Domestic production has been falling with the ageing of existing fields and muted response from the industry to take up new projects, mainly due to lack of adequate incentives.
With oil and gas production becoming increasingly unviable for energy companies, domestic natural gas output fell 2.8% year-on-year (y-o-y) to 31,168.4 million metric standard cubic metre (mmscm) in FY20, reversing the growth trend recorded since FY18.
Also, the 32.2 metric tonne (MT) of crude oil produced in the country in the fiscal was 0.9% lower than the production from a year-ago period.
Domestic production has been falling with the ageing of existing fields and muted response from the industry to take up new projects, mainly due to lack of adequate incentives. Other reasons for lower output in FY20, as admitted by the government recently to a parliamentary committee, include lack of buyers, inadequate evacuation infrastructure, technical constraints in hostile geographical terrains and protests against the Citizenship (Amendment) Bill in upper Assam oilfields.
Lack of environmental permissions is also making new drilling difficult.
As FE recently reported, the profit of private domestic crude oil producers from production sharing contract (PSC) fields have dwindled to as low as 20 cents per barrel in the current low crude price regime. When crude ruled at $60 per barrel in January, these producers used to make a profit of around $6/barrel. The price of Indian basket of crude fell 65.1% to $24.43/barrel on April 7 since the January 8 peak it touched in 2020. No private player had participated in the latest auctions for the seven oil blocks offered in the fourth round of Open Acreage Licensing Programme (OALP). Contracts for the oilfields were awarded to state-run ONGC, which produces about 65% of domestic crude and 76% of natural gas output.
ONGC, with per-barrel crude production cost of $35- 40, has now come under additional pressure with the recent slide in global crude prices and pinned hope on the government’s favourable policy measures to boost its performance. However, the government has slashed the price of domestic gas by 26% to $2.39 per million British thermal units (mmBtu).
ONGC’s output cost is around $3.8-6.6/mmbtu.
Indigenous crude oil production caters to about only 15% of the country’s requirements, keeping the dependency on imports high. Apart from raising production, the government is focusing on energy efficiency, demand substitution, improving refinery processes and promotion of bio and alternate fuels to reduce the dependence of crude import.