19 February 2013
From the Catalyzt Research Desk
India’s burgeoning oil sector presents many opportunities for overseas engineering firms, underpinned by India’s strong domestic energy demand growth and the expansion of exploration, production and refining activities due to favourable energy policies.
India is now the ninth largest crude oil importer in the world, importing nearly 80% of her needs in 2011-12. In addition, the consumption of petroleum products has risen by 4-5% annually over the last decade and will continue to do so for the next five years. To ensure energy security increasing local production has become essential. The Indian Government is looking for private and foreign investments of at least US$250 billion in the course of the next decade.
Given India’s high profile as a net oil importer, its role as a refiner and exporter of petroleum products is less well known. India’s 11th Five-Year Plan proposed establishing India as a globally competitive exporter of refined products. To this end, the Government of India is providing tax incentives to new refineries, and is actively looking to private companies to bring in the necessary investment and new technologies.
Consequently, India is poised to become a global refining hub with around 30% capacity additions planned over the next few years. These new plants are extremely large and cost efficient and are capable of processing heavy crudes and producing sophisticated refinery products. Examples include Reliance Petroleum Ltd.’s (RPL) new refinery in Jamnagar, Essar’s Vadinar refinery where major expansions are planned, and Indian Oil Corporation’s (IOC) refinery at Paradeep. The International Energy Agency (IEA) has projected investments to the tune of US$ 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. However, Indian firms, especially the public sector entities, lack sufficient technical expertise to undertake exploration in deepwater and ultra deepwater fields, creating sizeable opportunities for international companies with relevant technical expertise to partner with local public and private operators.
If engineering firms outside India, in particular, UK companies with their experience in the North Sea, are to take advantage of the opportunities in India’s oil sector, they will need to understand the industry ecosystem and relationships in order to form the most appropriate strategic and operational partnerships with Indian firms.