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Domestic crude oil production has been in decline since the financial year 2014-15 (FY15), dropping to just 28.4 million tonnes (MT) in FY22, the lowest since FY94. The production in 2021-22 represented a decline of 11.8 per cent from 32.2 MT in FY95, increasing the economy’s vulnerability due to skyrocketing global oil prices.
The demand for crude oil has, however, increased over those years. As a result, imports of petroleum products rose to 212 MT in FY22, 676.5 per cent higher than the 27.3 MT imported in FY95. The gap between domestic crude oil production and imports grew to a whopping 183.6 MT in FY22, from just 4.9 MT in FY95, shows official data.
This is despite a decline in crude oil imports in the last two years because of the Covid-19-induced lockdown in FY21 and partial recovery thereafter.
In fact, production of crude oil has fallen every month on a year-on-year basis for the last four-and-a-half years till March in the eight-industry core sector index. It last grew in November 2017, but even then by just 0.2 per cent.
In absolute terms, production fell one per cent YoY to 2.47 MT in April 2022. This will likely be reflected in the core sector data for the month, which may be released on Tuesday.
State-run firms dominate
State-run ONGC accounts for the bulk of domestic production. For instance, it produced 18.5 MT in FY22, or 65 per cent of the total. Another 3 MT was produced by OIL. “The problem with ONGC and OIL is that they have old and end-of-life fields. Still they managed to hold on to production because of new fields that were commissioned in between. The solution is that the country needs more exploration. As a country we are not blessed with too many natural resources,” said an official from one of the state-run firms.
Bank of Baroda’s Chief Economist Madan Sabnavis said production has been declining because of ageing wells and the absence of fresh investment.
“Investments are meagre due to cost factors (when it is cheaper to import, companies will not invest more, which was the case in the past when crude oil price was lower). Also factors such as cess and other taxes make it expensive,” he said.
Prashant Vasisht, vice-president and co-head of corporate ratings at ICRA, said there have not been any large finds in India for many years. “Most of the blocks awarded in the OALP (Open Acreage Licensing Policy) rounds are still in the exploration stage,” he said.
Fresh investments
However, companies are making fresh investments. For instance, ONGC is allocating a capital expenditure of about Rs 31,000 crore in three fiscal years ending FY25. This represents a 50 per cent rise in its exploration expenditure of Rs 20,670 crore in the last three fiscal years ended FY22. Vasisht said the decline has also been more pronounced after the outbreak of Covid due to delays in execution of enhanced oil recovery projects.
Private companies or joint ventures chipped in just 7 MT in FY22, around 25 per cent of the total. This was a pale shadow of the peak production of 12 MT in FY14. The private sector is dominated by Vedanta.
The government has said another reason for the decline in production is the increase in water cut in wells of matured fields.
Govt boost
The Centre had introduced policies to increase production of oil and natural gas under the Production Sharing Contract (PSC) regime, Discovered Small Field Policy (DSF), and Hydrocarbon Exploration and Licensing Policy (HELP). The industry expects the results of these measures in the coming years and once the Open Acreage Licensing Policy (OALP) fields come into production.
The HELP scheme, under which OALP blocks are awarded, adopts a revenue sharing contract model. It has attractive terms like reduced royalty rates, no oil cess, marketing and pricing freedom, freedom to investors for carving out blocks of their interest, and a single licence to cover both conventional and unconventional hydrocarbon resources.
