10. OIL

In the last decade, India’s domestic oil production has remained relatively stable at an average of 862 thousand barrels per day (kb/d), with an annual average growth rate of 0.3%, but oil’s share of total domestic energy production has declined (Figure 10.1). For refined products, India’s production has increased steadily and the country is currently a net exporter.

Over the same period, India’s oil demand grew by more than 50%, mostly led by rapid growth in gasoline and diesel for transport, the largest oil-consuming sector, and liquefied petroleum gas (LPG) in cooking. While the rate varies, oil demand has been growing across all sectors and is expected to surpass that of the People’s Republic of China (“China”) in the mid-2020s as India becomes the leader of oil demand growth.

With continued strong growth in oil demand against falling domestic production, India has become more reliant on oil imports, which hovered around 83% in 2018. At the same time, India’s import bill for crude oil has increased by 27% from USD 88 billion in 2017 to USD 112 billion in 2018.1 In March 2015 Prime Minister Modi set out a roadmap to reduce India’s oil imports by 10% by 2022. To address this, India has been broadening its strategic partnerships through international bilateral investment and foreign direct investment in India to diversify the country’s import sources and suppliers. The Government of India (GoI) has created the Indian Strategic Petroleum Reserves (ISPRL) to build its strategic crude oil reserves. With net imports expected to grow in the future, India can benefit from further reinforcing its oil emergency response policy, with increased emergency stocks and demand-restraint measures to counterbalance disruptions. As oil demand is expected to remain robust, India should also continue to enhance its international engagement in oil security issues.

Supply and demand

Oil supply

In 2018 India’s domestic oil production stood at 840 kb/d, which is 3% up from a decade ago, but 8% down from its peak of 910 kb/d in 2011 (Figure 10.2).

The estimated total volume of India’s conventional hydrocarbon resources from 26 sedimentary basins is estimated to be around 47.8 billion tonnes of oil equivalent.2 According to the 2017/18 Indian Petroleum and Natural Gas Statistics report, India’s proven reserves of crude oil and condensate as of April 2018 were around 595 Mt (around 4.4 billion barrels), which could potentially sustain production for about 14 years at current levels (MoPNG, 2018a).

Location-wise, oil production in India comes primarily from three onshore states, Assam, Gujarat and Rajasthan, which together account for more than 96% of onshore outputs, and from the aged offshore Mumbai High Field. Some recent discoveries in Rajasthan and in the offshore Krishna-Godavari (KG) basin hold some potential.

1Petroleum Planning and Analysis Cell (PPAC) assumes an Indian basket crude oil price of USD 57.77 per barrel and a USD/INR exchange rate of 70.73.

2The estimate was defined by a multi-organisation team of GoI and representatives of Oil and Natural Gas Corporation (ONGC), Oil India Limited (OIL) and the Directorate General of Hydrocarbons (DGH).

250

IEA. All rights reserved.

10. OIL

Figure 10.2 Domestic oil production, 2008-18

India’s crude oil production has remained relatively stable during the past decade.

*Crude oil includes condensates.

Source: IEA (2019b), Oil Information 2019, www.iea.org/statistics/.

India’s crude oil production is expected to show only a marginal increase in the medium term, 2019-24 (IEA, 2019c). Growth is expected to primarily come from ONGC’s KG-DWN- 98/2 deep water oil and gas development, with output starting in 2020 and reaching 78 kb/d of oil at peak production.

Since 2012 India’s production of petroleum products has increased by around 17% to reach 7 998 kb/d in 2018. Diesel oil is the largest product, accounting for around 40% of the total petroleum production, followed by gasoline at 15% (Figure 10.3).

Figure 10.3 Refinery outputs, 2012-18

Diesel dominates domestic oil refining outputs, followed by gasoline.

*Other products include crude oil, “other” natural gas liquids, synthetic fuels, Orimulsion, hydrogen, synthetic crude, refinery gas, aviation gasoline, naphtha-type jet fuel, white spirit, industrial spirit (SBP), lubricants, bitumen, paraffin waxes, petroleum coke, tar, sulphur, aromatics and olefins.

Note: Refinery outputs of the individual products do not include LPG produced outside of the refinery from other sources (e.g. natural gas liquids).

Source: IEA (2019b), Oil Information 2019, https://www.iea.org/statistics/; IEA (2019d), Monthly Oil Data Service 2019, https://www.iea.org/statistics/mods/.

The International Energy Agency (IEA) estimates Indian refining capacity to increase by 0.5 mb/d in the medium term to 2024 (IEA, 2019c) to reach 5.7 mb/d. This amounts to only half the expected oil product demand, hence net exports of diesel are expected to

251

ENERGY SECURITY

IEA. All rights reserved.

10. OIL

decrease in the medium term. Refining capacity remains a constraint until the 1.2 mb/d Ratnagiri mega-refinery comes online.

Oil demand

Driven by rapid economic growth, oil demand in India has been growing for decades across all sectors. India’s oil demand has risen strongly since 2008, with average demand growth close to 160 kb/d per year to reach 4.4 mb/d in 2017, which already represents 5% of global consumption. India’s oil demand is expected to reach around 6 mb/d by 2024, representing 3.9% growth per annum, well ahead of the global average of 1.2%. The country is set to overtake China in the mid-2020s as the largest source of global oil demand.

Figure 10.4 Oil consumption by sector, 2007-17

Oil demand for transport, the largest oil-consuming sector in India, has almost doubled in the past decade.

*International aviation bunker is excluded from total oil consumption.

Note. Buildings include residential and commercial; Others include energy own use, non-energy use such as bitumen and asphalt, district losses and statistical difference.

Source: IEA (2019a), World Energy Balances 2019, www.iea.org/statistics/.

Transport

The transport sector, largely road transport fuelled by diesel and gasoline, is not only the largest oil-consuming sector in India, accounting for 41% of total consumption in 2017, but also the fastest-growing (Figure 10.4). Over the past decade, oil use in transport has increased by 91%. The buildings sector, including both residential and commercial, accounted for 19% of total oil demand. In the residential sector, LPG accounts for a dominant share at around four-fifths of demand, mostly for used cooking, and kerosene for the remaining one-fifth, for heating. Industry is the third-largest oil-consuming sector at 12% of total demand, followed by the booming petrochemical sector at 9%.

India’s rapid growth in oil consumption is mainly driven by the transport sector. India has one of the world’s fastest-growing passenger car markets. The number of passenger vehicles per 1 000 people was 26 in 2017, far behind the Organisation for Economic Co-operation and Development average of 442, and less than half the Association of Southeast Asian Nations average of 56 (IEA, 2017).

India builds 40 kilometres of highways per day and is forecast to have eight times more passenger cars and four times more commercial vehicles by 2040 compared with 2017.

252

IEA. All rights reserved.

10. OIL

Global oil demand for trucking is expect to increase by 4 mb/d up to 2040, and India’s share of this increase is put at 40%, indicating the country’s steady growth in freight activities (IEA, 2018c). India’s demand for diesel, also used for rail transport, rose by 70 kb/d in 2018 and is expected to continue rising by 75 kb/d in 2019. Albeit still a small share, India’s jet fuel demand is also escalating to fuel the world’s fastest-growing aviation market. With a combination of rising incomes, increased airport connectivity and falling air fares thanks to low-cost air carriers, India’s number of passengers rose to over 160 million in 2018 from only 50 million a decade ago. The GoI is also keen to enhance the country’s aviation infrastructure to encourage connections to smaller cities. India’s jet fuel demand is expected to rise by 8.2% per year between 2018 and 2024 (IEA, 2019c).

Another interesting development in India’s transport sector is biofuel. With an objective to reach 20% ethanol blend in gasoline and 5% biodiesel blend by 2030, the GoI introduced a new National Policy on Biofuels in 2018. This includes a new Ethanol Blending Programme that extends the scope of second-generation ethanol procurement to include oversupply of food grains such as maize and fruit/vegetable wastes. Previously, only excessive supply of sugarcane was allowed to be converted into ethanol, which restrained the feedstock availability to meet the blending target. The GoI foresees that an increase in alternative fuels in the transport sector would help reduce the dependence on crude oil imports and promote low-carbon transition in transport.

Petrochemical industry

Petrochemicals play an essential role in enabling the key sectors of the economy to grow. In line with the anticipated 257% growth in India’s plastic consumption between 2017 and 2050, the country’s petrochemical capacity3 is expected to further increase from its current level of 16 Mt per year, which accounted for 4% of the global capacity in 2017 (IEA, 2018a).

The “Make in India” programme will give a boost to the country’s manufacturing industry, such as the automotive sector, requiring more plastics, and the increased focus on agriculture and irrigation will accelerate the demand for petrochemical fertilisers. The GoI’s thrust to improve national infrastructure will also stimulate the demand for synthetic materials for construction.

In order to meet such growing demand for petrochemical products, a number of Indian state-owned energy companies are making major investments to further promote their petrochemical activities, and are expected to become significant players in the sector. Capacity expansions by several other manufacturers are moving ahead and gradually filling the gap between domestic demand and supply. Overall, the outlook for the petrochemical industry in India is more positive than it has been recently, as the growth in gross domestic product (GDP) and industrial outputs in key end-use sectors (such as automotive and packaging) are expected to be higher than in previous years.

Residential: Clean cooking

The GoI has been promoting LPG as a clean and easy cooking fuel across the country, particularly for rural areas, which made India one of the world’s largest LPG consumers after China. LPG is playing a significant role in addressing Indian households’ prevalent usage of

3 High-value chemicals (HVC) capacity. HVCs include ethylene, propylene and BTX (benzene, toluene and mixed xylenes).

253

ENERGY SECURITY

IEA. All rights reserved.

10. OIL

traditional fuels such as firewood and cow dung, which have proven to be hazardous for both health and the environment, and a hindrance to the economic development of women.

LPG is heavily subsidised in India, which has been a fiscal burden on the government (see section on retail market and prices). To ensure that the subsidies are provided to the right recipients who need fiscal support, the GoI introduced three significant initiatives, the Direct Benefit Transfer in 2013, the Pradhan Mantri Ujjwala Yojana (PMUY) programme for women, and an initiative to encourage wealthier households to give up their subsidies (#GiveItUp).

In 2013 the Direct Benefit Transfer approach to distributing the LPG subsidy was introduced to ensure the direct transfer of the subsidy into Aadhaar-linked bank accounts approved by the GoI, thereby reducing payment leakage and distortions (for instance, use in the commercial sector). Modern IT technology (JAM) is used to allocate the subsidies through electronic bank accounts, Aadhaar digital ID cards (direct transfer), and mobile phones, along with integrated national databases. Social media is used to spread information and promote the LPG programmes besides trainings.

Launched in May 2016, PMUY aimed to provide deposit-free LPG connections to 50 million women from the below poverty line households over a period of three years. The 2018 budget increased the ambition to provide LPG connections to 80 million households by 2020. India had already achieved this target by the end of August 2019.

Another commendable initiative is the #GiveItUp campaign, set up as a part of LPG subsidy management in 2015. The campaign encourages consumers who can afford the market price for LPG to voluntarily give up their subsidies. By February 2019 almost 10 million LPG consumers had voluntarily surrendered their subsidies to the government budget, which were redistributed to low-income families (MoPNG, 2019). Through the Direct Benefit Transfer, PMUY and PAHAL, the budget has saved around USD 2 billion per year, with total accumulated savings expected to be around USD 9 billion during 2014-20.

The oil marketing companies and some state governments provide subsidies for gas stoves and the first fill when households purchase LPG bottles. All LPG consumers buy the fuel at market price. The Goods and Services Tax (GST) on LPG is calculated at the market rate of the fuel. Indian Oil, Bharat Petroleum and Hindustan Petroleum are the main oil companies implementing the LPG schemes through more than 23 000 distributors. Oil companies have expanded the LPG pipeline network, supported by new import terminals and several large new bottling plants. Oil firms revise the LPG price on 1st of every month. As of 1 March 2019, the 14.2 kg subsidised LPG cylinder cost INR 495.61 and the non-subsidised or market-priced LPG cylinder cost INR 701.50 in Delhi. The subsidy transfer increased to INR 205.89 per cylinder in March 2019, against INR 165.47 in February 2019.

Diesel is the largest oil product consumed in India – it accounted for 35% of the total in 2018 (Figure 10.5). While gasoline’s share (14%) remains far below that of diesel, it has experienced the highest average growth rate of 10% over the past decade, compared to 5% average growth rate for diesel consumption.

LPG, mostly used for cooking, is the second-largest oil product consumed in India and had an average growth rate of 7% over the same period. In 2019 India became the

254

IEA. All rights reserved.