According to Oil & Gas Journal (OGJ), India had 5.6 billion barrels of proven oil reserves as of January 2009, the second-largest amount in the Asia-Pacific region after China. India’s crude oil reserves tend to be light and sweet, with specific gravity varying from 38° API in the offshore Mumbai High field to 32° API at other onshore basins.

India produced roughly 880 thousand bbl/d of total oil in 2008, of which approximately 650 thousand bbl/d was crude oil, with the rest of production resulting from other liquids and refinery gain. India has over 3,600 operating oil wells, according to OGJ. Although oil production in India has slightly trended upwards in recent years, it has failed to keep pace with demand and is expected by the EIA to decline slightly in 2009.

India’s oil consumption has continued to be robust in recent years. In 2007, India consumed approximately 2.8 million bbl/d, making it the fifth largest consumer of oil in the world. Demand grew to nearly 3 million bbl/d in 2008. EIA anticipates consumption growth rates flattening in 2009 largely due to slowing economic growth rates and the recent global financial crisis.

The combination of rising oil consumption and relatively flat production has left India increasingly dependent on imports to meet its petroleum demand. In 2006, India was the seventh largest net importer of oil in the world. With 2007 net imports of 1.8 million bbl/d, India is currently dependent on imports for 68 percent of its oil consumption. The EIA expects India to become the fourth largest net importer of oil in the world by 2025, behind the United States, China, and Japan.

The government of India’s largest crude oil import partner is Saudi Arabia, followed by Iran. Nearly three-fourths of India’s crude oil imports come from the Middle East. The Indian government expects this geographical dependence to rise in light of limited prospects for domestic production.

India’s oil sector is dominated by state-owned enterprises, although the government has taken steps in recent years to deregulate the hydrocarbons industry and encourage greater foreign involvement. India’s state-owned Oil and Natural Gas Corporation (ONGC) is the largest oil company. ONGC is the dominant player in India’s upstream sector, accounting for roughly 71 percent of the country’s oil production in 2007, according to Indian government estimates. State-owned Oil India Limited (OIL) is the next largest oil producer, having accounted for approximately 28 percent of oil production during the same year. Other major state-run players include the Indian Oil Corporation (IOC) and the Gas Authority of Indian Limited (GAIL), although these companies are primarily involved in downstream activities such as petroleum refining and gas pipelines and distribution, respectively. In addition, the private Indian firm, Reliance Industries Limited, is also becoming a significant operator in the oil sector and is the largest private oil and gas company in the country. Cairn India, a branch of UK-based Cairn Energy, and BG Exploration are also important private sector operators in the industry.

As a net importer of oil, the Indian government has introduced policies aimed at increasing domestic exploration and production (E&P) activities. Economic reform and other efforts to open up the country have led to increased foreign investment in India. As part of an effort to attract oil majors with deepwater drilling experience and other technical expertise, the Ministry of Petroleum and Natural Gas created the New Exploration License Policy (NELP) in 2000, which for the first time permitted foreign companies to hold 100 percent equity ownership in oil and natural gas projects. International oil and gas companies operate only a relatively small number of fields at this time, however.

India’s downstream sector is also dominated by state-owned entities, although private companies have increased their market share in recent years. The Indian Oil Corporation (IOC) is the largest state-owned company in the downstream sector, operating 10 of India’s 18 refineries and controlling about three-quarters of the domestic oil pipeline transportation network. Reliance Industries, a private Indian firm, opened India’s first privately-owned refinery in 1999, and has gained a considerable market share in India’s oil sector.

Most of India’s crude oil reserves are located offshore, west of the country, and onshore in the northeast, although substantial newly-discovered reserves are located offshore in the Bay of Bengal and in Rajasthan state. India’s largest oil field is the offshore Mumbai High field, located north-west of Mumbai and operated by ONGC. Although production has declined at Mumbai High, it still produces nearly 300,000 bbl/d. Another of India’s large oil fields is the Krishna-Godavari basin, located in the Bay of Bengal. Block D6 in the Krishna-Godavari basin, operated by Reliance Industries, could account for as much as 40 percent of India’s current domestic hydrocarbon output when production peaks. Oil production from this block began in September 2008. Onshore, GAIL is planning to invest $18 million in exploratory drilling in Assam State, an important location for oil reserves. ONGC also plans to invest as much as $2.4 billion in exploratory work in the northeast, particularly in Mizoram, Tripura, and Nagaland states.

In light of declining production at the majority of India’s fields, companies are investing in enhanced oil recovery methods. ONGC plans to invest nearly $1.5 billion in such projects, and a multitude of these schemes have been approved for many of the company’s fields.

To help meet growing oil demand and support the country’s energy security, India has promoted various E&P projects in an effort to boost domestic oil production. However, new E&P projects are expected to be difficult due to their deepwater location or terrain type. In order to address these challenges, Indian companies are recruiting foreign firms with greater experience and more sophisticated technology. For example, ONGC recently assigned a participating interest to Rocksource ASA, a Norwegian company with technological expertise in deepwater drilling, and to Petrobras for the development of an eastern offshore deepwater block. The participation of private foreign firms over the last five years has helped develop previously unexploited deepwater areas and allow India to tap more of its domestic oil resources.

The primary mechanism through which the Indian government has promoted new E&P projects has been the NELP framework. The latest round of auctions, NELP VII, has been less successful than the government expected and with interest stemming largely from domestic firms rather than foreign investors. India plans to launch the NELP VIII bidding round in mid-March 2009.

In recent years, Indian NOCs have increasingly looked to acquire equity stakes in E&P projects overseas. The most active company abroad is ONGC Videsh Ltd (OVL), the overseas investment arm of ONGC. ONGC Videsh conducts oil and natural gas operations in 13 countries, including Vietnam, Myanmar, Russia (Sakhalin Island), Iran, Iraq, Sudan, Brazil, and Columbia. One of ONGC Videsh’s most high profile investments is its share in the Greater Nile Petroleum Operating Company (GNPOC), which has engaged in E&P work in Sudan since 1997. ONGC Videsh acquired a 25 percent equity stake in the company in 2003, with the balance held by the China National Petroleum Company (CNPC, 40 percent), Petronas (30 percent), and the Sudan National Oil Company (Sudapet, 5 percent). The GNPOC acreage in Sudan holds proved crude oil reserves of more than one billion barrels with current production levels at roughly 300,000 bbl/d from 10 fields. In addition to the upstream activities, the GNPOC companies operate a 935-mile crude oil pipeline that pumps oil to Port Sudan for export (see the Sudan Country Analysis Brief for more information).

ONGC Videsh also holds a 20 percent stake in the ExxonMobil-led consortium that operates the Sakhalin-I project in Russia. According to company estimates, the oil fields associated with Sakhalin-I hold recoverable crude oil reserves of 2.3 billion barrels. For more information on the Sakhalin-I project, please see the Russian CAB.

In addition to ONGC, other Indian companies are also actively involved in E&P projects abroad. OIL, for example, is working on projects in Libya, Gabon, Nigeria, and Sudan, and IOC, GAIL, and Reliance are also pursuing overseas oil E&P assets.

According to OGJ, India had 2.26 million bbl/d of crude oil refining capacity at 18 facilities as of January 2008. The country has the eighth largest refinery capacity in the world. This year, privately-owned Reliance Industries surpassed state-owned India Oil Corporation (IOC) in terms of refining capacity in the country due to additions to its recently upgraded facility. Reliance’s only refinery, the Jamnagar facility, is India’s largest, with an initial capacity of 660,000 bbl/d. Reliance recently enlarged the Jamnagar site to add an additional capacity of 580,000 bbl/d, making it the largest refining complex in the world with a refining capacity of 1.24 million bbl/d.

Other key upcoming refinery projects include Essar Oil’s Vadinar refinery expansion of 110,000 bbl/d in 2010 and 320,000 bbl/d in 2013, IOC’s Paradeep refinery expansion of 300,000 bbl/d in 2014, and 300,000 bbl/d capacity additions to refineries in Bina and Bhatinda by 2013. India is slated to add 1.6 million bbl/d of refining capacity through 2015 based on current proposed projects.

Due to expectations of high demand for petroleum products in the region, further investment in the Indian refining sector is likely. As part of the country’s 11th Five Year plan from 2007 to 2012, the government would like to promote India as a competitive refining destination, and industry experts expect the country to be a significant exporter of refined products to Asia in the near future. The remaining challenge for the country will be to obtain a secure supply of crude oil to feed its refineries.

Beginning in 2002, the Indian government introduced some measures aimed at deregulation in the downstream oil sector. Private refiners may now directly market some of their own petroleum products to their customers. Additionally, the government phased out the Administered Price Mechanism (APM) on oil products in 2002, replacing it with the new Market Determined Price Mechanism (MDPM). However, while the MDPM is notionally benchmarked to international oil prices, the Indian government continues to heavily subsidize domestic prices of oil products such as diesel, LPG, and kerosene for consumers. As such, demand for petroleum products in India has been substantially influenced by the government’s pricing scheme. With diesel prices significantly lower than other fuels, such as gasoline, demand for diesel rose substantially, by as much as 25 percent between 2006 and the first half of 2008, according to industry analysts.

The combination of high international crude oil prices and low domestic fuel rates before the fourth quarter of 2008 led private refiners in the country, particularly Reliance and its Jamnagar facility, to have an overt export focus in order to avoid suffering significant financial losses in the domestic market. Although partial compensation in the form of oil bonds has been extended to ease the financial burden imposed by capped fuel prices to the three state-owned retailers IOC, Hindustan Petroleum (HPCL), and Bharat Petroleum (BPCL), the private refiners have not received the same government support. Upstream firms such as ONGC also subsidized about one-third of state refiners’ revenue losses through discounts on crude sales. The government pushed through small domestic fuel price increases, as the price of petroleum products rose by 15 percent in the first half of 2008, according to industry reports, but rates remained well below competitive international levels. The rate hikes have had little effect on rising demand for diesel fuel and have not entirely closed the losses incurred by Oil Marketing Companies (OMCs). Because of a reversal in crude oil prices from all-time highs in July 2008 and a desire to stimulate the domestic economy, the Indian government cut retail prices in December 2008 and January 2009 by approximately 12 percent for diesel and over 20 percent for gasoline.

In support of the country’s energy security, Indian officials have declared that the country intends to develop a strategic petroleum reserve (SPR). The decision has been made to set up a strategic reserve of 5 million tons (36.6 million barrels) of crude oil in underground structures in Mangalore, Visakhapatnam, and Padur. The project is expected to come online in 2012. The location of the storage facilities was selected to be along the coast so that the reserves could be easily transported to refineries during a supply disruption. The SPR project is being managed by the Indian Strategic Petroleum Reserves Limited (ISPRL), which is part of Oil Industry Development Board (OIDB), a state-controlled organization. Despite these plans, India does not have any strategic crude oil stocks at this time.