India’s Falling Crude Oil & Natural Gas Production

• 23 Apr 2021

Why in News

According to the latest government data India's crude oil production and natural gas output declined in the Financial Year (FY) 2020-2021.

• India’s crude oil and natural gas production have been falling consistently since 2011-12.

Key Points

• Decline in Production:
  
  • Crude Oil Production:
    
    • Declined by 5.2% as private and public firms produced 30.5 million tonnes in 2020-21 compared to 32.17 million tonnes produced during the same period in 2019-2020.
  • Natural Gas Production:
    
    • Declined by 8.1% and in 2020-21 only 28.67 billion cubic meters was produced compared to 31.18 billion cubic meters in 2019-20.
• Reason for Decline:
  
  • Ageing Sources:
    
    • Most of India’s crude oil and natural gas production comes from ageing wells that have become less productive over time.
  • Need of Intensive Technology:
    
    • There is no more easy oil and gas available in India and that producers would have to invest in extracting oil and gas using technologically intensive means from more difficult fields such as ultra deepwater fields.
  • Domination of State Owned Companies:
    
    • Crude oil production in India is dominated by two major state-owned exploration and production companies, Oil and Natural Gas Corporation Limited (ONGC) and Oil India.
      
      • These companies are the key bidders for hydrocarbon blocks in auctions and were the only successful bidders in the fifth and latest round of auctions under the Open Acreage Licensing Policy (OALP) regime with ONGC bagging seven of the eleven oil and gas blocks on offer and Oil India acquiring rights for the other four.
  • Low Interest of Foreign Companies:
    
    • India’s efforts to attract foreign energy giants into hydrocarbon exploration and production haven’t been quite fruitful.
      
      • The government has asked ONGC to boost its investments in explorations and increase tie-ups with foreign players to provide technological support in extracting oil and gas from difficult oil and gas fields.
      • The government is also reaching out to major foreign players to convey that the current system of auction and regulation is much more “open and transparent” than before.
  • Climate Change:
    
    • Mounting pressure due to climate change is prompting oil and gas players to diversify into clean energy.
• Reason for Less Private Participation:
  
  • Operationalisation Delays:
    
    • One of the key reasons cited by experts for low private participation in India’s upstream oil and gas sector are delays in the operationalisation of hydrocarbon blocks due to delays in major clearances including environmental clearances and approval by the regulator of field development plans.
  • High Cess:
    
    • Industry players have been calling for a reduction in the cess on domestically produced crude oil to 10% from the current 20%.
  • Limit on maximum Production:
    
    • Internal maximum production levels set by oil and gas majors to address climate change had also lowered interest by oil majors to expand operations in India.
• Impact:
  
  • Reliance on Imports:
    
    • Low domestic production of crude oil and natural gas makes India more reliant on imports.
      
      • The share of imports as a proportion of overall crude oil consumption in India has risen from 81.8% in FY2012 to 87.6% in FY2020.
  • Not in Favouring of India’s Vision:
    
    • Boosting oil and gas production has also been a key part of the government’s Atma Nirbhar Bharat initiative and its goal to boost the use of natural gas in India’s primary energy mix from the current 6.2% to 15% by 2030.
• Some Government Initiatives to Improve Production:
  
  • Reforming Exploration & Licensing:
    
    • In October 2020 Cabinet Committee on Economic Affairs (CCEA) approved the Policy framework on reforms in the exploration and licensing sector for enhancing domestic exploration and production of oil and gas.
  • National Data Repository (NDR):
    
    • The NDR was established by the Government in 2017 to assimilate, preserve and upkeep the vast amount of data which could be organized and regulated for use in future exploration and development, besides use by R&D and other educational institutions
    • It is an integrated data repository of Exploration and Production (E&P) data of Indian sedimentary basins.
  • Hydrocarbon Exploration and Licensing Policy (HELP):
    
    • It replaced the erstwhile New Exploration Licensing Policy (NELP) in 2016 and provides for a single License for exploration and production of conventional as well as non-conventional Hydrocarbon resources; Pricing and Marketing Freedom; reduced rate of royalty for offshore blocks.

Way Forward

• A variety of new technologies can prolong the life of ageing oil fields but the acquisition, testing and application of these technologies is capital-intensive. Thereby, the fiscal framework must ensure adequate returns for producers to deploy Enhanced Oil Recovery mechanisms.
• The current approval processes must be simplified with stipulated timelines for each sign-off, thereby avoiding cost escalations due to delays.
• Potential of Unconventional Hydrocarbons (UHC) such as Shale Oil and gas, tight oil/gas and gas hydrates must be opened now for commercial exploitation.

Source: IE