Oil and gas imports

See also: Energy policy of India and Energy in India

India is heavily dependent on crude oil and LNG imports with 82.8% import dependence for crude oil
and 45.3% for natural gas/LNG.[18] The net foreign exchange outgo is 63.305 billion US$ in the
financial year 2017–18 on account of crude oil imports. India generated 35.2 million tons of
petroleum products from indigenous crude oil production whereas the consumption of petroleum
products is 204.9 million tons. Similarly India generated 31.7 bcm natural gas locally against the
consumption of 58.1 bcm.[1] LNG price is linked to the prevailing crude oil price in global markets.
[19]

India is the third biggest oil importer after US and China in 2018 and expected to occupy second
place surpassing the US in 2019.[3] In the year 2019, US is going to become net exporter of LNG,
LPG, crude oil and its products from its shale oil production boom.[20][21][22] Shale oil production
cost would be the lower ceiling price for the crude oil in international trade as its substantial
production is consumed internally in US.[23][24][25]

Due to lack of adequate petroleum reserves, India has to depend mostly on crude oil imports in near
future till its renewable energy resources such as solar, wind, hydro and bio-mass are exploited
adequately to achieve energy security by replacing the petroleum products consumption which are
also major contributors to the air pollution.[26] In such adverse situations, India has to proactively
play a major role in global crude oil trade as swing oil producer by using its limited crude oil
production base to bring down the high price of crude oil fixed by OPEC+ and the Big Oil.[27][8]
International crude oil prices vary steeply for a small mismatch between global supply and global
demand.[28] To become swing oil producer, India should enhance crude oil extraction rate twice of
the normally designed rate for continuous extraction from its developed oil fields and extract crude
oil on intermittent basis only when crude oil prices exceed a preset upper ceiling value instead of
continuously extracting oil.[29]

Also, India and China being major oil importers, both countries should coordinate for mutual benefit
while trading in global oil markets to moderate the crude oil price and nullify the oil pricing power of
OPEC, etc.[30][31][32] Normally, crude oil pricing and gold pricing exhibit opposite trends in global
trading (i.e. while one appreciates the other depreciates). India should also procure crude oil in
futures market by hedging gold.

Crude oil trading

By transacting in crude futures trading in MCX or BSE, crude oil products consumers (petrol, diesel,
jet fuel, etc.) in India can hedge their risk while purchasing the crude oil products in Indian currency.
[33][34] The futures trading is cash settled on expiry date taking WTI crude or Brent crude
settlement price as reference.[35][36]
The quality of crude oil which is imported by India from Persian Gulf is called Indian Basket crude.
[37][38] It is weighted average of Dubai and Oman (sour) and the Brent Crude (sweet) crude oil
prices. However the exporting countries charge premium or give rebate on the Indian Basket price
by declaring official selling price (OSP) depending on market conditions every month.[39]

Production

India produced 35.68 MTs of crude petroleum in 2017–18. India accounted for 0.92% of world oil
production in 2016–18. Production of crude petroleum in India had a CAGR of 0.63% between 2008–
09 and 2017–18. India also produces petroleum products and produced 254.40 MT in 2017–18, a
growth of 4.46% over the previous year. Among petroleum products, high speed diesel oil accounted
for 42.41%, followed by motor gasoline (14.85%). The production of natural gas was 31.73 billion
cubic meters in 2017–18, growing by 60.86% over the previous year. India accounted for 0.77% of
world natural gas production in 2016–17.[7]

ONGC is developing the KG-DWN-98/2 block in Krishna-Godavari (KG) Basin with capex of about
US$5,076 million (approximately INR 340,000 million) leading to Peak oil production from the field to
the extent of 78,000 bpd (4.1 million tons per year) and natural gas @16 million metric standard
cubic meter per day or 5.84 million tons oil equivalent (MMTOE) per year. The capex works out to
nearly US$14.5 per barrel only for 5 years production period. ONGC has already developed from the
proved oil and gas reserves to the extent of 462.12 MMTOE at very low capex comparable with that
of OPEC countries.[40] Oil fields in Rajasthan state are emerging as a major oil and gas producer.[41]

India has deployed 159 rigs and drilled 545 production wells during 2017-18 which stands globally
fifth but the oil and gas production is not commensurate with the wells drilled.[1]

Petroleum refining

As on 31 March 2018, there were 23 crude oil refineries in India, of which 18 were state-owned, 3
were privately owned and 2 were joint ventures. The total oil refining capacity in India stood at 248
MMT, rising from 234 MT in the previous year. Refineries in India processed 251.935 MMT of oil in
2017-18 achieving a capacity utilization of 106.6%. With a total refining capacity of 69.2 million
tonnes per year, the state-owned Indian Oil Corporation was the largest refiner in the country by
capacity. Indian Oil's refineries processed 69.001 MMT of crude oil in 2017–18.[7]

Many refineries are using the lower end residual oil with higher sulphur content to produce more
lighter oils (petrol, diesel, etc.) by installing petroleum coker units.[42] This process generates a solid
fuel called Pet coke which has higher calorific value and sulphur. As developed countries have
banned use of high sulphur pet coke and residual oils, these fuels further are converted in to
synthetic natural gas and methanol in Methanation plants to avoid their disposal problem.[43]
Nearly 38% of residual fuel oils are consumed in the shipping sector. The International Convention
for Prevention of Pollution from Ships (MARPOL), adopted by the IMO, has mandated that marine
vessels shall not consume residual fuel oils (bunker fuel, etc.) with a sulphur content greater than
0.1% from the year 2020.[44] Thus complete use of residual oil or pet coke in gasification unit would
be part of petroleum refining complexes/plants in future to avoid waste products disposal.[45][46]

Due to COVID-19 pandemic, refineries are forced to operate at lower capacities as the demand for
petro products (mainly ATF and gasoline) have fallen steeply. After the implementation of IMO rules
restricting use of high sulfur fuel oil (HSFO) by the marine vessels, the prices of HSFO have fallen so
low compared to crude oil and using it has become more economical by the advanced refineries with
vacuum distillation and coker units to produce gasoline, diesel, pet coke, etc.[47] Pet coke is in high
demand for use in cement production.

Consumption

India is the third largest consumer of crude oil in the world, after the United States and China.[3] The
country accounted 4.81% of total world oil consumption in 2016–17. The estimated total
consumption of crude oil in India rose from 160.77 MMT in 2008–09 to 251.93 MMT in 2017–18
with a CAGR of 4.59%. High speed diesel oil accounted for 39.3% of total consumption of all types of
petroleum products in 2017–18, followed by petrol (12.7%), petroleum coke (12.4%), liquefied
petroleum gas (11.3%), and naphtha (6.1%). The country accounted for 1.41% of total world natural
gas consumption in 2016–17. The largest consumers of natural gas are the fertilizer industry
(27.78%), power generation (22.77%), and the use of natural gas as a domestic fuel for
transportation (16.25%). Natural gas is consumed for both energy (60.68%) and non-energy (39.32%)
related uses.[7]

Electricity generation

Further information: List of power stations in India § Gas-based, and List of power stations in India §
Diesel-based

Crude oil and natural gas are the second and third largest sources of electricity generated in India,
after coal. Crude oil accounted for 10.34% and natural gas accounted for 8.7% of the total electricity
produced in 2017–18.[7] As on 23 October 2015, the installed capacity of gas-based power plants in
India was 25,057.13 MW, accounting for 7.9% of the total installed capacity. Diesel is a minor source
for electricity generation in India. The total installed capacity of diesel-based power plants in utility
sector of India is 927.89 MW accounting for a mere 0.3% of total installed capacity.[48]

Excluding the utility sector DG sets, there are more than 90,000 MW DG sets (above 100 kVA
capacity range) installed for back up power needs which is nearly 36% of the total installed capacity
in utility sector of India.[49] In addition, there are innumerable DG sets of capacity less than 100 kVA
to cater to emergency power needs during the power outages in all sectors such as industrial,
commercial, domestic and agriculture.[50]

India's electricity sector consumed 24.28% of the natural gas produced in the country in 2016–17.[7]
Foreign trade

India is the third largest oil importer after the United States and China and is highly dependent on
imports of crude oil.[3] The net imports of crude oil rose from 132.78 MTs during 2008–09 to 220.43
MTs during 2017–18. Despite the dependence on imports, India has developed sufficient processing
capacity over the years to produce different petroleum products. As result, India is now a net
exporter of petroleum products. The export of petroleum products increased from 38.94 MT in
2008–09 to 66.83 MT during 2017–18. The import of petroleum products was 35.46 MT in 2017–18,
decreasing by 2.28% from the previous fiscal. The gross import of natural gas increased from 8.06
BCM in 2008–09 to 19.87 BCM in 2017–18, recording a CAGR of 9.44%.[7]

India has an 82.8% import dependence for crude oil and 45.3% for natural gas/LNG. The net foreign
exchange outgo is 63.305 billion US$ in the financial year 2017–18 on account of crude oil imports.
India generated 35.2 million tons of petroleum products from indigenous crude oil production
whereas the consumption of petroleum products is 204.9 million tons. Similarly India generated 31.7
bcm natural gas locally against the consumption of 58.1 bcm.[1]

Oil imports by source country

India was the third largest crude oil importer in the world in 2018. The country spent an estimated
₹8.81 lakh crore (US$120 billion) to import 228.6 million tonnes of crude oil in 2018–19.[51] The
following countries were the 15 largest sources of crude oil imports into India in 2018.[52]

Rank CountryImport value

1 Iraq $23 billion

2 Saudi Arabia $21.2 billion

3 Iran $13 billion

4 Nigeria $9.6 billion

5 United Arab Emirates $8.9 billion

6 Venezuela $7.4 billion

7 Kuwait $5.7 billion

8 Mexico $3.7 billion

9 Angola $3.4 billion

10 United States $2.8 billion

11 Malaysia $2.4 billion

12 Oman $1.7 billion

13 Brazil $1.5 billion

14 Qatar $1.2 billion

15 Russia $1.2 billion

Taxation and pricing

In India, the pricing of fuel varies by state, though central taxes still are part of the pump price of
fuel. The Central and state government's taxes make up nearly half of petrol's pump price. The
Central govt has different taxes, which amount to about 24–26% of the final cost. The states taxes
vary, but on average end up making about 20–25% of the final cost. In addition royalty and oil
development cess is collected on oil and natural gas produced locally. As a result, approximately 50%
of the pump cost goes to the government in the form of different taxes.

For example, in Bengaluru, Karnataka as of May 16, 2011, price of petrol is ₹71.09 (US$1.00) per
litre. Out of this, ₹17.06 (24¢ US) go to Govt of India in the form of excise and customs tax. ₹16.63
(23¢ US) is collected by state government in the form of sales tax and entry tax. Thus, a total of
₹33.69 (47¢ US) is collected due to various taxes (which accounts for around 47% of the total price).
[53]

For Delhi petrol per liter price on April 2, 2018, the price charged to dealers was ₹31.08 (44¢ US),
while central govt excise tax and cess was ₹19.48 (27¢ US), state govt VAT was ₹15.70 (22¢ US) and
dealer commission was ₹3.60 (5.0¢ US). So the price of petrol for the end user was ₹73.83 (US$1.00).
[54]

The natural gas purchase price from the state-owned producers, like ONGC and Oil India Ltd, is fixed
by the government based on prices prevailing in USA, Russia, UK and Canada. The purchase price
would be cut to around US$2.5 per million British thermal unit for the six-month period beginning
April 1, 2020 compared to US$3.23 for the earlier period.[55] In March 2020, India announced that is
increasing taxes on petrol and diesel to raise government revenues.[56]

In March 2020, global crude oil consumption fell substantially causing oil prices to decline steeply
due to COVID-19 pandemic.[57] However, Indian government has not passed the benefit to the
retail buyers /consumers.