India’s Oil and Gas Sector: Growth in Production but Challenges in Profits
New Delhi, June 22 – India’s oil and gas industry is set for a mixed performance in the fiscal year 2024 (FY24). While profits from refining and selling oil products might drop, the production side is expected to grow strongly, according to Fitch Ratings.
Demand and GDP Growth
Fitch predicts a 3-4% increase in demand for petroleum products by March 2025 (FY25), driven by higher consumer, industrial, and infrastructure needs. This aligns with an expected GDP growth of 7%. Diesel and petrol will continue to be the most used fuels, making up over half of the demand.
Oil Marketing Companies (OMCs)
Indian oil marketing companies are expected to keep steady profits in FY25, even though Brent crude oil prices are forecasted to drop to USD 77.5 per barrel from USD 82 in FY24. This stability comes despite a recent INR 2 per litre cut in diesel and petrol prices, the first in nearly two years. However, rising crude prices due to geopolitical issues could affect these profits.
Upstream Segment
The production side of the industry is expected to stay strong, with slight growth in oil and gas production. Companies like Oil and Natural Gas Corporation Limited (ONGC), Oil India Limited (OIL), and Reliance Industries Ltd (RIL) will benefit from high crude prices, even if they don’t reach FY24 levels. Domestic oil and gas production grew by 3% in FY24, with a 6% increase in gas output.
Investments and Imports
High capital spending is expected to continue, with upstream companies investing to boost production and maintain reserves. Downstream companies will invest in refining, petrochemical, and retail expansions. India’s crude oil production is forecasted to grow by mid-single digits in FY25, but the country will still rely heavily on imports, which made up 87.8% of its needs in FY24. Russia was the largest supplier, providing 36% of imports.
Natural Gas and CNG
Natural gas production is expected to grow slightly in FY25, supported by projects at ONGC and RIL. However, growth may slow as RIL’s Krishna-Godavari Basin field nears peak production. LNG imports, which grew by 16% in FY24, are expected to rise further due to increased demand and lower international gas prices. The number of compressed natural gas (CNG) stations in India has grown significantly, from around 1,300 in early 2018 to 6,861 by April 2024.
Conclusion
India’s oil and gas sector is facing a year of mixed outcomes, with strong production growth but challenges in refining and marketing profits. Investments in production and infrastructure will continue to be crucial for the industry’s future.
