Energy Sources Sector Analysis Report 

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• The gas consuming sectors can be broadly classified into – Priority (CGD, power, fertilizers) and non-priority sectors (steel, refining etc.). The gas demand in India is met through either domestic supplies or imported gas (LNG). There are broadly two pricing regimes for the gas in country – Administered Pricing Mechanism (APM) and non-APM, which applies to imported gas (LNG) and gas produced from JV fields.
• There are presently three major pipeline entities engaged in natural gas transportation across India namely GAIL, RGTIL/RGPL and GSPL. GAIL is operating about 11410 km of trunk pipelines in India comprising 68% of the pan-India pipeline network.
• The Government of India has adopted several policies to fulfil the increasing demand. The government has allowed 100% Foreign Direct Investment (FDI) in many segments of the sector, including natural gas, petroleum products, and refineries, among others.
• According to data released by the Department of Industrial Policy and Promotion (DIPP), the petroleum and natural gas sector attracted FDI worth US$ 7.00 billion between April 2000 and June 2018.

• Supply
• In the upstream segment, supply from the domestic market caters to 20% of the total demand for crude oil. In the gas segment also, with the domestic gas supplies on a decline, the share of imports in gas sector is rising. In the downstream segment, refining has seen significant capacity addition in the recent past. Crude oil price prices have been pulled down sharply by signs of an economic slowdown.
• Demand
• In the past, we have seen a fair degree of correlation between the growth in petroleum products and the growth in the overall economic activities. Thus we expect the long-term demand to be in line with economic growth. OPEC has a significant influence on demand supply dynamics in crude oil.
• Barriers to entry
• In the upstream segment, government permission is required to commence operation. Finding, exploration, development and production cost of oil fields are significant, thus barriers are higher.
• Bargaining power of suppliers
• Crude prices are globally determined and are highly susceptible to geopolitical events, economic growth and demand factors, economic policies, and speculative bets. Since domestic availability is only about 20%-25% of the requirement, India is basically a price taker as far as crude is concerned. For the petroleum products, given the surplus capacity in the country the bargaining power is low.
• Bargaining power of customers
• Despite oil prices being on the cheaper side throughout the year, the price of petroleum products has not declined by the same extent due to Government’s interference with regards to hike in excise duties etc. With PSUs controlling most of the market, bargaining power of customers is not very strong. However, this may change as private players gain a higher share in the market.
• Competition
• An important development in the sector has been replacement of the earlier New Exploration Licensing Policy (NELP) by HELP (Hydrocarbon Exploration & Licensing Policy). This change is touted to bring a fresh change in the licensing framework and bring about a greater degree of transparency, thus spurring competition and investments. In the downstream segment, companies are going for upgradation of refineries and adding capacities which is likely to lead to more competition. With new reforms announced in energy sector, more private players are likely to enter oil and gas sector thus increasing the competition.

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• India's oil production reached 35.68 Mt in 2017-18. India had 1.2 million cubic meters of proven gas reserves at the end of 2016 and produced 31.83 billion cubic meters of gas in FY18 which is expected to rise and reach 36 by 2021.
• India imported 18.05 MMT of LNG during 2017-18, in comparison to 18.63 MMT in 2016-17. Imports during April 2018 stood at 1.72 MMT. India increasingly relies on imported LNG; the country is the fourth largest LNG importer and accounted for 5.68% of global imports.
• ONGC remains the largest domestic producer of crude oil (70% of Indian domestic production).
• In FY18, total crude oil imports were valued at US$ 87.37 billion as compared to US$ 70.71 billion in FY17. In FY18, crude oil imports increased to 4.41 mbpd (thousand barrels per day) from 4.27 mbpd in FY17. Crude oil imports during April 2018 stood at 0.34 mbpd.
• In January 2018, after a gap of eight years, the Central Government auctioned 55 exploration blocks which offered a record area for prospecting of oil and gas. This was the first auction that allows companies to carve out blocks of their choice with a view to bringing about 2.8 million square kilometres of unexplored area in the country under exploration.
• As of May 1, 2018, India had a network of 10,327 km of crude pipeline having a capacity of 141.2 mmtpa. In terms of length, IOCL accounts for 51.33% (5,301 km) of India’s crude pipeline network.

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• Energy demand of India is anticipated to grow faster than energy demand of all major economies, on the back of continuous robust economic growth. Consequently, India’s energy demand as a percentage of global energy demand is expected to rise to 11% in 2040 from 5.58% in 2018.
• Crude oil consumption is expected to grow at a CAGR of 3.60% to 500 million tonnes by 2040 from 221.76 million tonnes in 2018.
• India targets US$ 100 billion worth investments in gas infrastructure by 2022, including an addition of another 228 cities to city gas distribution (CGD) network. This would include setting up of RLNG terminals, pipeline projects, completion of the gas grid and setting up of CGD network in more cities.
• Indian Oil Corp plans to make an investment of US$22.91 billion, including US$7.64 billion for expanding its existing brownfield refineries, in the next 5 to 7 years. Moreover, the company plans to lay the nation's longest LPG pipeline of 1987 km, from Gujarat coast to Gorakhpur in eastern Uttar Pradesh, to cater to growing demand for cooking gas in the country. In FY18, the company is planning to invest US$ 3.5 billion to expand and enhance its refinery capability and marketing infrastructure.
• Overall, the energy sector is quite vulnerable to global threats like slowdown in the US/Europe, tensions between Iran and US region etc. Going forward, higher domestic production, regulatory reforms across the value chain and pipeline, refining and gas infrastructure will be the driving factors for the sector.

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