India's crude oil production tapers, delaying cut in import dependence

Topics Crude Oil | Oil imports

For refineries, imported crude oil is a preference because of its higher quality and abundance in the current situation
India produced around 2.5-2.6 million tonnes (mt) of crude oil per month in 2020, according to the data shared by the Ministry of Petroleum and Natural Gas, slightly lower than 2.7-2.8 mt in 2019.

The reduction is largely owing to ageing fields that will be producing less unless more enhanced oil extraction techniques are implemented. This is likely to delay the goal of reducing crude oil import.

According to officials from oil exploration companies, the low price of oil and a lack of adequate support from the government disincentivises incurring higher costs for production.

“The risk factor is higher now with lower prices for crude oil. There was also talk of a package for oil and gas exploration companies in the midst of the Covid-19 pandemic lockdowns but that did not materialise either,” an oil exploration company representative told Business Standard.

Brent crude opened the year at above $66 a barrel and closed December nearer to $50 a barrel. The price fluctuated significantly through the year, falling to below $20 a barrel for a day. Through most of the year, Brent has stayed between $40 and $50 a barrel. While domestic companies do not sell crude oil at the same price as Brent, it serves as a benchmark in their negotiations with oil refining companies.

For refineries, imported crude oil is a preference because of its higher quality and abundance in the current situation. Large oil exploration and production companies also feel that since export of crude oil is disallowed, domestic refineries are the only buyers and this further subdues the sale price of this commodity.

While crude oil production has been tapering, the production from refineries is not in the same proportion. This means more dependence on imports to meet crude oil requirements, which is in contrast to the goal set by Prime Minister Narendra Modi of a 10 per cent cut in import dependence by 2022.

Modi had given this target to India’s oil and gas sector in March 2015. The import dependence in fiscal 2013-14 (FY14) was 77 per cent, it is now on course to be closer to over 85 per cent in FY21.

To boost the sector, the Centre has undertaken multiple reforms. These include offering more acreages for exploration and a simplified licensing regime to allow production of all sorts of hydrocarbons. In 2020 alone, 11 blocks were awarded under the open acreage licensing policy (OALP) bid round five. This was in addition to the 94 blocks that have been awarded in the first four rounds of this policy that began in 2018.

These rounds have been encouraging and some medium-size oil companies have even promised production from 2021.

While the onus for this decline in production can be debated, the impact of the Covid-19 pandemic on the sector cannot be negated. Gas production has been on a decline in the country with demand being stunted for most of the year.

Another factor that affected domestic oil production in 2020 are hindrances to movement of equipment because of the lockdowns. This is reflected in the stranding of a Mobile Offshore Production Unit (Sagar Samrat) that has been stuck in Abu Dhabi for six months.

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