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| India Infoline Sector Reports | Wed, 18-Feb-2004 16:16:30 IST (GMT+5:30) | |
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Introduction Global Scenario Primary Energy Consumption Primary energy is a critical input and in linewith economic growth, as observed since the late seventies. The world consumption ofenergy increased from about 4,800 million metric ton of oil equivalent (mmtoe) in 1970 toabout 8,477 mmtoe in 1999, representing a CAGR of about 1.98%. The growth in consumptionwould have been much higher but for the disintegration of the former Soviet Union, whoseenergy consumption levels dropped by more than 35% in the last five years. The Average Per Capita Consumption OfEnergy vis-a-vis Hydrocarbons (kgOE)
Source : British Petroleum Statistics -1998 Importance of oil & gas in primary energy Oil & Gas constitute a significant 63% ofthe primary energy consumption. The situation in Asia/ Australia is different with coalstill remaining the primary source of energy. However, the scenario is rapidly changing,for instance in the last decade, oil & gas consumption has grown at more than 70% inthe Asia-Pacific region vis-a-vis 15% in the rest of the world (excluding the formerSoviet Union, where the growth rate has been negative). The Asia Pacific region is thusgaining importance in the oil & gas map, with India and China together accounting for47.50% of the total demand in this region. In the last decade, natural gas has taken thelead in growth and in the emerging energy scenario, it is seen as an environment-friendlysubstitute for relatively scarcer - oil. Consumption of natural gas has grown by more than26% vis-a-vis 15% in consumption of oil. Oil and gas reserves As at end 1999, the world had proven oilreserves of a little over 1,055 million barrels (about 140,900 mmt) while that of gas, alittle less than 140 trillion cubic meters. At the current rate of production, oilreserves are likely to last for about 40 years and natural gas reserves for about 65years. The reserves are however unevenly distributed with the Middle East countriestogether holding 65% of oil and 34% of the gas reserves. Oil - Widely traded energy source Considering the fact that oil & gas wouldbe available in the foreseeable future without any constraint, oil & gas wouldcontinue to be the most widely traded energy source. World oil trade is estimated to be 38million barrels a day. The inherent advantages of oil & gas in terms of versatilityease in handling & transport and adaptability to new environmental standards wouldmake it the most preferred fuel. Though reserves by themselves are not a cause for worry,experts feel that as the reserves/ production ratio falls, the cost of exploration couldrise with increased investment in development of resources leading to a surge in prices. World refining capacity - Reaching recordlevels As of 1999, the world's total refiningcapacity was close to 82,861 thousand barrels a day. The refinery throughput in the year1999 stood at 71,126 thousand barrels a day, representing an average capacity utilizationof about 85%. Oil & gas prices Oil and gas prices are closely linked to thepolicies and capacity utilization of OPEC. Thanks to the two oil price shocks, oil priceswhich were reasonably flat at about US$3/ bbl till early seventies spiked to more thanUS$10/ bbl in 1973-74 and again to more than US$25/ bbl in 1979-80. The prices havethereafter hovered between US$15-25/ bbl but for a short blip in 1990 due to Iraqiinvasion Kuwait. In 1998, oil prices crashed once again to a decade low of US$11/bbl dueto excess capacity, poor off-take and an overall slowdown in world economies. SubsequentlyOPEC reduced crude output, which escalated prices from $11/bbl in 1998 to $32/bbl in June2000. Later though OPEC increased production twice (by 1.45mbpd in September '99 and0.7mbpd in June'00), the quantum was insufficient to tame prices. The world market nowbanks on increased supply from non-OPEC countries namely Mexico, Oman and Norway. The product prices do not necessarily move intandem with the crude oil prices but as a direct function of regional refining capacitiesvis-a-vis demand & supply. Natural gas prices on the other hand have alsoincreased from US$1.5-2.5 per mbtu in 1998 to $4.36 per mbtu in June 2000. Unlike crudeoil, there are no benchmarks for natural gas and the price is based on calorific value ofgas, local demand & supply and cost of alternate liquid fuels. Huge disparities existin the price of natural gas not only between countries but also within a country. Energy Scenario In India Primary energy consumption in India Excluding the non-commercial energy sourceslike wood and animal waste, the primary energy consumption in India was 285kgOE in 1998 asagainst 5800kgOE in North America. Coal continues to be most important source of energy,constituting more than 56% of the total energy consumption though there is a consciousshift towards oil as alternate fuel. The over all demand for oil products increased from74mtpa in 1996 to 90mtpa in 2000, representing CAGR of 5%. At current levels the estimateddemand by 2005 is expected to be around 114mtpa while the refining capacity would bearound 155mtpa. Oil & gas - reserves & production There are 26 sedimentary basins in Indiacovering an area of 1.78 mn sq km, of which 1.46 mn sq km are onshore and 0.32 mn sq kmare offshore in water with up to 200 meters in depth. The total prognosticated reservesare estimated at 20 bbl of oil, but till date only 27% of this has been discovered. Atotal of 5.4 bbl of oil (about 732 mmt) has thus been discovered, with the annualproduction in the region accounting to 35-40 mmtpa. These reserves are likely to last forthe next 20 years. However, the current production level of 35 mmtpa would be highlyinadequate, especially once the planned refining capacities come on stream a large portionof the crude would need to be imported. As of 1995, the proved gas reserves were about660 billion cubic meters (bcm) while production as of 1999 was 27bcm. At currentproduction levels these reserves are likely to last for about 30 years. Natural Gas Demand (MMSCMD)
Source : Hydrocarbon Vision 2025 Refining Capacities The refining capacity increased from 69.14mtpain FY99 to 109mtpa as of January 2000 i.e about 2.7% of the world refining capacity.Currently there are about 17 refineries of which 7 are owned by Indian Oil Corporation(IOC), 2 by Hindustan Pertroleum Corporation Ltd(HPCL) and Madras Refineries Ltd (MRL), 1by Bharat Petroleum Corporation Ltd (BPCL), Cochin Refineries Ltd (CRL), BongaigoanRefinery & Petrochemicals Ltd (BRPL), Numaligarh Refineries Ltd (NRL), MangaloreRefinery & Petrochemicals Ltd (MRPL) and Reliance Petroleum Ltd (RPL). Sector controls Given the criticality of oil & gas in thenational economy, the sector was completely regulated till 1991. With the ushering ofliberalization, the sector was partially opened with decontrol of lubricants,decanalization of several products and permission to parallel marketers to sell LPG andSKO. Currently, administered pricing mechanism is present only in the marketing sectorwith the government ruling the prices of most petroleum products. With the ballooningdemand for petroleum products and no fresh discoveries of oil wells, imports have beencontinuously swelling. During FY00, India imported 44mton of crude and 12mnton ofproducts. The import bill for FY00, was Rs528bn and ifthe situation continues, it could have serious repercussions on the balance of paymentssituation as well as smooth & continuous availability of energy. The only solution tothis problem is to attract large investments, both in terms of capital and technology soas to boost production levels and cater to the growing demand. To do this, all thecontrols in the sector would have to be removed. The government is also reacting in thisdirection.
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