Decline in production increased reliance on imports: Crude oil, natural gas output falls

Domestic production of crude oil and natural gas has fallen by 6% and 1.5%, respectively, in the first half of the current fiscal year, further increasing dependence on imports to meet rising demand.

India’s oil demand growth too has slowed to 1.4% in the April-Sept period, compared to 3.5% in the same period last year, but a sharper decline in production has increased reliance on import. Foreign oil made up 84.5% of the country’s needs in six months to September, up from 83.3% a year earlier. Imported gas accounted for 51.2% of local needs, higher than 48.7% in the first half of last fiscal year.

The government has been aiming to cut oil import dependence to 67% by 2022 but local output has been falling year after year mainly due to ageing fields and lack of major discovery. The government has introduced several policy initiatives in recent years aimed at attracting more capital and technology to the upstream sector, which in turn is expected to help raise local output. Companies too have been investing billions of dollars but country’s overall output has continued to slip.

The government is on track to meet the target of cutting India’s oil import dependence by 10 per cent by 2020. Speaking at the ‘Urja Sangam’ conference in March 2015, even Prime Minister Narendra Modi had said that India needs to bring down its oil import dependence from 77 per cent in 2013-14, to 67 per cent by 2022, when India will celebrate its 75th year of independence.Further, the dependence can be cut to half by 2030, he had said. But with consumption growing at a brisk pace and domestic output remaining stagnant, India’s oil import dependence has risen from 82.9 per cent in 2017-18, to 83.7 per cent in 2018-19.

The government is focusing on increased use of bio-fuels and raising domestic crude oil and gas production to reduce imports. Blending of ethanol in petrol has risen to 6 per cent at present and the blending would rise further to 10 per cent by 2022. Simultaneously, 5,000 compressed bio-gas plants are being set up that will convert agriculture and municipal waste into fuel. Use of alternate fuels will help bring down import dependence. Also, exploration rules have been changed multiple times during the last five years to get the elusive private and foreign investment.

Import dependence in 2015-16, was 80.6 per cent, which rose to 81.7 per cent in the following year. The country’s oil consumption grew from 184.7 million tonnes in 2015-16 to 194.6 million tonnes in the following year and 206.2 million tonnes in the year thereafter. In 2018-19, demand grew by 2.6 per cent to 211.6 million tonnes. In contrast, domestic output witnessed a decline. India’s crude oil output fell from 36.9 million tonnes in 2015-16 to 36 million tonnes in 2016-17.

ONGC, the country’s largest producer of oil and gas, produced 10.25 million tonnes, 3.97% less than a year earlier. Increase in water cut in some fields, pipeline issues and other technical problems contributed to production decline at ONGCNSE -1.56 %, as per the oil ministry’s monthly report on oil production. Oil India’s output contracted 4.24% from a year earlier to 1.61 million tonnes.

Production from fields operated by private players contracted at a much faster clip, with output falling 10.74% to 4.5 million tonnes. Vedanta’s Mangla, Bhagyam and Aishwarya fields in Rajasthan underperformed due to several operational issues.

Natural gas output was 16 billion cubic meters, 1.5% less than in the first half of last year. ONGC’s gas output fell 0.45% to 12.07 billion cubic meters due to general decline in output from ageing fields, a fire incident at Uran plant in September, and less offtake by some clients. Gas production from fields operated by private players contracted 11.22% to 2.54 billion cubic meter.