India’s crude oil production and natural gas output have been consistently falling since the Financial Year (FY) 2011-2012. The latest government data showed a decline in both sectors for FY 2020-2021. This trend signals a need for new strategies and technologies to boost the production of these crucial resources.
Decline in Oil and Gas Production
Crude oil production in India saw a decrease by 5.2% during FY 2020-21. Public and private firms produced 30.5 million tonnes, compared to 32.17 million tonnes during the same period in 2019-2020. Natural gas production also declined by 8.1%. In 2020-21 only 28.67 billion cubic meters was produced, compared to the previous year’s 31.18 billion cubic meters.
Underlying Causes for the Decline
Most of India’s crude oil and natural gas production comes from aging wells that are becoming less productive over time. Easy-to-extract oil and gas reserves in India are almost depleted, thus introducing the need for technologically intensive methods to extract resources from challenging fields such as ultra-deepwater reserves. Crude oil production in India is currently dominated by state-owned exploration and production companies like Oil and Natural Gas Corporation Limited (ONGC) and Oil India. These companies have been the primary bidders for hydrocarbon blocks in auctions. In the fifth and latest round of auctions under the Open Acreage Licensing Policy (OALP), ONGC bagged seven of the eleven oil and gas blocks on offer, while Oil India acquired rights for the remaining four.
Lack of Interest from Foreign Companies
India has struggled to attract foreign energy giants into its hydrocarbon exploration and production sector. The government has urged ONGC to increase investments in explorations and establish more partnerships with foreign players to gain technological support in extracting oil and gas from difficult fields. However, the impact of climate change has also led oil and gas operators to consider diversifying into clean energy.
Challenges Hindering Private Participation
Factors such as delays in the operationalization of hydrocarbon blocks due to regulatory clearances, high cess on domestically produced crude oil, and internal maximum production levels set to address climate change have deterred private participation in India’s upstream oil and gas sector.
Reliance on Imports and its Impact
Due to lower domestic production, India has become more reliant on oil and gas imports. The share of imports as a percentage of overall crude oil consumption in India rose from 81.8% in FY2012 to 87.6% in FY2020. This growing dependence on imports contradicts the government’s vision under the Atma Nirbhar Bharat initiative to increase the use of natural gas in India’s primary energy mix to 15% by 2030 from the current 6.2%.
Government Initiatives to Boost Production
To remedy the situation, the government has approved policy frameworks to enhance domestic exploration and production of oil and gas. Notable initiatives include the National Data Repository (NDR), established in 2017 to preserve and regulate data for future exploration and development, and the Hydrocarbon Exploration and Licensing Policy (HELP), which replaced the New Exploration Licensing Policy (NELP) in 2016.
The Way Forward
New technologies can prolong the life of ageing oil fields. However, these technologies are capital-intensive. An appropriate fiscal framework should be established to ensure sufficient returns for producers. Approval processes need to be streamlined to avoid cost escalations due to delays. Moreover, unconventional hydrocarbons like shale oil and gas, tight oil/gas, and gas hydrates should be commercially exploited.
