Oil & Gas Industry Analysis – India
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India imports roughly 75 percent of its total oil consumption and the remaining 25 percent is primarily produced by National Oil Companies (NOCs). Concerned by the alarming increase in our oil import bill, the government has taken several steps to reduce our dependency on imported oil. But even after more than a decade of introduction of policies like the New Exploration Licensing Policy (NELP, 1997-98) and allowing 100 percent FDI in Exploration and Production (E&P), the supply of indigenously produced oil has not been able to keep-up with the rapidly increasing demand.
Indicator Life Cycle Stage Capital Intensity Industry Assistance Concentration Level Regulation Level Technology Change Barriers to Entry Revenue Volatility
Rating Mature High High High High Low High Low
Comment The Indian Oil production is growing steadily but at a low rate of 1.78% while natural gas is at 7.39% High capital requirements The share of Petroleum sector in total Govt. subsidy has been increasing and so is the under-recoveries by Oil companies ONGC produces 75% of India’s Crude Oil, while OIL produces another 10%. The average HHI over has been 0.65 for the period 2002-10 Prices of transportation fuel (Petrol and Diesel), PDS Kerosene and domestic gas are controlled by the govt. The per person productivity has shown a very slow growth in the past years High capital requirements, Delay in approvals from various ministries Growth in production of oil has almost been linear while that of natural gas has shown sharp uptrend in the last couple of years
The industry remains regulated as the price of transportation fuel, PDS Kerosene and Domestic LPG is controlled by the government, though the government has shown interest in coupling domestic prices with the global oil prices.
Crude Oil Productivity
270.00 260.00 Tonnes per person 250.00 240.00 230.00 -3.26% 220.00 -8.65% 210.00 2004 2005 2006 2007 Year Productivity (Tonnes per person) YoY Productivity change (%) 2008 2009 2010 2011 -10.00% -2.95% -5.00% 3.57% -0.10% 0.00% 7.93% Percentage 5.00% 15.00%
Data shows that there had not been any major technological change in the first decade of the century; however, productivity has begun to increase in the recent years. It would be hard to say if this uptrend would continue in future.
Govt. Subsidies and Oil Co. Under-recoveries
60,000.00 50,000.00 40,000.00 Rs. Crore 30,000.00 20,000.00 10,000.00 2005-06 2006-07 2007-08 Year PDS SKO Fiscal Subsidy by Govt. Domestic LPG Fiscal Subsidy by Govt. PDS SKO Under Recovery by Oil Cos. Domestic LPG Under Recovery by Oil Cos. 2008-09 2009-10 2010-11*
Subsidies in Indian Petroleum Industry
180,000.00 160,000.00 140,000.00 120,000.00 Rs. Crore 100,000.00 80,000.00 10.00 60,000.00 40,000.00 20,000.00 2007-08 2008-09 Year Total Central Govt. Subsidies Pol Products Pol Subsidy as % of Total Subsidy 2009-10 2010-11 RE 5.00 Percentage 15.00 20.00 25.00
Govt. subsidy bill and Oil companies’ under-recoveries increase trend is expected to continue until the government completely decontrols the petroleum prices. With general elections 2014 round the corner, this is an unlikely event.
Company classification in the Oil and Gas Industry
Exploration for crude petroleum and natural gas (Upstream activity) Crude oil and natural gas extraction (Upstream activity) Refining of crude Oil into various petroleum products (Downstream activity) Distribution and marketing of petroleum products (Downstream activity)
India Demand v/s Supply
As per the US Energy Information Administration (EIA), oil consumption in India is expected to grow at an average rate of 3.5% annually for the period 2008-2035, while production is expected to grow at a rate of 0.8% only. For natural gas, both consumption and production are expected to grow at the rate of 4.6% during the same period (Source: www.eia.gov).
300.00 250.00 Million Tonnes 200.00 150.00 100.00 50.00 y= Year Unit Value of Import (Rs./MT) Consumption Poly. (Production) Poly. (Imports) Production Imports Poly. (Consumption) 0.1119×2 – 0.7755x + 34.289 R² = 0.5859 y = 1.1083×2 + 0.2478x + 114.14 R² = 0.9801 30,000.00 25,000.00 20,000.00 y = 0.873×2 + 1.7526x + 80.981 R² = 0.9833 15,000.00 10,000.00 5,000.00 Rs. / MT.
2002 2003 2004 2005 2006 2007 2008 2009 2010
80.00 70.00 60.00 Bn. Cub. Mtr. 50.00 40.00 30.00 20.00 10.00 Consumption Production Poly. (Consumption) Poly. (Production)
Data from Ministry of Petroleum and Natural Gas of India shows that consumption of Crude Oil (in terms of refinery crude throughput) has on an average gown annually at the rate of 7.99% during the years 2002-03 to 2010-11, while production has growth at the rate of 1.78% only. This huge gap is filled by the import of Crude that has grown at the rate of 9.13% during the same period. Curve fitting on this data shows that the country’s Crude Oil consumption and Imports are following a polynomial trend, while growth in production is more or less linear.
Refinery output consumption pattern
The breakup of refinery output is: 30% Light Distillates, 50% Middle Distillates and 20% Heavy Distillates. Light Distillates (including Gases) include: Gasoline, Naphtha, SBP Spirit, Solvent Oils, Hexane, Benzene, Toluene and LPG. Middle Distillates include: Kerosene, ATF/Jet-A1, Vaporizing Oil, Aromex/Iomex, HSDO,
LDO/MLO and JBO, Mineral. Heavy Distillates include: Furnace Oil, LSHS, Lubes/Greases, Bitumen, Petroleum Coke, Paraffin Wax and Other Waxes.
Refinery output consumption trend
180,000.00 160,000.00 140,000.00 Thousand Tonnes 120,000.00 100,000.00 80,000.00 60,000.00 40,000.00 20,000.00 Refinery Boiler Fuel Heavy Ends Middle Distillates Light Distillates
During the period 2003-2011, light distillates have grown at the rate of 2.82%, while middle and heavy distillates have grown at 5.38% and 4.02% respectively.
Major players in India
Key domestic companies engaged in the Oil and Gas sector in India include: ONGC Oil India Limited Indian Oil Corporation
Reliance Industries Bharat Petroleum Corporation Limited Hindustan Petroleum Corporation Limited GAIL India Limited
International companies include: Cairn Energy India Pty Ltd Royal Dutch Shell BG Group BP
Companywise share of Total Oil & Gas Production
90.00% 80.00% 70.00% 60.00% Percentage 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 9.08% 2002 8.92% 2003 9.22% 10.11% 9.28% 2004 2005 2006 Year Total Production OIL ONGC JVC 8.89% 10.15% 10.61% 9.64% 2007 2008 2009 2010 32,894 33,015 32,458 15.16% 12.67% 12.64% 12.75% 13.64% 14.36% 14.67% 13.97% 34,082 33,642 34,071 33,981 33,228 23.21% 32,000 31,000 30,000 78.25% 78.44% 78.03% 76.26% 76.36% 76.45% 75.88% 74.24% 67.15% 35,000 34,000 33,000 36,711 38,000 37,000 36,000 Thousand Tonnes
Like most developing nations, National Oil companies (NOCs) dominate the oil production in India. In India, ONGC dominates (75% of total) the Crude Oil production, followed by Oil India Ltd (10%) while the rest (15%) is shared by Joint Venture Companies (JVCs). The share of JVCs in total Oil and Gas production has been growing slowly by steadily over the recent years. Given the large difference in scale of operations of the NOCs and JVCs, it would still take some time to bring the competition to a decent level.
JVC Oil Production 2009 – 2012
CAIRN 21% BG-RIL-ONGC 20%
JVC Production Trend
40 35 30 25 MMT. 20 15 10 5 0 2009-10 2010-11 Financial Year 2011-12 Other BG-RIL-ONGC RIL CAIRN
The JVC production pie has been dominated by Reliance Industries Ltd (average 56% of JVC production during 2009-2012) in the past, however Cairn Energy India Pty Ltd (average 21% of JVC production during 2009-2012) has shown a steady increase in market share over the past couple of years.
FDI in Indian Petroleum Industry
On an average 2.28% of all FDI in India is invested in the petroleum and natural gas sector, but this figure and the amount of FDI (in Rs. Million) in India has varied largely over the past years. Reason for these large swings has been a matter of debate on many forums.
FDI in Indian Petroleum and Natural Gas
1,400,000.00 1,200,000.00 1,000,000.00 Rs. Million 800,000.00 3.54 600,000.00 400,000.00 1.57 200,000.00 0.71 2004-05 0.26 2005-06 2006-07 2007-08 Financial Year FDI Inflow Total All Sectors FDI Inflow P & NG Sector % of FDI in P&NG to Total FDI 2008-09 2009-10 2010-11 0 1.08 1 2.96 3 2 7 6 5 4 Percentage
The Indian govt. has introduced many reforms in the Oil and Gas sector in the past decade, however little has come out of these reforms due to poor
implementation. As per the latest circular (CIRCULAR 1 OF 2012, CONSOLIDATED FDI POLICY) issued by the Department of Industrial Policy and Promotion, Govt. of India, 100% FDI (Cap/Equity) is allowed through the automatic route in: “Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum product pipelines, natural gas/pipelines, LNG Regasification infrastructure, market study and formulation and Petroleum refining in the private sector, subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies” And 49% FDI is allowed through the Govt. route in: “Petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs”
Worldwide oil and gas consumption
The average growth in the consumption of oil is expected to be 1% per year for the period 2008-2035, while the natural gas consumption is expected to grow at the rate of 1.6% during the same period. The sector making the largest contribution to oil consumption growth would continue to be the transportation sector (1.4%) followed by the end-use sector (1.1%). For natural gas, the Electric Power generation sector (2%) would dominate the consumption growth pattern followed by the Industrial sector (1.7%).
Worldwide oil and gas production
The average growth in production of oil is expected to be 1% per year for the period 2007-2035. This growth is expected to be led by Iraq and Brazil where the oil production is expected to grow at the rate of 3.7% per year on an average during the same period. They would be followed by Qatar at 2.7%. The countries that are expected to see the least growth are, Libya and Mexico, which are expected to see a negative growth of -3% and -2.4% respectively. OPEC nations would continue to maintain their share at 41% of total annual oil production while the Persian Gulf countries are expected to contribute an average of 29% per year. Total worldwide natural gas production is expected to grow at the rate of 1.6% annually during the period 2008-2035. The countries leading this growth would be Iraq and Brazil where the production is expected to grow at 9.8% and 6.9% respectively. They would be followed by India where the growth rate is expected to be 4.6% during the same period.
Major players worldwide
As per data from FT 500 list of 2011, the top five companies in the Oil and Gas sector in order of market value are: 1. 2. 3. 4. Exxon Mobil (US) – 417,166.7 million USD PetroChina (China) – 326,199.2 million USD Petrobras (Brazil) – 247,417.6 million USD Royal Dutch Shell (UK) – 228,128.7 million USD
5. Chevron (US) – 215,780.6 million USD But in terms of Oil and Gas Production, a latest article from Forbes lists the top 10 producers as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Saudi Aramco (12.5 million barrels per day) Gazprom (9.7 million barrels per day) National Iranian Oil Company (6.4 million barrels per day) Exxon Mobil (5.3 million barrels per day) PetroChina (4.4 million barrels per day) BP (4.1 million barrels per day) Royal Dutch Shell (3.9 million barrels per day) Pemex (3.6 million barrels per day) Chevron (3.5 million barrels per day) Kuwait Petroleum Corporation (3.2 million barrels per day)
www.eia.gov/forecasts/ieo/pdf/0484(2011).pdf http://www.forbes.com/pictures/mef45glfe/not-just-the-usual-suspects-2/ http://petroleum.nic.in/pngstat.pdf http://petroleum.nic.in/petstat.pdf http://www.dghindia.org/pdf/09-10.pdf http://www.dghindia.org/pdf/DGH-Annual%20Activity%20Report-2010-11.pdf http://www.dghindia.org/pdf/1DGH%20Annual%20Report%202011-12.pdf http://dipp.nic.in/English/Policies/FDI_Circular_01_2012.pdf