2013-03-01 16:42:37 - New Energy market report from Business Monitor International: "India Oil & Gas Report Q2 2013"
BMI View: Production at the Reliance-operated KG-D6 gas block continued to fall throughout the end of 2012 and the beginning of 2013. The government is clearly concerned and the field partners, now including BP, are being forced to overhaul investment plans and strategy. India remains confronted by a major gas dilemma, with soaring demand pointing to increased imports, but onshore (CBM and shale) and offshore resource potential still suggesting scope for dramatically higher domestic supply. In the meantime, the slow progression of import infrastructure development threatens to constrain long-term consumption.
The main trends and developments we highlight for the Indian Oil & Gas sector are:
* BMI estimates that Indian total liquids production averaged 951,100 barrels per day (b/d) in 2012.
This figure is very close to the previous year's outturn, but volumes should head higher in 2013 on the back of rising production from the Mangala fields in the Rajasthan block. Production at Mangala has ramped up, but remains far below its expected 240,000b/d level. BMI's demand outlook suggests consumption of an estimated 3.57mn b/d in 2012 will rise steadily to 4.20mn b/d by 2017. Given forecast consumption of 4.89mn b/d, implied 2022 oil imports are put at 3.85mn b/d.
* Gas demand is rising fast across the industrial, residential and power sectors and consumption has risen by almost 400% since 1995. Average annual demand growth of at least 6% is forecast over the next several years, accelerating as domestic field development and liquefied natural gas (LNG) import deals make more gas available. We have reduced our production forecast following the announcement of further production declines at the KG-D6 block. We see national output falling to 41bn cubic metres (bcm) in 2013 before rising to 55bcm by 2018, about 3bcm below our previous forecast. We are predicting total gas consumption of at least 116.4bcm in 2017, up from an estimated 69.1bcm in 2012. By 2022, demand is put at 160bcm, requiring net imports of around 101.5bcm.
* India has set up a committee to review the country's existing production sharing contracts (PSCs) with oil and gas companies. According to an official statement, the objective is to look into the design of future PSCs in order to 'enhance production of oil and gas and the government's share' while 'minimising procedures for monitoring the expenditure of producers'. The main issues in this review are: profitsharing mechanisms in PSCs; alternative models that can maximise output (and the government's associated share) more effectively; how to improve the management of PSC implementation; and possible reforms to the gas price regulatory mechanism.
* A decision on gas pricing is likely to be adopted in 2013 after the Rangajaran Committee recommended raising prices from US$4.2 to US$48.5 per mmBtu. This would apply retroactively to PSC that are already signed, incentivising companies to increase gas production. This is particularly relevant to RIL and BP, which failed to maintain production at the KG-D6 block as geological complications increased the breakeven price of output.
* India will allow foreign oil and gas companies to bid in its first round of shale-gas licensing, which is expected in 2013 as part of efforts to fast-track exploration for unconventional resources. According to a draft shale gas policy document on the oil ministry's website, the government will exempt explorers from payment of customs duties on imports of shale gas exploration equipment. Another incentive aimed at attracting investors is a plan to keep shale oil output tax-free. Estimates of shale reserves in India vary widely, with the US Geological Survey assessing technically recoverable shale reserves of 173bcm in three out of 26 sedimentary basins in India. This is around a 10th of the US Energy Information Administration (EIA)'s estimate of 1,785bcm in four basins.
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India's import dependency will become increasingly expensive. At the time of writing, we assume an OPEC basket oil price for 2013 of US$104.40/bbl, falling to US$101/bbl in 2014. For 2013, India's oil and gas import costs are forecast at US$120.9bn, but could reach US$138.5bn in 2017 and US$174.9bn by 2022.
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