India’s Falling Oil and Gas Production

In News

India’s crude oil production and natural gas production has fallen by 5.2 per cent and 8.1 per cent respectively in the Financial Year (FY) 21.

• India is the third-largest energy and oil consumer in the world after China and the US.
• India’s oil and gas import dependence is 77.1 per cent for April 2020-January 2021.

Reasons for Low Production

• Old and Less Productive Wells
  • Most of India’s crude oil and natural gas production comes from ageing wells that have become less productive over time.
• Reluctance to Invest in New Technologies
  • Extracting oil from more difficult fields such as ultra deepwater fields needs technologically intensive means which require more investment and producers are unwilling to do that.
• Lack of Private Players
  • Crude oil production in India is dominated by two major state-owned exploration and production companies namely Oil and Natural Gas Corporation (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.
  • An important reason for this are delays in the operationalisation of hydrocarbon blocks due to delays in major environmental clearances and approval by the regulator of field development plans.
  • The cess on domestically produced crude oil is currently 20 per cent which has not been reduced to 10 per cent as desired by the industry players.
• Low Interest by Foreign Players
  • Interest from foreign players in oil and gas exploration in India has been low because they are skeptical about the current system of auction and regulations of the sector and consider it vague.
• Environmental Reasons
  • 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.
• Covid-19 Related Delays
  • Covid-19 induced lockdowns led to operations at reduced capacities.
  • Fall in demand led to refiners trimming their capacity utilisation in order to remain afloat and protect their margins.

Data Highlight and Impac

• India’s crude oil and natural gas production have been falling consistently since  2011-12.
  • Producers extracted 30,491.7 Thousand Metric Tonnes (TMT) of crude oil and 28670.6 Million Metric Standard Cubic Metres (MMSCM) of natural gas was extracted in the FY21.
• 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 FY12 to 87.6 per cent in FY20.

Suggestions

• ONGC should boost its investments in explorations and increase tie-ups with foreign players.
• Producers should be provided enough technological support in extracting oil and gas from difficult oil and gas fields.
• The government should make the current system of auction and regulation more open and transparent than before and also convey this to foreign players.
• Also, it should provide fiscal incentives to attract foreign players to India’s upstream sector.
• The cess on domestically produced crude oil should be reduced so that the sector sees more private sector involvement.
• Efforts should be fastened in boosting oil and gas production under the government’s Aatmanirbhar Bharat initiative, which aims 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.
  • The Indian energy consumption basket is primarily dominated by Coal and Crude Oil.

Source: IE