Far from reducing imports, India's oil and gas production has slumped

At an energy conference in New Delhi in March 2015, Prime Minister Narendra Modi had set out a road map for reducing India’s crude oil imports by 10 per cent by 2022. This at a time when almost 77 per cent of the country’s fuel requirements were met via imports.

Four years later, the “2022 dream” appears to be a distant reality. The share of imports, in fact, increased to 81.7 per cent in 2016-17, 82.9 per cent in 2017-18 and 84.7 per cent in 2018-19, according to the latest available government data.

This is despite the ministry of petroleum and natural gas (MoPNG) taking all possible policy measures — including steps to ramp up production, reforming the Hydrocarbon Exploration Licensing Policy, or HELP, and taking a series of de-bottlenecking measures in NELP, or New Exploration Licensing Policy, and pre-NELP regimes.

 
One basic question one might ask is: Do we have enough hydrocarbon resources? “We may not be blessed with natural resources as Saudi Arabia is, but estimates indicate that our future is bright in gas, if not in oil,” says a senior government official on condition of anonymity. 

When we look at the data available with the Petroleum Planning and Analysis Cell (PPAC), the future for oil certainly looks bleak. 

Over the past 19 years, from 1998-99 to 2017-18, India’s crude oil production increased only by 8.8 per cent from 32.8 million tonne (MT) to 35.77 MT. 

In terms of natural gas, too, the numbers are disappointing, with the production figures showing only a 0.7 per cent rise in the past 10 years, from 32,416.97 million metric standard cubic meter in 2007-08 to 32,649.31 in 2017-18. 

What is more alarming is that crude oil production has declined 4.7 per cent and natural gas by 2.9 per cent since 2014-15 despite consumption increasing at a healthy annual rate.

Out of the total 311 exploration blocks awarded so far, under discovered field, Pre-NELP and NELP rounds, only 178 blocks are operational. According to the petroleum ministry, after the ninth NELP round in 2010, 117 companies are operating in India, of which 48 are foreign companies. 

There are largely two ways to increase domestic production: Greater extraction from declining fields and bringing the “yet to find” category into production, says Anirban Mukherjee, partner and director, Boston Consulting Group.  

To do this the country needs more global partners, technology infusion and regulatory support, he adds.

As a step towards this, the Cabinet last week approved a plan to incentivise contractors to go into unexplored areas by exempting them from sharing revenue with the government, unless windfall gains are made. In addition, about 64 fields of ONGC and Oil India, which contribute about 6 per cent of their production, will be leased out to private players through a bidding process, under which private players will pay rentals to state-owned companies.

“Indian hydrocarbon basins remain underexplored. Despite possessing over 3 million square kilometers of sedimentary basins, the number of exploration wells drilled in India in any year is less than 500 against several thousands of wells drilled in North America. The recent policy initiative will encourage frontier exploration,” says P Elango, managing director, Hindustan Oil Exploration Company. 

Elango’s concerns stem from the fact that out of the total 26 sedimentary basins, only seven are producing. In part, this is the result of the lack of a concerted effort by governments over decades to increase exploration and production activities, says a government official.

One impediment is the lack of data on potential reserves for undertaking exploration. One of the major priorities for petroleum minister Dharmendra Pradhan has been to assess the country’s potential and collate data for the Open Acreage Licensing Policy (OALP) regime. Based on the latest estimates, India has 49 per cent higher reserves than the last assessment conducted in 1996, which projected around 28.09 billion tonne of oil equivalent in 15 sedimentary basins, including onland, shallow water and deepwater areas.

The current report by the Directorate General of Hydrocarbons estimates in-place resources at around 41.872 billion tonnes of oil equivalent in 26 sedimentary basins.
  
“We expect these figures to improve in the coming years with more enhanced and improved oil recovery projects coming in place and once production starts coming from the OALP and Discovered Small Field rounds. The country expects its natural gas production to almost double by 2021-22,” says Ajay Kumar Dwivedi, director (exploration), ONGC.

Dwivedi’s words are echoed by an internal estimate by the petroleum ministry that expects crude oil production to increase by 10 per cent from 34.75 MT in 2018-19 to 38.34 MT in 2021-22. Natural gas production, too, is expected to double to 71.92 billion cubic meters by 2021-22, from a mere 35.07 billion cubic meter now. This is expected to get a boost once production from the round one of OALP starts in 2025.

But to ensure a steady supply of domestic oil and gas, India will have to do more. The gestation period for the recent upstream policy measures is expected to be seven to 10 years, which means new wells need to be drilled regularly. Elango believes it’s time for a “Drill in India” campaign for oil and gas, with support from state governments, to ensure the pipelines never run dry.