India's push to stem the rising tide of oil imports and turn around its flagging oil production continues to experience setbacks.
State owned Oil & Natural Gas Commission (ONGC) has slashed its oil production target to 510,800 b/d in fiscal 1992-93 from 580,000 b/d in fiscal 1991-92.
It is the latest sign of the state owned oil sector's growing inability to meet rapidly rising domestic oil demand through a sizable increase in production. The government previously had pegged the year to year decline at only 20,000 b/d (OGJ, Feb. 24, p. 34). But present estimates show that the year to year drop will be five times that volume.
Government and ONGC officials previously had fixed a target of 1 million b/d of domestic production by fiscal 1994-95, which other industry officials called too ambitious to achieve without a major discovery going on stream in just 2 years.
That situation is being aggravated by ONGC's decision to shut in certain wells in the Bombay High area as part of a major field rehabilitation program, expected to result in a loss of 60,000 b/d this year.
The deeper than expected decline in production means a bigger than expected oil import bill, which had eased the past fiscal year because of lagging oil prices in light of economic recession and an end to the Persian Gulf war.
OPERATIONS TARGETS
India's government last month signed a memorandum of understanding (MOU) covering ONGC's operations targets for the fiscal year that began Mar. 31.
ONGC cites continued declines in production from mature fields and delays in placing on stream new offshore fields such as Gandhar, Ravva, and Bombay High area's L-II and L-III reservoirs (OGJ, Aug. 12, 1991, p. 27).
The MOU target for gas production in the current fiscal year is 1.15 bcfd, marginally higher from the previous fiscal year. It also calls for liquefied petroleum gas production of 16,520 b/d, down from 19,529 b/d in fiscal 1991-92.
The MOU incorporates a new element in ONGC's annual production targets with commissioning of an ethane/propane recovery plant at Uran, which has a target of 900 b/d of natural gas liquids for the year.
Drilling target for fiscal 1992-93 is 1,123,900 m with a slight increase in efficiency to 720 m/rig/month. Plans call for conducting 61,034 line km of seismic surveys.
Development work is expected to proceed this year on L-II and L-III, Neelam, and Gandhar's second phase. Asian Development Bank this spring sanctioned a loan of $267 million for Gandhar development.
DECLINING PRODUCTION
ONGC's MOU confirms earlier estimates of a steep slide in India's oil production this year.
The Petroleum Ministry recently set a tentative target for fiscal 1992-93 of 569,280 b/d for India's production, broken out as ONGC offshore 301,360 b/d and onshore 209,520 b/d and Oil India Ltd. (OIL) 58,400 b/d.
That compares with estimates made earlier this year of 610,000 b/d in fiscal 1992-93 vs. an estimated average 630,000 b/d in fiscal 1991-92.
Until recently, India had achieved significant progress toward oil self-sufficiency, from 5% with production of 9,000 b/d in fiscal 1960-61 to 70% with production of 578,000 b/d in 1984-85.
By 1989-90, India's crude production had reached 681,800 b/d, but consumption had risen sharply to bring down the relative level of self-sufficiency to 67%. Crude production fell thereafter to 660,400 b/d in fiscal 1990-91 and a further 7% in the last fiscal year.
NEW DEVELOPMENT
The Indian government cites civil strife in Assam as a factor in the most recent oil production decline. But the key element is that significant discoveries the last few years have not been developed.
India instead has relied heavily on aggressive Bombay High area development-too aggressive, say some critics, resulting in the need for field rehabilitation-to meet its production goals during the 1980s. Bombay High currently accounts for 65% of India's production.
Despite the World Bank's skepticism over India's ability to meet its projected oil production targets, the government continues to approve development work.
New Delhi approved development of Panna, Neelam, and Mukta oil fields as well as development of the L-II reservoir and enhanced oil recovery project in the L-III reservoir in the Bombay High area. In all, the three projects are expected to add 1.069 billion bbl of oil reserves.
Development of Gandhar, Ravva, and R-15-A fields, awaiting final approval, will boost oil reserves by a further 248.2 million bbl.
BUDGETS BOOSTED
As part of the exploration and development push, India's government has allocated big increases in capital and operating budgets of state companies in the oil sector.
The Petroleum Ministry approved a budget of $4.036 billion for state oil companies in fiscal 1992-93. That compares with a revised estimate of $2.705 billion spent in fiscal 1991-92.
ONGC's allocation for the current fiscal year is $2.775 billion, compared with $1.784 billion budgeted in fiscal 1991-92.
Other companies getting increased budgets are Indian Oil Corp. $532.5 million vs. $297.5 million in fiscal 1991-92 and Hindustan Petroleum Corp. Ltd. $78.5 million vs. $57.8 million.
Budget reductions are in store for Oil India Ltd. with $120 million vs. $156 million, Gas Authority of India Ltd. with $100 million vs. $120 million, and Bharat Petroleum Corp. Ltd. with $47.6 million vs. $46 million.
IMPORTS TO JUMP
The government estimates India will have to import 540,000 b/d of crude oil and 246,000 b/d of refined products in fiscal 1992-93.
That compares with the previous fiscal year's level of 468,000 b/d of crude and 200,000 b/d of products.
Indian Oil Corp. (IOC) is in the process of completing term contracts with foreign crude suppliers for fiscal 1992-93.
IOC signed a firm contract with Saudi Arabia for 100,000 b/d with an option to buy another 20,000 b/d. Negotiations are under way for lifting 60,000 b/d from Iran and 60,000-80,000 b/d from Kuwait.
Indian officials are confident a new protocol signed with Russia will help fill the gap created by the former U.S.S.R.'s cutoff of oil exports to India early in 1991. Under the protocol, Russia agreed to supply 80,000 b/d to India, the same volume the former Soviet Union had been supplying.
Malaysia is expected to sign on for 30,000 b/d, and IOC is studying prospects for importing oil from Australia and Nigeria.
Despite efforts to cut consumption, India's Petroleum Ministry projects growth in Indian oil consumption to continue at 6%/year. The government pegs fiscal 1992-93 oil demand at 1.21 million b/d, compared with 1.144 million b/d in fiscal 1991-92.
However, some industry officials point to soaring demand for diesel and LPG in projecting an increase of 8% in oil demand for the year.
The domestic production situation could have been worse because production from Assam oil fields is only now being restored. And there remains the problem of an infrastructure that falls short of what's required, notably port capacity to handle increased imports.
LONGER TERM VIEW
At the heart of the crisis in India's oil sector is a persistently growing demand for petroleum products.
Products demand growth in India averaged 5.4%/year in 1980-85 and 6.8%/year in 1986-90 and is expected to average 7.7%/year in 1991-95.
Petroleum products demand is expected to jump to about 1.54 million b/d in fiscal 1994-95, 2 million b/d in 1999-2000, and 2.55 million b/d in 2004-2005. Domestic production for those periods is projected at 980,000 b/d, 1.24 million b/d, and 1.44 million b/d, respectively.
For the current 5 year planning period, India's Planning Commission estimates India's imports of crude alone will jump to 744,000 b/d and overall oil demand will soar to 1.624 million b/d by fiscal 1996-97. In the same period, the commission projects crude production will be only 941,600 b/d.
The price tag is huge, with crude oil imports alone in fiscal 1991-92 estimated at more than $5 billion and total oil imports accounting for one third of India's total foreign exchange. That has been a big reason for the Finance Ministry's steps to make the rupee partially convertible in foreign trade.
The Planning Commission called for the government to improve energy efficiency and conservation throughout all sectors of India's economy.
At the same time, the government implemented a new policy of opening India's oil sector to foreign and non-resident Indian companies. But a fourth round of bidding for oil and gas exploration acreage proved no less disappointing than the previous three (OGJ, May 11, p. 25).
To encourage more foreign investment in the wake of its latest bidding disappointment, India's government stepped up plans to further privatize its upstream sector to include development of existing oil and gas fields. It also tacked on a measure to allow foreign and all private Indian entities to participate in refining and marketing petroleum products in India.
The next step is industry's response to those measures.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
