2013-12-12 16:24:15 - New Energy research report from Business Monitor International is now available from Fast Market Research
The move to liberalise fuel prices and increase gas prices in India is expected to improve the investment climate in both the upstream gas and downstream refining sectors. We expect higher investment in offshore and unconventional gas to impact the longer term production outlook. High oil prices and a deflated rupee have impacted refiners' margins as product prices have been capped. Reducing subsidies for fuels would make the refiners profitable, though protests have taken place rejecting the price rises that have fed through to end users. As a result liberalisation of fuel prices may be delayed in 2014, an election year, with refiners not benefiting until later into the forecast.
Full Report Details at
The main trends and developments
we highlight for the Indian oil and gas sector are:
* The Rangajaran Committee's recommendation to raise gas prices from US$4.2 to US$8.4 per million British thermal unit (mnBTU) was approved by India's Prime Minister late June 2013. This will apply retroactively to production sharing contracts (PSCs) that are already signed from April 1 2014, incentivising companies to increase gas production. As a result we anticipate strong gas production growth to begin from
* However, conflict has already emerged with the government accusing some companies of hoarding gas in preparation for the gas price rise in 2014. The government has suggested it could hold back from paying Reliance the increased price for gas if too little is produced from its fields. Reliance has retaliated by threatening to stop investment until a clear pricing structure is in place. This could hinder gas production growth, though we still anticipate output to grow from 2016.
* BMI estimates that Indian total liquids production will average over 1mn barrels per day (b/d) in 2013. This figure is very close to that of the previous year, 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 3.75mn b/d in 2013 will rise steadily to 4.62mn b/d by 2017 and 6.2mn b/d in 2022. Theoretical net imports are therefore expected to increase from around 2.7mn b/d in 2013 to over 5mn b/ d in 2022.
* 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 about 5% is forecast over the next several years, accelerating as domestic field development and liquefied natural gas (LNG) import deals make more gas available. While gas consumption faltered in 2013 due to supply curbs, we expect demand growth to return 2014 and rise to 75bcm a year by 2017.
* India's refining sector is set to see considerable distillation capacity additions. Over 500,000b/d of capacity will be added by 2015, and India's over all capacity is expected to top 5mn b/d by 2017. While not yet forecast, we anticipate further expansions and new refineries to add to total capacity in the latter part of the forecast.
* India has set up a committee to review the country's existing 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: profit-sharing 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. 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.
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