt’s strategy to reduce dependence on oil imports

  • Raising domestic production of oil and gas
    A committee constituted by the government has suggested ways to increase domestic production. The oil companies are expected to implement some of these suggestions to increase output.
  • Promoting energy efficiency and conservation measures
    The government expects to find more efficient energy sources to reduce the use of conventional sources of fuel by using modern technologies and renewable sources of energy.
  • Demand substitution
    Substituting the demand of petroleum can reduce the dependence on oil imports. The committee has prepared a detailed roadmap.
  • Capitalising untapped potential in biofuels and alternate fuels
    The committee has asked the government to explore opportunities in the field of non-conventional fuels, which will reduce dependency on imported crude while cutting down pollution.
  • Refinery process improvements
    New technology makes the refineries more efficient which can help extract more fuels from crude without increasing capacity.

Due to a decline in domestic production of crude oil, import dependency was 76 per cent in 2018-19, compared with 72.2 per cent in 2015-16. Taking into account the seriousness of the situation, the government has taken a few steps towards improving the oil production in the country. The government approved major reforms in exploration and licensing policy in February, 2019 to enhance exploration activities, attract domestic and foreign investment and accelerate domestic production of oil and gas from existing fields, minister of petroleum and natural gas Dharmendra Pradhan said in a reply to a question in the Rajya Sabha.

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