According to Oil & Gas Journal (OGJ), India had 5.6 billion barrels of proven oil reserves as of January 2007, the second-largest amount in the Asia-Pacific region (behind China). India’s crude oil reserves tend to be light and sweet, with specific gravity varying from 38° API in the offshore Mumbai (Bombay) High field to 32° API at other onshore basins. Much of India’s crude oil reserves are located off the western coast (Mumbai High) and in the northeast of the country, although substantial undeveloped reserves are located in the offshore Bay of Bengal and in Rajasthan state.

The combination of rising oil consumption and fairly stable production levels leaves India increasingly dependent on imports to meet consumption needs. In 2006, the country produced an average of 846,000 barrels per day (bbl/d) of total oil liquids, of which 77 percent, or 648,000 bbl/d, was crude oil. During 2006, India consumed an estimated 2.63 million bbl/d of oil. EIA estimates that India registered oil demand growth of 100,000 bbl/d during 2006. EIA forecasts suggest the country will experience similar gains during 2007 and 2008.

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, and also the country’s largest company overall by market capitalization. ONGC is the dominant player in India’s upstream sector, accounting for roughly three-fourths of the country’s oil output during 2006, according to Indian government estimates.

As a net importer of oil, the Indian government has introduced policies aimed at increasing domestic oil production and oil exploration activities. As part of this effort, the Ministry of Petroleum and Natural Gas crafted the New Exploration License Policy (NELP) in 2000, which for the first time permits foreign companies to hold 100 percent equity ownership in oil and natural gas projects. However, to date, only a handful of oil fields are being operated by foreign firms.

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 17 refineries and controlling about three-quarters of the domestic oil 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.

To help meet growing oil demand, India has promoted various exploration and production (E&P) projects over the last several years in an effort to boost domestic oil production.

The primary mechanism through which the Indian government has promoted new E&P projects has been the NELP framework. Between 2000 and 2005, the government awarded 110 oil and natural gas concessions in five separate licensing rounds. The sixth bidding round (known as NELP-VI) recently concluded, with 52 exploration blocks awarded. As in previous rounds, ONGC and other Indian national oil companies (NOCs) fared very well. ONGC secured a total of 25 exploration blocks, often in consortia with other Indian NOCs. The privately-owned Reliance Industries secured seven deepwater blocks in the Krishna-Godavari and Mahanadi basins, which are considered to be some of India’s most promising offshore hydrocarbon basins. The government is expected to formally sign Production Sharing Contracts (PSCs) for the 52 blocks in early 2007. Notably absent on the list of bidders for the NELP-VI are international oil majors. The Indian government was keen to attract oil majors to utilize their vast deepwater experience and other technical expertise. Some industry publications suggest that the Indian government will now move to an open acreage system, in which domestic and international oil companies can apply for available E&P projects at any time, rather than licensing rounds.

In recent years, Indian NOCs have looked to acquire equity stakes in E&P projects overseas. The most active company is ONGC Videsh Ltd., the overseas investment arm of ONGC. As of January 2007, ONGC Videsh holds interests in 25 oil and natural gas projects in 15 countries, spanning Africa, Asia, Latin America, and the Middle East. 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 million barrels, and current production levels from the 8 main GNPOC fields exceeds 300,000 bbl/d. 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. Production at Sakhalin-I started in October 2005, and is expected to reach 250,000 bbl/d in early 2007. Oil from the Sakhalin-I project will be piped westward to the DeKastri terminal on the Russian mainland for export, while some crude oil will also be pumped into Russia’s domestic pipeline system for local consumption (for more information, see the Sakhalin Island Analysis Brief and the Sakhalin- I Project Website ).

According to OGJ, India had 2.25 million bbl/d of refining capacity at 17 facilities as of January 2007. Only one refinery, Reliance Petroleum’s plant at Jamnagar, is wholly owned by a private company. The Jamnagar facility is Reliance Petroleum’s only current refinery, but it is India’s largest, with a capacity of 660,000 bbl/d. Reliance Petroleum is currently constructing a second facility at the Jamnagar site, which is expected to have a capacity of 580,000 bbl/d when completed in 2008. When finished, Jamnagar will be the largest refining complex in the world. IOC is the largest state-owned player in India’s refining sector, with 620,000 bbl/d of refining capacity at 7 plants. The company announced expansion plans in October 2006 that call for doubling its refining capacity by 2012.

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 fuel prices for consumers. The combination of high international crude oil prices and low domestic fuel rates has led some new refinery proposals to have an overt export focus, such as Reliance Petroleum’s second Jamnagar facility. In February 2006, the Indian government issued a one-time relief subsidy of $1.3 billion to domestic refiners that faced financial difficulties due to capped fuel prices. In June 2006, the government also pushed through a small domestic fuel price increase, although rates remain well below competitive international levels.

Indian officials have declared that the country intends to develop a strategic petroleum reserve (SPR). To date, plans have been approved for the construction of storage tanks with 36.7 million barrels of crude oil storage capacity, with several sites near Mangalore on the east coast being considered. Construction at the planned storage sites is expected to begin in early 2007. To date, the government has not reached a decision on when to fill the country’s SPR tanks, or how large to build the reserves. The SPR project is being led by the Indian Strategic Petroleum Reserve Corporation Ltd., which is part of Oil Industry Development Board, a state-controlled organization that manages loans and grants to the oil industry.