Global Energy Review

India: The Outlook for Oil

A Report by Dr Paul McDonald
Consulting Editor, Oil and Energy Trends

Contents

List of Tables

Introduction

A rise in oil production in 2006 disguises the fact that India's output is probably at its peak and will soon be in long term decline. At the same time, strong economic growth is boosting demand, forcing India to increase its imports of crude oil. The rate of increase in crude oil imports has been given a further fillip by the desire by Indian refiners to become export refiners.

India is now faced with a steep rise in oil imports. In an attempt to mitigate this, it has begun top turn to other sources of energy. These include domestic sources such as coal, nuclear power and biomass, but these will be insufficient to meet the expected rise in demand. Imports of natural gas are therefore expected to rise, as well as those of oil.

Oil Production

Reserves and Production

India produces some 800,000 bpd of crude oil together with around 50,000 bpd of NGL (see Table 1). Output in 2006 rose by about 5% compared with the previous year, but this was the result of a loss of production in 2005 caused by a fire at the country's main oilfield, the Bombay High. India's oil production is otherwise close to its peak and will soon be in long term decline.

Many of India's oilfields are mature and already in natural decline. Attempts to encourage exploration have met with only partial success. Foreign oil companies have generally been unenthusiastic about India's upstream oil terms, whilst the national oil company, the Oil and Natural Gas Corporation (ONGC) has generally failed to discover large new fields to replace its own declining ones

Reviving Exploration

The government is trying to revive exploration in India in order to avoid a large increase in oil imports as consumption continues to grow strongly against a background of falling domestic output. It is making renewed efforts to attract foreign oil companies. The Ministry of Petroleum and Natural Gas meanwhile has been trying to strengthen the upstream capabilities of ONGC by encouraging it to form strategic alliances with other oil and gas companies both inside and outside India. The results so far, however, have not been too promising.

In 2006, the Ministry conducted India's largest-ever upstream licensing round, offering 55 blocks, of which 25 were onshore and 30 were offshore. The areas offered were as follows:

Onshore
Twenty-five blocks in the following states:

Offshore

The licensing round attracted bids for 52 of the 55 blocks from 31 Indian companies, including ONGC, Oil India Ltd (OIL) and Reliance Industries, plus 134 foreign firms, including BP, ENI, Petronas and Total.

Table 1
India: Oil Balance
Reserves (2007)*
Proven reserves 5,625 mn bbl
Reserves remaining 18 years
(mn bpd)
Production (2006)
Crude oil 0.80
NGL 0.05
Total 0.85
Consumption (2006)
Total 2.65
Net Trade (2006)
Total 1.80
* Including NGL
Source: (Reserves) Oil & Gas Journal
(NGL) OET
(Other) IEA

About the same time as the bidding round, ONGC announced proposals to develop a field in the Tapti-Daman block off Bombay to produce gas and condensate from early-2009, whilst the UK's Cairn Energy was given government approval to develop four fields at Aishwariya, Mangala, Raageshwari and Saraswati in Rajasthan.

In April 2007, ONGC announced plans for what is likely to be one of its most important upstream developments for the next 5–10 years: the Bombay High North development. Here, it plans to install new infrastructure designed to both prolong the life of its ageing Bombay High field-complex and to raise production closer to the 0.3 mn bpd level last seen before the fire of July 2005. Whilst much of the production has been restored following repairs to the Bombay High North platform, output is reported still to be below full capacity.

Hyper-links:

Future Output

Notwithstanding the considerable efforts to revive oil production–such as those outlined above–India's oil output looks set to continue falling. Proven reserves appear not to be being fully replaced each year despite reports of large new finds. In one state alone–Rajasthan–there have been claims of discoveries of more than 3.5 bn bbl: equivalent to more than 60% of the country's entire proven reserves at present (see Table 1). It is likely, however, that such claims will eventually translate into proven reserve levels of much lower levels. It is most unlikely that India even has any undiscovered fields of even 1 bn bbl. Many of India's existing undeveloped fields are likely to contain gas rather than oil.

There have also been political problems affecting the domestic oil industry. Foreign companies have often proved reluctant to invest in oil production in India, claiming the fiscal terms are unattractive. The Ministry of Petroleum and Natural Gas has encouraged Indian companies to come together to create a rival in financial terms to the major international oil firms but has faced political opposition to this from several quarters. The Ministry believes that the establishment of one or two such companies–through the merger of existing state oil enterprises–would not only boost exploration and production in India but also enable the country to secure oil production in other countries.

Hyper-links:

Expansion Abroad

The policy of trying to secure exploration and production acreage abroad mirrors that of another large and growing Asian oil-importer, China. The Chinese approach has been to transform its state–owned oil and natural gas companies from domestic producers and refiners into large, vertically–integrated and well–capitalized enterprises capable of acting as 'national champions'. In this role, they are able to bid for large upstream projects outside China with the aim of securing production that can be dedicated to the Chinese market. State firms, such as the China National Petroleum Corporation (CNPC), have secured production in a number of countries, notably Sudan and Kazakhstan.

GER ARCHIVE:

'Improving Security' section in the report "China: Driving World Demand?"

OET ARCHIVE:

'Chinese bid for Unocal sparks fears of global clash' Focus Jul05

'China competes for crude supplies' Focus Oct04

In 2005, Indian national oil companies found themselves in competition with those of China in a bid to acquire the Canadian oil producer PetroKazakhstan. India's representative was a joint-venture, known as OMEL, consisting of ONGC and the private diversified industrial group, Mittal. OMEL submitted a substantial bid for PetroKazakhstan, only to see it topped by a counter–bid nearly 20%, or $600 mn higher from CNPC. The Chinese cash bid of $4.18 bn secured the Canadian company plus 50,000 bpd of production at the time.

India's Petroleum Ministry believes that the small size of its own national oil companies handicaps them in this and similar bidding competitions. Some within the Ministry have even discussed the idea of combining all the country's state firms–oil and gas; upstream and downstream–into a single powerful entity, which would then be one of the world's top-fifty industrial combines.

This would not necessarily do much to improve India's energy security, especially if the new, combined-entity were to use its much higher capitalization to over-bid for particularly desirable assets. This has clearly happened in the case of China. Its bid for PetroKazakhstan, for example, valued the company more highly than the stockmarkets of Toronto, London or New York. Moreover, CNPC has since been obliged to sell part of its holding in the company.

India has nevertheless not abandoned its interest in foreign acreage, particularly in Central Asia. In addition to this, India is also trying to encourage non-Indian companies in Central Asia to consider exporting their oil and gas southwards to the sub-continent rather than westwards to Europe.

OET ARCHIVE:

'BTC pipeline sparks Kazakh interest', Looking Ahead, Jul06

'Afghan proposal reopens Caspian pipeline debate', Focus, Jul02

Oil Production Outlook

India's search for oil abroad remains in its infancy. Its main upstream efforts therefore look likely to be concentrated initially at home. Upstream activity is likely to concentrate on trying to slow down the decline of the country's older fields, such as the Bombay High, and on developing new ones both on- and offshore.

The new fields, however, are likely to be small. Nothing has ever been discovered that approaches the Bombay High in size since that field itself came on-stream in the mid-1970s. A series of licensing rounds following Bombay High's discovery attracted little outside interest at first, other than from India's then close political ally, the Soviet Union. When Western oil firms did start bidding in large numbers, their success rates were mixed, and most foreign interest appears now to be in gas rather than oil.

India's production of oil and NGL has been fairly stable, around 0.8 mn bpd, since 1995. It is not inconceivable that India may be able to raise its output in the next year or two, but this will serve merely to postpone the start of the inexorable decline in output that can only be at the most a few years distant.

Output looks most unlikely to go above 0.9 mn bpd. By 2015, crude oil production should be in long term decline, though the total output of liquids should be supplemented by a rise in NGL production from the various natural gas developments currently under way. Total liquids' production is estimated at 0.6–0.7 mn bpd (see Table 2).

Table 2
India: Production Outlook, 2015
2006 2015 Change
(mn bpd)
Crude Oil 0.80 0.50 (0.30)
NGL 0.05 0.15 0.10
Total 0.85 0.65 (0.20)
Source: Table 1 plus GER estimate

Oil Demand

India consumes about 2.7 mn bpd of oil, obliging it to import supplies to supplement domestic production (see Table 1). Domestic production of just under 0.9 mn bpd gives India a net self-sufficiency of about one-third. In practice, India imports rather more than two-thirds of its oil requirements as a result of its growing business of export refining. Demand itself is rising strongly, suggesting that Indian oil imports could rise sharply over the next few years.

Rising Demand

Between 1996 and 2006, India's oil demand rose from 1.7 mn bpd to nearly 2.7 mn bpd: an annual rise of about 4.5%. There are signs that this growth rate is beginning to accelerate. The country's largest petroleum marketer, the Indian Oil Corporation (IOC), reported that in the year up to 31 March, 2007, its product sales rose by 5.7% compared with the previous year, to nearly 1.1 mn bpd.

Jet fuel showed the largest annual increase of the major product groups with 20%. IOC's gasoline sales went up by 7% and those of gasoil by 12%. Other retailers reported big increases for fiscal year 2006–7, giving a national average growth for gasoline of 6% versus a year-earlier and 8% for gasoil.

These increases have occurred despite attempts by previous governments to remove price subsidies on refined products since the 1990s. All governments have been reluctant to free product prices altogether, particularly on fuels such as kerosine and LPG, which are widely used for cooking and heating by the poorest members of society. The presence of domestic price controls has prompted India's refiners to compensate for losses made in the home market by exporting some of their output (see below).

Demand Outlook

India's continuing economic growth and the presence of subsidies is likely to encourage consumption, leading perhaps to an acceleration in the rate of growth in oil demand. Even if India were able to hold the annual increase to recent historic levels, demand could grow by more than 1 mn bpd between now and 2015 (see Table 3). A slight acceleration in the growth rate would push up consumption by more than 1.3 mn bpd to over 4 mn bpd.

Allowing for some government attempts to discourage a rapid rise in oil consumption–for example through higher prices and fuel substitution–India might be able to restrict demand growth to that shown in Table 3, producing a total of 3.7–3.8 mn bpd in 2015.

Table 3
India: Demand Outlook, 2015
Demand
2006 2015 Change
(mn bpd)
Demand 2.65 3.75 1.10
Source: Table 1 plus GER estimate

Oil Refining

India has some 3 mn bpd of crude distillation capacity (see Table 4), giving it a potential net export capacity of 0.3-0.4 mn bpd. In practice, India's refiners can export more as a result of importing some of their product requirements.

The country's largest refiner is IOC, with 947,000 bpd of crude distillation capacity, or 31% of the total. After IOC comes Reliance Industries' 660,000 bpd, which is located at a single site at Jamnagar in Gujarat. Reliance originally conceived its giant new refinery to cater mainly for India's rapidly growing demand, but low domestic prices (see above) have made the company switch to exports, such that Reliance now accounts for much of the country's product exports.

Reliance is the first of India's new private refiners. Most of the country's refinery industry remains in the hands of the national refining company, IOC, or regional state refiners such as Bharat Petroleum and Hindustan Petroleum. There have been attempts to privatize the state refining sector and some restructuring of companies has taken place in order to facilitate this, but there remains considerable political opposition to refinery privatization in India.

The only other large private refiner is Essar, which opened a 210,000 bpd refinery at Vadinar, in Gujarat, in November 2006. The unit was reported as operating at 150,000 bpd early in 2007, with full operation scheduled for later in the year.

Other private companies have from time to time expressed interest in entering the refining business in India. One of these, the steel company, Mittal, discussed refining ventures with OIL and other firms before agreeing to buy a 49% shareholding in Hindustan Petroleum's 180,000 bpd Bhatinda refinery in Punjab.

Foreign refining companies have also been invited to take shareholdings in new refinery developments. Among those reported to have considered such investments are BP, Total and several national oil companies of petroleum exporting countries. Most of the interest appears to have come from Middle Eastern national oil companies interested in securing outlets for their crude oil. Among those most frequently mentioned are Saudi Aramco, Kuwait Petroleum Corporation and the National Iranian Oil Company.

Hyper-links:

Refinery Expansion

All of India's main refiners have plans to expand. A large number of refinery additions have already been proposed, though not all have received government approval or arranged the necessary financing. The expansion programme is nevertheless considerable, and appears to be based a good deal on the idea of exporting refined products.

Some 2.2 mn bpd of new distillation capacity have been proposed between now and 2012 (see Table 5), with yearly additions planned as follows:

Year Proposed Additions
(th bpd)
2008 640
2009 516
2010 290
2010-12 780
Total 2,226

Some of the above projects may be modified. Others will undoubtedly be proposed between now and 2012.

The effect of the additions already proposed will be to raise India's distillation capacity from 3 mn bpd to somewhere in the region of 5 mn bpd by 2012, allowing for some modifications in the timetables already proposed as well as for the possibility of the closure of some older and smaller refinery units.

This latter figure is considerably in excess of the domestic product demand projected for around that time, which is expected to be in the region of 3.3-3.4 mn bpd, based on the forecast given for 2015 in Table 3. On this basis, India's export refining could increase considerably.

Table 4
India: Crude Distillation Capacity, 2007
Company Refinery Capacity
(th bpd)
Bharat Petroleum
Bombay 240
Kochi 150
Total 390
Bongaigaon
Bongaigaon 47
Total 47
Chennai Petroleum
Madras 190
Nagapattnam 20
Total 210
Essar Oil
Vadinar 210
Total 210
Hindustan Petroleum
Bombay 132
Vishakapatnam 164
Total 296
Indian Oil Corporation
Barauni 120
Digboi 13
Gawahati 20
Haldia 120
Koyali 274
Mathura 160
Panipat 240
Total 947
Mangalore Refinery & Petchems
Mangalore 194
Total194
Numaligarh Refinery
Numaligarh 60
Total 60
Reliance Petroleum
Jamnagar 660
Total 660
Total India 3,014
Source: (Hindustan Petroleum) Oil & Gas Journal
(Others) Platt's Oilgram News

Export Refining

India's gross exports of refined products are expected to be in the region of 0.6 mn bpd during 2007. By 2012, these should have more than doubled to nearly 1.9 mn bpd, according to official forecasts. Such a level would be feasible if all the additions listed in Table 5 were to go ahead as planned. There are nevertheless some reasons to suppose that refined product exports may not reach such high levels.

The first reason, already alluded to, is that some refinery expansion plans may not be completed on schedule. One or two may not even go ahead at all. Another important factor is the rate at which India's main export markets grow.

India's natural export market is China and other nearby Asian countries. China, however, has extensive refinery expansion plans of its own that are designed to reduce greatly the volume of products that China is presently forced to import in order to satisfy its rapidly growing economy. India is also likely to face increasing competition from export refiners in Singapore, South Korea and Japan to supply the Chinese market.

In an attempt to find new markets, Indian refiners have begun to make inroads into parts of Africa and the Middle East and, in an important move, some are upgrading their refineries in order to be able to meet the EU's latest product specifications, known as Euro III. These specify, amongst other things, that gasoil must contain no more than 0.035% sulphur and provide a sulphur maximum of 0.015% for gasoline, along with a 1% limit for benzene. One consequence of the tight sulphur levels has been an increase in Indian imports of low sulphur crudes from North and West Africa.

All this has helped Indian refiners such as Reliance to establish a presence in European markets. IOC intends to supply Euro III grade gasoline to EU countries from its recently upgraded Koyali refinery which, like Reliance's, is in the western state of Gujarat. India nevertheless faces growing competition in Europe also, principally from new refineries in the Middle East.

India's other export markets include the Middle East itself, which has local shortages of gasoil and gasoline, particularly in Iran. Indian gasoline is supplied to Fujairah in the UAE, where it is blended for onward trading, as well as being supplied directly to destinations such as Iran.

Table 5
India: Proposed Refinery Additions
Company Refinery Proposed Addition On-stream
(th bpd)
Bharat Petroleum
Bina 120 2009
Kochi 40 2009
Total 160
Essar Oil
Vadinar 110 2010
Total 110
Hindustan Petroleum
Bathinda 180 2010
Visakhapatnam 180 2012
Total 360
Indian Oil Corporation
Panipat 60 2008
Haldia 300 2010-12
Paradip 300 2010-12
Total 660
Mangalore Refinery & Petchems
Kakinada 150 2009
Mangalore 106 2009
Total 256
Oil & Natural Gas Corporation
Barmer 100 2009
Total 100
Reliance Petroleum
Jamnagar 580 2008
Total 580
Total India 2,226
Dates and capacities all approximate
Source: Indian press; oil press

Indian refiners also supply the US, Latin America and Africa. In the first two markets, they face high freight costs to deliver their products. In the case of Africa, the logistics are complicated by the fact that cargo sizes are normally small, which also adds considerably to shipping costs.

If India's refiners cannot maintain their momentum in export markets some of the refinery additions detailed in Table 5 may not go ahead as planned. Product exports of 1.9 mn bpd look unlikely in 2012. By 2015, they could be somewhere in the region of only 1.0 mn bpd. This nevertheless constitutes an increase of around two-thirds on their present level.

OET ARCHIVE:

'Asia faces refinery glut', Looking Ahead, Dec06

'New refineries look to export to US', Looking Ahead, Feb06

Crude Oil Imports

India imports some 2.4 mn bpd of oil, nearly all of it in the form of crude oil. IOC accounts for just under 40% of the country's crude imports, and Reliance is in second-place with around one-third. The principal suppliers are the Middle East and West Africa.

The Persian Gulf accounts for nearly 60% of India's crude oil imports. Saudi Arabia is the largest supplier with nearly 20% of the total. Much of the Middle Eastern crude is sour, requiring refiners to desulphurize it in order to meet EU and some other export specifications. India itself is also cutting the sulphur content of its fuels.

All this has led to a growth in imports from West Africa, which is India's largest foreign source of sweet crudes. In 2006, West Africa exported just over 0.3 mn bpd to India, nearly all of which came from Nigeria. Other African suppliers include Angola and Equatorial Guinea. Outside the Persian Gulf, India imports from Malaysia, Yemen and Algeria. New desulphurization capacity, such as that referred to above at Koyali, will enable more Persian Gulf sour grades to be imported.

Table 6
India: Oil Trade, 2006
(mn bpd)
Production 0.85
Consumption 2.65
Trade
Imports 2.40
Exports 0.60
Net Trade 1.80
Figures include NGL
Source: (Production and Consumption) IEA
(Trade) GER estimate

Oil Trade Outlook

India will increase its imports of oil as its own production falls, and consumption and exports rise. Much of the increase may have to be in the form of sour crude as worldwide competition for sweet crudes grows. China, for example, imports more than twice as much sweet crude as India, at present.

India has been trying to secure long term supplies of imported crude oil. Following its general lack of success in obtaining oil production outside India (see above), it has attempted to arrange long term import deals by offering shareholdings in some of its refinery projects to crude oil exporters such as Saudi Arabia and Kuwait.

It is also trying to revive energy ties with Russia which, in Soviet times, was a major economic partner. India has already secured production acreage in Russia through ONGC's 30% equity holding in the Sakhalin I oil project. ONGC is seeking further involvement in Russia's upstream sector, where it apparently has some $5 bn to invest. The Indians hope to import oil from Russia in addition to whatever is available through equity holdings. Before the collapse of the Soviet Union in 1991, the USSR supplied around a quarter of India's oil import needs.

Other long term trade arrangements are also being explored. One of these includes Venezuela which is itself trying to diversify its exports away from the US towards new buyers in Asia. In 2006, Petroleos de Venezuela (PDVSA) agreed to supply 67,000 bpd of crude oil to India. There is scope to increase the volume, thought PDVSA will probably prefer to supply India with some of its heavier crudes, which some Indian refiners may not necessarily want.

OET ARCHIVE:

'Latin American militancy grows', Focus, Feb07

'Bitumen and heavy crudes', Focus, Jun06

'Latin America ponders nationalist energy policies', Looking Ahead, Jun06

On present trends, India is likely to increase its oil imports steadily. Most of the total will remain in the form of crude oil. Products are unlikely to exceed 5% of India's import total, given the refinery expansion plans already underway (see Table5). Total crude oil imports are forecast to exceed 4 mn bpd by 2015, of which net imports are likely to constitute just over 3 mn bpd (see Table 7).

Table 7
India: Oil Trade Outlook, 2015
2006 2015 Change
(mn bpd)
Imports 2.40 4.10 1.70
Exports 0.60 1.00 0.40
Net Trade 1.80 3.10 1.30
Source: (Net Trade) Tables 2 & 3
(Imports, Exports) GER estimate

Oil Substitution

Faced with rising petroleum demand and falling production, India is seeking ways of substituting oil with other fuels. Amongst the options are:

Biomass

Biomass substitution is the most recent of several proposals to slow down the rise in oil consumption. In particular, the government wants to increase the use of ethanol in motor gasoline. As well as replacing some of the mineral oil content of petrol, this measure is also designed to improve the country's air quality.

Legislation enacted in 2003 already requires gasoline to contain 5% ethanol. It is now proposed to raise this to 10% from 2008. The move depends on the ability of India's sugarcane industry to produce sufficient alcohol during the 2008-09 cane-growing season.

The actual saving of mineral oil, however, is unlikely to be great, owing to the fact that most of India's motor cars run on diesel rather than petrol. The Petroleum and Natural Gas Ministry puts the savings at only around 10,000 bpd. Moreover, this depends on the sugarcane industry's being able to produce the necessary alcohol. Poor harvests and alcohol production problems have meant that even the 5% ethanol content requirement has not always been met since 2003.

Nuclear Power

Electricity generation is one of the most rapidly developing areas of energy use in India. The government gave it a major boost in 2005 when it announced that it planned to extend the electricity supply network to all villages by 2007 and to every household in India by 2010. In order to achieve the latter, around 80 mn households must be connected to the electricity supply system: equivalent to 40% of the total number of households in the country.

In order to cater for the expected increase in demand, India is planning to make greater use of nuclear power, which accounts for about 1% of the commercial energy balance (see Table 8). India's nuclear industry has been handicapped by its failure to sign the Nuclear Non-Proliferation Treaty. The US has refused either to supply uranium for Indian reactors or to allow the transfer of nuclear technology to India. This may change if the Indian Parliament and US Congress ratify a treaty between the two countries to allow international inspection of Indian nuclear facilities. In the meantime, Russia has agreed to supply some uranium fuel to the Tarapur power station in western India. It is likely to be some years before the role of nuclear power can be substantially increased.

Hyper-links:
Table 8
India: Commercial Energy Balance, 2005
Fuel/Source Consumption Share
Coal 212.9 55.0
Oil 115.7 29.9
Natural Gas 33.0 8.5
Hydro-electricity 21.7 5.6
Nuclear Power 4.0 1.0
Total 387.3 100.0
Source: BP Statistical Review of World Energy, 2006

Coal

Coal supplies 55% of India's commercial energy (see Table 8). India is the world's third-largest coal producer, after China and the US, and is self-sufficient in the fuel. There are plans to increase the role of coal in the electric power sector, where consumption is expected to grow by about 7% a year. Even higher rates of demand growth are anticipated for other industrial sectors, such as steel and cement.

On the face of it, India should have little difficulty in meeting its targets for increased coal use, given its enormous proven reserves. These are estimated at 92 bn tonnes, of which 90 bn tonnes consist of hard coal. All this gives India a reserves:production ratio of over 200:1.

Unfortunately, the state-owned coal sector, which accounts for nearly 95% of Indian production, is short of capital, and attempts to bring in private capital have often fallen foul of regulations and a general political climate that do not encourage private investment in coal. Local shortages of coal are reported and these could become considerably worse, forcing India to start importing coal.

Hyper-links:

Natural Gas

India is a minor gas producer, and gas accounts for less than 9% of its energy balance (see Table 8). It nevertheless has ambitious plans to increase the consumption of gas, though much of the additional gas will have to be imported.

A good deal of the extra gas will go to the power sector, where gas only plays a minor role at present. Of India's 128 GW of installed generating capacity, only 9% is gas-fired, and of this only 70% is usable at any one time owing to the difficulty of obtaining sufficient gas.

India produces 3.0 bn cfd of gas and consumes 3.6 bn cfd, which obliges it to import 0.6 bn cfd as LNG. (see Table 9). Its proven reserves of nearly 38 trillion cf suggest that there is scope for increasing output, but much of the increase in demand is likely to come from imports.

Table 9
India: Gas Profile
Reserves (2007)
Proven reserves 37.96 trillion cf
Reserves remaining 34 years
(bn cfd)
Production (2006)
Total 3.0
Consumption (2006)
Total 3.6
Net Trade (2006)
LNG (0.6)
Source: (Reserves) Oil & Gas Journal
(Other) GER estimate

Some forecasts suggest that India's demand for natural gas will exceed 10 bn cfd by 2011. It is difficult to see how anything like this volume could be provided in time. Any increase in domestic production will require not only the development of new fields, both on- and offshore, but also the extension of India's transmission and distribution networks.

New infrastructure will also be needed for imports. India has two LNG import terminals at present: the 0.7 bn cfd Dahej regasification facility in Gujarat, and a similar-sized plant at Hazira, also in Gujarat. A third terminal, handling a further 0.7 bn cfd, is under construction in the neighbouring western state of Maharashtra, at Dabhol. The Dabhol site is due to begin operation at about half-capacity in 2007, and to reach its full capacity two years later.

Even if India were to increase its own production by 1.0 bn cfd, this–plus the additional and unused import capacity from Hazira and Dabhol–only gives India a further 2.4 bn cfd of supply. There have therefore been talks with other regional suppliers, including Bangladesh, Burma, Turkmenistan and Iran. In all cases, the preference is for pipeline deliveries, but India has not been able to offer attractive enough prices to prospective foreign suppliers. There have also been a series of political problems connected with the fact that Iranian and Turkmen gas would have to come via Pakistan. Some Indian politicians claim that Pakistan would use the threat of interrupting deliveries to India as a means of settling long-standing disputes such as the status of Kashmir.

There are further uncertainties about Iran's and Turkmenistan's ability to supply the volumes likely to be required by India in future. Iran is struggling to supply even minor quantities of gas to Turkey but has plans to be exporting nearly 9 bn cfd to five more countries by 2015 (see Table 10). India looks unlikely to be able to find much more than 3 bn cfd of additional gas by 2015: well below what it really requires.

OET ARCHIVE:

'India looks for gas', Focus, May07

Hyper-links:
Table 10
Iran: Proposed Pipeline Exports
Country Volume Start Date*
(mn cfd)
Kuwait 300 2007
Oman 1,060 2008
2,470 2012
UAE 600 2005†
India 2,120 2010
3,175 2013
Pakistan 355 2010
2,120 2015
* Dates provisional
† Not in operation
Source: Oil Press

OET ARCHIVE:

'Iran struggles to expand gas industry', Focus, Aug06

'Turkey looks elsewhere for gas', Gas & Power, Jan07

Outlook for Oil, 2015

Problems with alternatives such as biomass, nuclear power, coal and natural gas, mean that India will remain heavily dependent on imported oil between now and 2015. Gas consumption could grow impressively in percentage terms (see above), but this is from a much lower base than for oil (see Table 8). There are signs, though, that the Indians are beginning to worry about future availabilities of gas. The Ministry of Power has reduced the number of planned new gas-fired power stations considerably, citing concerns over supplies and pricing. Only 2 GW out of the 75 GW of new generating capacity planned at present is designated for natural gas. Much of the remainder is likely to be accounted for by coal.

Oil demand is expected to rise by 1.1 mbd, or 42% between 2006 and 2015. The decline in production means that net imports will grow by 1.3 mn bpd, or 72%. Given the expected continuation of refined product exports, the gross figure for imports will be even higher than this. A consolidated forecast for oil production, consumption and trade is presented in Table 11. In view of the problems of increasing the supply of gas, coal and other forms of energy outlined above, this forecast may be regarded as being at the lower end of the scale for future oil demand and imports.

Table 11
India: Oil Supply, Demand & Trade, 2006-15
2006 2015 Change
(mn bpd)
Production
Crude Oil 0.80 0.50 (0.30)
NGL 0.05 0.15 0.10
Total 0.85 0.65 (0.20)
Consumption
Total 2.65 3.75 1.10
Trade
Imports 2.40 4.10 1.70
Exports 0.60 1.00 0.40
Net Imports 1.80 3.10 1.30
Source: Tables 2, 3 and 6

Latest Developments

Refining

Indian Oil Corporation announced that it would increase capacity at its Madras refinery by 120,000 bpd, to 180,000 bpd by 2015.

Previous:

Refining

India’s Reliance made a bid for control of US refiner LyondellBasell, which owns the 268,000 bpd Houston refinery in Texas and the 105,000 bpd Berre unit in France.

Natural Gas

OET ARCHIVE LINK: ‘Bangladesh faces gas and power shortages”, Gas&Power, June 09

Refining

OET ARCHIVE LINK: ‘Asia heads for glut in refinery capacity”, Looking Ahead, May 09

Refining

OET ARCHIVE LINK: ‘Refiners reassess projects as recession deepens”, Looking Ahead, Feb09

Gas imports

OET ARCHIVE LINK: ‘Pakistan examines new gas options”, Gas & Power, Feb09

State Companies

India’s largest refiner and marketer, the Indian Oil Corporation (IOC), has signed a deal to co-operate with the country’s main oil producer, Oil and Natural Gas Corporation, which should increase IOC’s exposure to the upstream oil and gas sectors.

Refining

OET ARCHIVE LINK: ‘India plans new Refineries”, Looking Ahead, Oct08

Refining

Plans for new refineries have been announced:

CALS is to ship the 90,000 bpd Ingolstadt refinery from Germany and reassemble it at Haldia, near Calcutta.

Nagarjuna is to build a 120,000 bpd refinery at Cuddalore in Tamil Nadu, for completion in 2011.

Essar Oil is to increase the capacity of its Vadinar refinery by 430,000 bpd to 680,000 bpd by 2010

Natural Gas

IOC has delayed plans for an import terminal at Ennore owing to problems in securing supply contracts. It may rely instead on pipeline gas produced in the Indian Ocean.

Gas & Power

GAIL has completed a 0.4 bn cfd pipeline from the Dahej LNG terminal to Dabhol, which will allow the 2,150 MW power station there to run on imported gas. Up to now, the plant has been forced to run on expensive naphtha and has only operated at about 30% of its capacity.

Natural Gas

The 425 mn cfd, 360-mile pipeline from Dahej to Dabhol is reported to have been completed, which will allow the 2.15 GW power station at Dabhol to switch from naphtha to gas supplied from the Dahej LNG terminal