Alphageo (India) Management Discussions

Indian Economy

After a contraction in GDP for the first half of FY21, India recovered smartly to emerge as one of the select few economies that have witnessed positive year-on-year growth in the three month period October- December20. This growth only strengthened to 1.6% in the fourth quarter of FY21. The improvement was due to calibrated and steady opening of the economy. According to the second estimate by the Government, growth in Indias real GDP during 2020-21 is estimated at -7.3% as compared to the growth rate of 4.0% in 2019-20, Interestingly, economic activity in India gathered considerable momentum and 2020-21 could end better than projected in the second advance estimates of GDP. The mild rise in Covid cases did not dent the steady uptick in consumer sentiment, which was further bolstered by the inoculation drive.

This optimism is based on the robust GST collections in the second half of FY21. GST revenues crossed above B1 lakh crore mark at a stretch for the last six months – it was C1.23 lakh crore in March 2021, the highest collection ever since the launch of GST. Also, the net indirect tax collection in 2020-21 grew 12.3% annually to B10.71 lakh crore, thereby exceeding the previous year benchmark at C9.54 lakh crore and the target set in revised estimates at C9.89 crore.

In view of the economic momentum in Q4 of 2020-21, leading opinion makers had estimated a sharp growth in India GDP for 2021-22. But the outbreak of the second wave of Covid-19 in India, these estimates have been revised downwards. Some economic experts suggest that the overall economic impact of second Covid--19 wave is not likely to be very large. Their optimism is based on 1) record level of foodgrains in the current year 2) the timely RBI intervention to assist the healthcare sector and the MSME segment, 3) sustained resilience demonstrated by rural India and 4) aggressive inoculation across ages, cultures and pincodes.

Indian energy market

India is the worlds third-largest energy consuming country, thanks to rising incomes and improving standards of living. Energy use has doubled since 2000, with 80% of demand still being met by coal, oil and solid biomass. On a per capita basis, Indias energy use and emissions are less than half the world average, as are other key indicators such as vehicle ownership, steel and cement output. As India recovers from a Covid-induced slump in 2020, it is re-entering a very dynamic period in its energy development. Over the coming years, millions of Indian households are set to buy new appliances, air-conditioning units and vehicles. India will soon become the worlds most populous country, adding the equivalent of a city the size of Los Angeles to its urban population each year.

To meet growth in electricity demand over the next twenty years, India will need to add a power system the size of the European Union to what it has now. Atmanirbhar Urja: Indias energy poverty is reflected in its position as the worlds third-largest crude oil importer and the fourth-largest importer of liquefied natural gas (LNG). The Government is preparing a road map to achieve Aatmanirbhar Urja or self-reliance in energy, petroleum and natural gas. The plans for energy security span increased crude oil and natural gas production to hydrogen gas and solar and wind power as it seeks to meet rising domestic demand.

Indian oil market

India posted a third contraction in fuel demand on record in 2020-21 with demand falling over 9% due to coronavirus lockdown. It consumed 194.6 million tonnes of petroleum products in the year to March 31, down from 214.1 million tonnes in 2019-20.

Indias crude oil production fell by 5% to 30.5 million tonnes in 2020-21 from 32.17 million tonnes a year back, according to the latest data released by the Ministry of Petroleum and Natural Gas.

India is nearly 85% dependent on imports to meet its crude oil needs. It spent USD 61.9 billion in 2020-21 on import of 198.2 million tonnes of crude oil. This was lower than USD 101.4 billion spent on import of 227 million tonnes crude in the previous fiscal. The lower import bill was partly due to lower volumes but largely because of lower international oil prices.

With the pandemic pummelling economic activity, resulting in fall in fuel demand, Indias public and private sector refiners processed nearly 13% less crude oil at 221.7 million tonnes in 2020-21.

Indias proven reserves: In February 2021, crude oil reserves for India were 618.59 thousand barrels per day. Though India crude oil reserves fluctuated substantially in recent months, it tended to decrease through March 2020 - February 2021 period ending at 618.59 thousand barrels per day in February 2021.

Indias strategic petroleum reserves (SPR): Indias current national capacity for storage of crude oil and petroleum products has reached 74 days after the addition of three new locations at Vishakhapatnam, Mangaluru and Padur.

In April 2020, India saved B5,000 crore in foreign exchange after it capitalised on the global low oil prices to fill its underground strategic oil storage (5.33 million tonnes of emergency storage, enough to meet Indias oil needs for 9.5 days) in Mangalore and Padur in Karnataka and Visakhapatnam in Andhra Pradesh to shore up insurance against any supply or price disruption.

Under Phase II of the SPR Programme, the government has given ‘in principle approval in June 2018 for establishing two additional SPR facilities with a total storage capacity of 6.5 MMT at two locations namely Chandikhol in Odisha (4 MMT) and Padur in Karnataka (2.5 MMT) – it is estimated to provide for about additional 12 days of Indias crude oil requirement.

Indias gas market

Natural gas production at 28.67 billion cubic meters was over 8% less than 31.18 bcm output in 2019-20.

Output in March, 2021 was 11% higher due to new field D-34 (KG-D6 block of Reliance-BP), which started production in December 2020 with 1.3 million standard cubic meters per day, ramped up to 9.6 mmscmd in March 2021

The Government is keen to position India as a gas-based economy. Gas comprises about 6.2% of Indias primary energy mix, far behind the global average of 24%. The government plans to increase this share to 15% by 2030. India has envisaged a spend of $60 billion in creating gas infrastructure till 2024, which includes pipelines, LNG terminals and city gas distribution networks.

Indias gas reserves: In 2020, reserves of natural gas for India was 47.31 trillion cubic feet. Reserves of natural gas of India increased from 22.85 trillion cubic feet in 2001 to 47.31 trillion cubic feet in 2020 growing at an average annual rate of 4.16%.

Indias search for oil

In a bid to expedite oil and gas exploration and raise domestic production, the government announced the NELP and the OALP programs

NELP delivered: NELP attracted USD 29.15 billion investment since its launch in 1999 against the committed spending of USD 11.7 billion. Against the USD 11.728 billion committed for exploration in the 254 blocks awarded in nine rounds of NELP, USD 17.09 billion was invested. Another USD 12.061 billion was invested in developing discoveries made in those blocks. While no discovery has so far been made in the OALP blocks, 1,163.50 million tonnes of oil and oil equivalent gas reserves were established in NELP blocks.

OALP is yet to deliver: Launched in 2018, the Open Acreage Licensing Policy (OALP) (after the NELP rounds) allowed explorers to carve out desired areas for exploration and offered liberal terms.

In its first four rounds, the OALP offered 1.38 lakh square kilometre of area for finding oil and gas which is double the acreage offered through the 254 blocks awarded in nine rounds of NELP between 1999 and 2010.