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Perspectives on building technology businesses and AcceleratorIndia from Cartezia

Oil and Gas Sector in India gears up for Substantial Growth

Friday, June 6, 2014

India’s burgeoning oil and gas sector presents many opportunities for overseas engineering firms, underpinned by India’s strong domestic energy demand growth and the expansion of refining and exploration and production activities due to favourable energy policies.

India is the fourth largest consumer of oil and petroleum products in the world. Oil consumption is predicted to reach 4 million barrels per day (MBPD) by financial year 16, at a compound annual growth rate (CAGR) of 3.2% between 2008 and 2016. During financial year 2013, approximately 80 per cent the total oil demand was met through imports. To ensure energy security, increasing local production has become essential. The Indian Government is looking for private and foreign investments of at least US$250 billion in the course of the next decade.

Even though India is acknowledged as a prominent net oil importer, its role as a refiner and exporter of petroleum products is less well known. India’s 11th Five-Year Plan proposed establishing India as a globally competitive exporter of refined products. To this end, the Government of India is providing tax incentives to new refineries, and is actively looking to private companies to bring in the necessary investment and new technologies. 100% Foreign Direct Investment (FDI) is allowed in upstream and private sector refining projects.

As a result, India is poised to become a global refining hub with around 30% capacity additions planned over the next few years. These new plants are extremely large and cost efficient and are capable of processing heavy crudes and producing sophisticated refinery products. Examples include Reliance Petroleum Ltd.’s (RPL) Jamnagar refinery, Indian Oil Corporation’s (IOC) Paradeep refinery and Essar’s Vadinar refinery where major expansions are planned. The International Energy Agency (IEA) has projected investments to the tune of US$ 140 billion from 2011 - 2035, leading to sustained growth in the refinery sector, and related industries.

The increase in energy demand, and the introduction of The New Exploration Licensing Policy (NELP) have resulted in exploration activity to ramp up, with exploration and production (E&P) spend in India doubling in four years to reach US$ 5 billion in 2008, further rising to an overall spend of US$ 90-110 billion in the next decade. The expectation of a marked increase in activity in the E&P sector is already being seen, for example production from Reliance Industries Ltd.’s (RIL) Krishna Godhavari (KG) Basin fields, the proposed start of Cairn India's production and the proposed development of discoveries announced by Gujarat State Petroleum Corporation (GSPC) and Oil and Natural Gas Corporation (ONGC). While much of India’s exploration activity has taken place in on-land and shallow basins, experience from other countries like Brazil, indicates that deepwater and ultra deepwater resources are key.

These developments have created sizeable opportunities for international companies with relevant technical expertise to partner with local public and private operators in areas such as refining higher acidity crudes and exploration in deepwater and ultra deepwater fields.