India's Oil Supply and Demand Gap Widening

India was the fourth-largest consumer and fourth-largest net importer of crude oil and petroleum products in the world in 2013, after the United States, China, and Japan. The country depends heavily on imported crude oil, mostly from the Middle East.

The gap between India’s oil demand and supply is widening, as demand reached nearly 3.7 million barrels per day (bbl/d) in 2013 compared to less than 1 million bbl/d of total liquids production. The Energy Information Administration (EIA) projects India’s demand will more than double to 8.2 million bbl/d by 2040, while domestic production will remain relatively flat, hovering around 1 million bbl/d. 

The high degree of dependence on imported crude oil has led Indian energy companies to diversify their supply sources. To this end, Indian national oil companies (NOCs) have purchased equity stakes in overseas oil and gas fields in South America, Africa, Southeast Asia, and the Caspian Sea region to acquire reserves and production capability. However, the majority of imports continue to come from the Middle East, where Indian companies have little direct access to investment.

India’s upstream petroleum liquids industry is still mainly owned by state-owned firms, although the sector is open for competition and attracts some level of private and foreign investment. International investment is still relatively low.

Competition in the oil sector is now relatively open, particularly when it comes to the upstream market. On one hand, two state-owned companies, the Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL), control the majority of production and refining activity in India. On the other hand, the government has slowly reduced its share of ownership in ONGC in an effort to raise revenue, and several private companies have emerged as important players in the past decade. 

Exploration and production

According to the Oil & Gas Journal (OGJ), India held nearly 5.7 billion barrels of proved oil reserves at the beginning of 2014. About 44 percent of reserves are onshore resources, while 56 percent are offshore. Most reserves are found in the western part of India, particularly the Western offshore area near Gujarat and Rajasthan. The Assam-Arakan basin in the northeastern part of the country is also an important oil-producing region and contains more than 23 percent of the country’s reserves and 12 percent of the production.

Indian and foreign companies are investing in more frontier developments and marginal fields to help offset production declines from mature basins. In recent years, major discoveries in the Barmer basin in Rajasthan and the offshore Krishna-Godavari basin by smaller companies such as Gujarat State Petroleum Corporation and Andhra Pradesh Gas Infrastructure Corporation hold some potential to diversify the country’s production.

India’s relatively small land-based resource endowment means companies require more upstream technical expertise to tap into offshore reserves, especially in technically challenging deepwater reserves. Foreign companies historically took the lead in exploring new offshore opportunities. For example, Cairn India brought online the largest field, Mangala, of the RJ-ON-90/1 block in Barmer basin in 2009, with a production capacity of 130,000 bbl/d. The Rajasthan fields, including Mangala, produced 179,000 bbl/d in 2013, according to FACTS Global Energy (FGE), and Cairn India reports production from the fields could peak at 300,000 bbl/d. Despite Cairn’s successful drilling in Rajasthan, foreign investment in India has waned in recent years, both because of increased competition from domestic Indian companies and India’s complex exploration and production laws.

The government has encouraged companies to acquire overseas upstream assets as a way to shield the domestic energy sector from global price volatility. Indian companies hold large stakes in Sudan’s GNOP block, Russia’s Sakhalin-1 project, and Venezuela’s San Cristobal and Carabobo blocks. Amerada Hess Corporation sold key oil fields in Azerbaijan to ONGC in 2012. Also, ONGC, OIL, and RIL have taken stakes in gas plays in Mozambique, shale gas assets in the United States and Canada, and oil and gas assets in Myanmar, and the companies are actively pursuing other overseas upstream deals. In 2011, several government agencies agreed to establish a sovereign wealth fund that could also aid in financing overseas energy acquisitions.

Trade

India has increased its total net oil imports from 42 percent of demand in 1990 to an estimated 71 percent of demand in 2012. India’s demand for crude oil and petroleum products is projected to continue rising, barring a serious global economic recession. Oil import dependence will continue to climb if India fails to achieve production growth equal to demand growth.

The Indian Ocean historically has been a major transit route, bringing crude oil from suppliers in the Persian Gulf and Africa to markets in Asia. Tanker sea lanes pass near Indian waters between major chokepoints such as the Strait of Malacca and the Strait of Hormuz. The majority of Indian oil ports are located on the country’s western side to receive shipments of crude oil that passes through these routes.

India’s crude oil imports reached nearly 3.9 million bbl/d in 2013, according to Global Trade Atlas. Saudi Arabia is India’s largest oil supplier, with a 20 percent share of crude oil imports. In total, approximately 62 percent of India’s imported crude oil came from Middle East countries. The second-biggest source of imports is the Western Hemisphere (19 percent), with the majority of that crude oil coming from Venezuela. Africa contributed 16 percent of India’s crude oil imports. 

Supply disruptions in several countries, including Iran, Libya, Sudan, and Nigeria, in tandem with India’s growing dependence on imported crude oil, have compelled India to diversify its crude oil import slate. Iran accounted for 5.5 percent of India’s crude imports in 2013, down from 8.3 percent in 2011-12 as a result of the U.S. and European sanctions imposed on Iranian oil exports. Also, Indian refiners are trying to reduce crude oil import costs by purchasing less expensive crude oil. Prices of Middle Eastern crude oil grades in the past year have been high relative to prices of oil from the Western Hemisphere, prompting Indian companies to import more crude oil from Latin America, primarily from Venezuela, Colombia, and Mexico.

Strategic petroleum reserve

In 2005, the Indian Government decided to set up strategic storage of 37 million barrels of crude oil at three locations (Visakhapatnam, Mangalore, and Padur). The Indian Strategic Petroleum Reserves Limited (ISPRL), a special purpose legal entity owned by the Oil Industry Development Board, would manage the proposed facilities, which are expected to be completed by 2015. The government unveiled plans to add another 91 million barrels to the state’s crude oil capacity to protect India from supply disruptions by 2017. The country anticipates having crude oil stocks to cover 90 days of the country’s oil demand by 2020.