In March 2015, speaking at the global hydrocarbon meet ‘Urja Sangam’ here, Prime Minister Narendra Modi delivered a passionate call for time-bound reduction in India’s onerous import dependence for oil and gas.
In March 2015, speaking at the global hydrocarbon meet ‘Urja Sangam’ here, Prime Minister Narendra Modi delivered a passionate call for time-bound reduction in India’s onerous import dependence for oil and gas. He also set a target for the stakeholders to reduce the country’s import dependence for oil from around 77% then to 67% by 2022 and 50% by 2030, with a commensurate increase in domestic production. Three years later, the high import intensity, which over long years has had a pronounced deleterious effect on the national exchequer, the current account and the economy as a whole, has only risen — worse, even the rate of increase hasn’t abated despite Modi’s urging; in fact, the rate has lately gone up a bit.
According to official data from the Petroleum Planning and Analysis Cell (PPAC), against domestic consumption, India’s oil imports were 78.3% in FY15 (the year the prime minister laid the roadmap for cutting import intensity) and the figure has since grown to 80.6% in FY16, 81.7% in FY17 and further to 82.8% in FY18. The dependence had grown from 76.7% in FY13 to 77.3% in FY14. During all these years, domestic crude oil production has steadily fallen (see graphic). Of course, acceleration in consumption, aided by a softening of crude oil prices, also added to the pace of imports and, therefore, higher import intensity in recent years.
Import dependence for gas too has risen steadily (from 36.2% in FY15 to 45.4% in FY18), although its domestic production touched a five-year high in FY18.
The emphasis on a gas-based economy — as part of efforts to cut emission intensity of the gross domestic product — aided import of gas (LNG). And the future, at least the immediate one, doesn’t look brighter either. On Monday, the PPAC put out an estimate that the oil import bill is set to go up 20% to $105 billion in FY19 compared with $88 billion (provisional) in FY18. Although a spike in crude oil price — Indian basket pegged at $65 a barrel in FY19 against $57.50 a barrel in FY18 — is the main reason for the forecast of a surge in the import bill this year, obviously, the PPAC is not expecting any deceleration in import growth in terms of volume either.
Clearly, there is no quick fix to the issue of high import dependence for hydrocarbons. Domestic production of both oil and gas needs to be augmented with appropriate policy interventions. While upstream oil companies have lately been freed from the obligation of sharing oil subsidies (thanks to the decontrol of auto fuels that slashed the government’s petroleum subsidy expenditure), ONGC, whose output has been stagnating over the last many years with annual oil production in the range of 25-26 million tonnes and natural gas output around 23 billion cubic metres, has put its producing fields under a plan for enhanced oil recovery. The state-run explorer had late last year announced the discovery of reserves to the west of its Mumbai High offshore fields, with initial estimates suggesting its size to be about 20 million tonnes of oil equivalent.
“It (cutting import intensity) will be an uphill task despite some increase expected in domestic production over the next few years. The demand for oil and gas is galloping given the demography of the country and domestic supply would find it difficult to catch up. Nevertheless, the aim to reduce import dependency is a good directional policy,” said Anish De, partner and head, strategy and operations advisory (infrastructure) at KPMG in India.
Both the public and private players in hydrocarbon production — the former’s relative share in crude production, according to PPAC, declined to 28.2% in FY18 from 29.2% in FY17 — are expected to increase their investments thanks to the new revenue-sharing (as against production-sharing) contracts offered under the discovered small-fields policy and the liberal open acreage licensing policy.
On the gas side, production is expected to improve faster.
Reliance Industries last week announced investments of Rs 40,000 crore in the Krishna-Godavari finds, which are expected to add 30-35 million cubic metres a day in gas production spread over 2020-2022. The Cabinet recently granted relaxation to Coal India along with its subsidiaries from applying for grant of licence for extraction of coal bed methane (CBM) in its coal-bearing areas. The total available coal-bearing area with CBM prospects in the country is around 26,000 sq km.