Wood Mackenzie commentary on India CERA Week
To mark the start of the India Energy Forum by CERAweek, Wood Mackenzie analysts weigh in on the country's oil and gas outlook and production prospects.
Terence Ang, senior analyst for Asia gas and power, on gas penetration in India:
We expect India’s gas demand growth to outpace domestic gas supply growth. India's gas market is expected to grow at 7% CAGR by 2025 aided by new gas infrastructure and increasing domestic production.
LNG imports have increased from 14.4 Mtpa in 2014 to 19.6 Mt (est) in 2017. We expect a glut in LNG supplies will allow surplus volumes to flow to India. Already, Petronet has negotiated its RasGas contract and is due to complete a negotiation with ExxonMobil to bring cheaper LNG to India.
A possible way of increasing gas penetration in India is to introduce more gas-based power generation to complement renewable generation (which is volatile and less predictable). While this may not significantly increase gas demand, it would support the viability of major pipeline infrastructure, which in turn allow smaller users in the vicinity to gain access to gas.
The competitiveness of gas is eroded by cheaper fuel oil and petcoke prices. The government has allowed pricing freedom for domestic gas produced from the Hydrocarbon Exploration and Licensing Policy (HELP) blocks. This, together with the revised domestic gas allocation order, will force industrial, commercial and power users to pay market prices for gas going forward, regardless whether it is from LNG or domestic production.
If the price of brent rises beyond US$66/bbl, we expect gas (LNG) to be more competitive as competing fuels such as petcoke and fuel oil will become more expensive.
Sushant Gupta, research director for Asia refining, on India's refining outlook:
India has the second largest refining capacity in Asia after China. There are 21 refineries in India, with a total refining capacity o f around 4.6 million b/d. This represents nearly 13% of the refining capacity in Asia Pacific. About 60% of India's refining capacity is owned by state-owned refiners.
As the balance of oil demand growth tilts towards India and Southeast Asia, these markets will lead in increasing Asia's refining capacity. This is an important shift for the refining markets in Asia as both India and Southeast Asia NOCs have traditionally been slow in adding refining capacity.
To maintain self-sufficiency in transport fuels, Indian state-owned refiners need to add capacity at a much faster rate than in the past. A mega 1.2 million barrels per day refinery is being planned in the West Coast of India by all the state refiners, and Saudi Aramco is interested in a stake. The recent opening of Aramco's Indian office signifies its interest to secure the Indian market.
Alay Patel, senior analyst for Asia upstream, on India's domestic production:
Outlook for domestic production is positive. The introduction of HELP, a simplified licensing regime, and various other policy initiatives ranging from gas pricing incentives to contractual extension clarity will help boost domestic supply. But more is needed. Allowing marketing and pricing freedom for all gas production, regardless of shore status and contract vintage, would incentivise companies to develop gas in the less explored basins. This will also remove the multiple gas pricing regimes which are in effect.
Production enhancement contracts allowing private and foreign operators a stake in NOC-held nomination acreage would help diversify the company mix, which is currently dominated by a handful of players. This would also bring more focused and nimble operators to India.