BMI View: Continued regulatory reform is unlocking marginal and stranded resources, offering upside to India's mid-term production outlook. However, pricing remains insufficient to stimulate investment in the country's most prospective offshore and unconventional acreage, undermining a more sustainable growth in output. The outlook on the downstream sector is broadly bullish, supported by ongoing fuel price liberalisation, lower-cost crude feedstock and an expanding market domestically.
|e/f = BMI estimate/forecast. Source: National sources, EIA, BMI|
|Crude, NGPL & other liquids prod, 000b/d||884.5||886.1||902.1||890.3||878.4||890.2||892.3|
|Dry natural gas production, bcm||40.6||40.9||39.5||40.6||48.3||53.6||53.2|
|Dry natural gas consumption, bcm||51.4||53.8||56.0||58.8||61.9||66.2||70.5|
|Refined products production & ethanol, 000b/d||3,540.7||3,682.3||3,860.9||4,015.3||4,095.6||4,259.5||4,387.2|
|Refined products consumption & ethanol, 000b/d||3,521.1||3,588.8||3,768.6||3,957.5||4,156.0||4,405.8||4,670.8|
The main trends and developments we highlight for the Indian oil & gas sector are:
Narendra Modi's government is enacting incremental reform to improve the country's wider business environment. Key reforms include a streamlining of bureaucratic procedure and an increase in companies' operational flexibilities.
The government has also enacted various domestic pricing reforms, including an increase in the domestic gas price cap and the liberalisation of diesel prices.
Unconventional and deepwater resources, which account for the bulk of the prospective resource base, are subject to a separate pricing formula, which has yet to be determined. Interest in the NELP-X licensing round rests heavily on how this formula is calculated.
While fiscal and regulatory reforms offer upside risk to exploration and production, major downside risks remain. India has a relatively strong record in terms of policy formation, but often struggles in the implementation.
Changes in the licensing terms from a profit sharing to a revenue sharing structure could dissuade some international oil companies (IOCs) from investing. A revenue sharing contract poses higher risk and entails a significantly longer period of cost recovery.
A sharp drop in the price of crude may also dampen interest in the round, straining the economic viability of the more expensive unconventional and deepwater developments.
The downstream sector is set for strong growth, supported by falling subsidisation, domestic price liberalisation, rapidly rising domestic demand and lower crude feedstock costs.