Oil and Natural Gas Corporation (ONGC) should be on your watchlist, but not just because of rising oil prices.
The recent spike in crude oil prices, triggered by geopolitical tensions and war, has once again reminded us how fragile the global energy supply really is.
But here’s the bigger point: the war didn’t create this opportunity. It merely amplified it.
A rare setup has been building in the global oil market for years. One that could turn oil and gas into a multi-year structural theme, rather than a short-term trade.
Smart money is already positioning for it. Roughly US $13 billion has flowed into US-listed energy equity ETFs this year alone.
Three forces are quietly reshaping the oil market.
#1 The 123 mb/d projection: Why the energy transition hasn’t killed oil demand
Many believe that the growing adoption of EVs and a shift towards renewable energy will gradually reduce oil demand, turning it into a sunset industry. But this narrative is far from reality.
The global oil demand remains strong. According to the Organization of the Petroleum Exporting Countries (OPEC), global oil demand is projected to rise by 19 million barrels per day (mb/d) between 2024 and 2050, reaching nearly 123 mb/d from the current level of around 105 mb/d.
Even as the energy transition is gathering pace, the oil demand is not fading. In fact, it is getting redistributed.
#2 Structural Shift in Oil Demand
While transportation still drives global oil demand, the real growth is coming from petrochemicals, used in plastics, fertilizers, textiles, and other industry materials.
In 2024, about 15.5 mb/d of oil went into petrochemical feedstock. By 2050, it is expected to exceed 20 mb/d.
At the same time, a deeper structural shift is happening geographically.
By 2050, oil consumption in Organization for Economic Co-operation and Development (OECD) countries is expected to decline by 8.5 mb/d. While demand from non-OECD countries is projected to rise by nearly 28 mb/d.
Put together, oil demand isn’t getting weaker. It’s just shifting more toward emerging markets and industrial uses.
#3 The $12 trillion funding gap: how global supply constraints benefit upstream players
While long-term demand remains strong, supply may fall behind.
Volatile crude oil prices over the past decade have severely impacted new investments by upstream oil companies. Lower oil prices have left fewer incentives for companies to make fresh investments in new oil discoveries.
Global investments in oil & gas upstream peaked at nearly US $800 billion in 2014 and have never fully recovered.
Global Oil & Gas Upstream Investment Trends
According to the International Energy Agency (IEA), nearly 90% of investment since 2019 has gone to maintaining existing production levels, not creating new supplies.
And that’s a problem. Oil fields naturally lose 4-6% of output every year. This makes drilling and reinvestment necessary to maintain the production levels.
To meet the future demand, the world needs nearly US $12 trillion in oil investments through 2045, roughly US $500 billion annually.
Where ONGC Fits Into This Story
Given the structural imbalance in the oil markets, who benefits?
The answer is the upstream oil companies. Those companies that are directly involved in the exploration and production of crude oil. They have direct exposure to crude prices.
And, in India, ONGC sits right at the center of this opportunity.
It is aggressively investing to boost supply and has taken both long-term and short-term measures.
ONGC’s Long-Term Supply Expansion Strategy
ONGC has undertaken a huge capex plan of ₹1.36 lakh crore in the last three financial years. And has planned ₹33,000 crore capex in FY27. Most of this money is going toward exploration and developmental drilling projects, including deep and ultra-deep water areas.
These projects are complex, require significant capital, and come with a long gestation period before commercial operations start. The trade-off is significant. If projects are successful, they open up access to large untapped reserves, which is key for long-term production visibility.
Short-Term Supply Expansion Strategy
To address the near-term supply challenges, ONGC has partnered with BP Exploration to boost supply from its legacy Mumbai High oil field. Over the next 10 years, ONGC is targeting a 44% increase in output from that field, which translates into around US $15 billion in additional revenues.
Early signs are encouraging. Production declines have been arrested, and output has increased to 126,000 barrels per day (bpd). Peak production is expected by FY28.
Upstream players capable of investing, exploring, and executing at scale are emerging as the key beneficiaries of this structural imbalance.
ONGC is rapidly positioning itself in the world, where future oil growth depends heavily on upstream exploration success.
What Happens When the War Ends?
Many believe that oil prices will go down to the pre-war period when the war ends.
Again, that’s far from reality.
According to the Goldman Sachs report, the longer the closure of the Strait of Hormuz, the slower the production recovery will be due to geological factors in restarting operations.
The second biggest factor is the availability of empty oil tankers. As tankers were redirected to alternate routes, it can take months before shipping capacity realigns.
So yes, even though oil prices could head lower post-war, there’s a chance the pace of the downward correction may be slow.
The Profitability Paradox: Why Earnings Are Rising Despite Declining Volumes
From an investment perspective, ONGC offers a unique mix.
First financials.
ONGC Growth Trends
| ONGC | |
| 5-yr Compounded Sales Growth (%) | 9% |
| 5-yr Compounded Profit Growth (%) | 19% |
At first glance, the financials of the company look impressive. The company is recording healthy revenue and profit growth. But the growth is not volume-driven.
The crude oil and natural gas production have not meaningfully increased during the period. In fact, there is a marginal decline.
ONGC Production Trends
| Year | FY21 | FY22 | FY23 | FY24 | FY25 |
| Crude Oil Production (MMT) | 20.27 | 19.55 | 19.58 | 19.47 | 19.6 |
| Natural Gas Production (MMT) | 22.1 | 20.91 | 20.63 | 19.97 | 19.65 |
The revenue and profit growth are a result of cost efficiency and a weak rupee.
Oil produced by ONGC is benchmarked in US dollars. When the rupee weakens, the same dollar-denominated revenue translates to more rupees, boosting profitability.
This is one of the reasons why the market doesn’t give a premium valuation to ONGC, because earnings growth is not coming from business expansion.
The PSU overhang adds another layer of discount, as policy interventions can influence the upside potential of the stock.
ONGC trades at ~9.4x earnings, compared to its 5-year median of 7.1x, much lower than its peers.
However, the steady expansion in multiples since 2022 indicates that the market is no longer viewing it as just a cyclical play but is starting to price in a more structural opportunity.
ONGC’s P/E Trend: A Quiet Re-rating in Progress
ONGC can also be an income-generating play in the market. At a ₹285 ONGC share price, the stock has a dividend yield of 4.3%. The company has maintained a dividend payout ratio of nearly 40%.
For investors looking for steady cash flows, it stands out as a cash-rich PSU that regularly rewards shareholders.
Similarly, a large IT company is quietly emerging as a steady dividend payer, delivering both stability and consistent income. Check out the stock here.
Beyond the P/E Ratio: Is the 4.3% Dividend Yield a Sustainable Floor?
Amidst a volatile oil market, most investors will track oil prices to guide their investment decisions in the oil & gas sector.
But that’s the wrong variable.
The factor one should look at is whether supply can keep up with demand over the next decade and beyond.
If it can, this remains just another cycle within a larger, longer cycle.
If it can’t, oil stops behaving like a normal commodity and starts behaving like a scarce resource.
ONGC sits right at the centre of this shift.
Dividends offer some support, and the real upside comes from production growth. But that growth will depend on successful execution.
From here, returns won’t be driven by oil prices alone, but by how effectively ONGC executes in a tightening system.
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Deepan Datta has spent over a decade studying stocks and mutual funds. His passion is to uncover interesting stories in the financial markets and share them through his writings with investors at large. He is focused on delivering clear, easy to understand and research-backed insights. Deepan began his career as a Research Associate at S&P Global, where he developed a strong foundation in financial research and data analysis.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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