India has decided to revert to a two-decade-old system of awarding oil exploration blocks as the nation tries to step up production to reduce the import bill of the world's third-biggest consumer of the fossil fuel.
The Cabinet on Feb. 19 decided to award areas based on exploration work commitment rather than giving highest revenue share to the government. This will incentivise increased investment and output, according to a statement by the Ministry of Petroleum and Natural Gas. The government also decided to offer a few oil and gas fields of state-run Oil and Natural Gas Corporation Ltd. and Oil India Ltd. for further exploration to private companies.
But successive policies over the past decade haven't yielded results. Even as crude oil imports rose nearly 65 percent in the last 10 years to 220.4 million metric tonnes, according to the Petroleum Planning and Analysis Cell, domestic production has declined continuously over the past six years to 35.7 MMT. The oil cartel OPEC had recently suggested that India's demand for the fuel, at 300,000 barrels per day, will exceed China's by 2040.
That makes India aim to cut oil imports by 10 percent by 2022 difficult. Here's a closer look at the country's low domestic oil production and its implications.
Crude Oil Production
Domestic crude oil production fell for the sixth straight year in 2017-18 to 35.68 million tonnes. Oil production peaked at 38.1 MT in the year ended March 2012.
Who Are The Producers?
State-run oil and gas explorer Oil and Natural Gas Corporation Ltd. is India's biggest oil producer. Output by private companies in the year ended March 2018 was at a seven-year low.
Import Trends
Crude oil imports rose to a record 220.43 million tonnes, worth Rs 5,66,450 crore, in the twelve months through March 2018. An increase in domestic demand led to a corresponding rise in demand from refineries, spurring increased imports. According to International Energy Agency, India's crude oil demand rose from 4.4 million MMT (million metric tonnes) per day in June 2017 to 4.56 MMT per day in February 2019. Import value surged to a record in 2013-14 when a barrel of crude averaged $107.56, according to Bloomberg.
Fewer Exploratory Wells Drilled
The number of exploratory wells drilled in India reduced by as much as 9.7 percent in the last five years.
Poor Progress
Of the 360-odd oil blocks that were offered under the New Exploration and Licensing Policy—the precursor to the Open Acreage Licensing Programme which allowed companies to select blocks without waiting for a bid from the government—188 blocks have been relinquished and only 66 remain operational till date.
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