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Thursday, May 06, 2021

Explained: Why India’s oil and gas production is falling

While Covid-19 related delays are among the key reasons cited by producers behind lower production, India's crude oil and natural gas production have been falling consistently since 2011-12.

Written by Karunjit Singh , Edited by Explained Desk | New Delhi |
April 21, 2021 2:38:53 pm
Crude oil production in India is dominated by two major state-owned exploration and production companies, ONGC and Oil India. (Representational Image)

India’s crude oil production fell by 5.2 per cent and natural gas production by 8.1 per cent in the FY21 as producers extracted 30,491.7 Thousand Metric Tonnes (TMT) of crude oil and 28670.6 Million Metric Standard Cubic Metres (MMSCM) of natural gas in the fiscal. While Covid-19 related delays are among the key reasons cited by producers behind lower production, India’s crude oil and natural gas production have been falling consistently since 2011-12.

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Why is India’s crude oil and natural gas production falling?

Experts have noted that most of India’s crude oil and natural gas production comes from ageing wells that have become less productive over time. An industry source, who did not wish to be named, noted that “there was no more easy oil and gas” available in India and that producers would have to invest in extracting oil and gas using technologically intensive means from more difficult fields such as ultradeepwater fields.

Crude oil production in India is dominated by two major state-owned exploration and production companies, ONGC and Oil India. These companies are the key bidders for hydrocarbon blocks in auctions and were the only successful bidders in the fifth and latest round of auctions under the Open Acreage Licensing Policy (OALP) regime with ONGC bagging seven of the eleven oil and gas blocks on offer and Oil India acquiring rights for the other four.

Experts noted that interest from foreign payers in oil and gas exploration in India had been low. The government has asked ONGC to boost its investments in explorations and increase tie-ups with foreign players to provide technological support in extracting oil and gas from difficult oil and gas fields, a senior government official told The Indian Express.

Why is there a lack of private participation?

One of the key reasons cited by experts for low private participation in India’s upstream oil and gas sector are delays in the operationalisation of hydrocarbon blocks due to delays in major clearances including environmental clearances and approval by the regulator of field development plans.

The government official quoted above said the government was reaching out to major foreign players to convey that the current system of auction and regulation was much more “open and transparent” than before.

Oil Secretary Tarun Kapor had recently noted that the government may consider providing fiscal incentives to attract foreign players to India’s upstream sector.

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Industry players have been calling for a reduction in the cess on domestically produced crude oil to 10 per cent from the current 20 per cent. A government official noted that internal maximum production levels set by oil and gas majors to address climate change had also lowered interest by oil majors to expand operations in India.

What is the impact of low oil and gas production?

Low domestic production of crude oil and natural gas makes India more reliant on imports. The share of imports as a proportion of overall crude oil consumption in India has risen from 81.8 per cent in FY2012 to 87.6 per cent in FY2020. Boosting oil and gas production has also been a key part of the government’s Aatmanirbhar Bharat initiative and its goal to boost the use of natural gas in India’s primary energy mix from the current 6.2 per cent to 15 per cent by 2030.

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