Domestic crude production sees uptick in recent months but outlook remains grim

Domestic crude oil production increased 2.1 percent in August on a yoy basis

India’s crude oil production has witnessed an uptick in the last couple of months after months of declining production. Even with the Indian government pushing to boost domestic production, India would be heavily dependent on crude imports, experts told Moneycontrol.

Domestic crude oil production increased 2.1 percent in August on a year-on-year (YoY) basis to 2.5 million metric tonnes (MMT), as shown by data from the oil ministry. Crude production was also up in the month of July and steady in June, compared to a decline reported in the previous months.

Experts pointed out that the recent increase in domestic production could be attributed to developments in the respective blocks of oil explorers.

“Companies such as ONGC and Vedanta are constantly developing their blocks. The uptick in production could be due to some fields having started production. Vedanta is also increasing its production, especially after it received an extension for its production sharing contract,” said Prashant Vasisht, Vice President and Co-Head - Corporate Ratings, ICRA.

However, despite the increase in domestic production, the majority of India’s demand would be fulfilled by imports from other countries, according to experts.

“The government is pushing for increasing domestic production so that our import dependency goes down. Our domestic crude production currently only accounts for 10-12 percent of our requirements. And, therefore, India would be highly dependent on imports even if production increased,” said Deepak Jasani, Head of Retail Research, HDFC Securities.

“ONGC and Oil India are working on increasing exploratory activities, and there would be some increase in production. But, overall, we would not see a major impact on imports. We do not have any major discoveries (in India), and these projects are very capex-intensive. So the impact of exploratory activities would be visible after a long time,” added Jasani.

India is dependent on imports to meet around 85 percent of its crude oil requirements. The major suppliers of crude oil to India are Middle-Eastern countries such as Saudi Arabia and Iraq, and Russia--which has emerged as the country’s largest supplier since the war broke out between Ukraine and Russia.

Demand for oil in India has been increasing in recent months. According to an exclusive poll conducted by Moneycontrol, the country’s oil demand is expected to moderately increase in 2023, with 11 out of 12 experts supporting the notion. With an increase in oil demand, India’s crude imports would rise if domestic production did not catch up.

Oil and gas explorers such as state-run Oil and Natural Gas Corporation Ltd (ONGC), Oil India Limited (OIL), and private players in India are boosting exploration in their respective fields to arrest the decline in production.

Post the Q1FY24 result announcement, ONGC said that it is taking proactive steps by implementing well interventions and advancing new well drilling activities. The company had said that the decline in production would be compensated in the upcoming quarters with the commencement of additional production from new projects, especially crude oil production from KG 98/2 in Q3FY24.

“ONGC’s production outlook has improved because production from the KG block is expected to start soon. When that starts, it will contribute to around 4 percent of India’s output. So, this is one asset that will lead to growth in domestic output. Oil India is also growing at 5-6 percent currently,” said Sabri Hazarika, Research Analyst at Emkay.