New Report Available: India Oil & Gas Report Q4 2013

From: Fast Market Research, Inc.
Published: Tue Sep 03 2013

The end of Q2 2013 marked a turn in India's gas market. With the government approving the gas pricing formula proposed by the Rangajaran Committee, we now expect higher production and exploration activities in the country. Reliance Industries already announced new investments to ramp-up production from its KG-D6 field by 2020. Increases in gas prices will also curb consumption, reducing future risks of energy shortages that we have highlighted previously. This positive development for the upstream sector may not be fully supported, however, as it threatens to impair the power and agricultural sectors. India's unconventional potential remains large as the EIA reviewed upward its shale gas estimate to 2.7trillion cubic metres.

The main trends and developments we highlight for the Indian oil and gas sector are:

* The Rangajaran Committee's recommendation to raise gas prices from US$4.2 to US$8.4 per mnBTU was approved by India's Prime Minister late June 2013. This will apply retroactively to production sharing contracts (PSCs) that are already signed from April 1 2014, incentivising companies to increase gas production. It is particularly relevant to RIL which failed to maintain production at the KG-D6 block as geological complications increased the breakeven price of output.
* BMI estimates that Indian total liquids production averaged 1mn barrels per day (b/d) in 2012. This figure is very close to the previous year's outturn, but volumes should head higher in 2013 on the back of rising production from the Mangala fields in the Rajasthan block. Production at Mangala has ramped up, but remains far below its expected 240,000b/d level. BMI's demand outlook suggests consumption of an estimated 3.58mn b/d in 2012 will rise steadily to 4.20mn b/d by 2017. Given forecast consumption of 4. 90mn b/d, implied 2022 oil net imports are put at 3.8mn b/d.
* Gas demand is rising fast across the industrial, residential and power sectors and consumption has risen by almost 400% since 1995. Average annual demand growth of about 4.5% is forecast over the next several years, accelerating as domestic field development and liquefied natural gas (LNG) import deals make more gas available. This is lower than our previous forecast, on the back of rising gas prices and the risks this creates for consumption growth.
* Reliance Industries announced that it would push further investment in order to restore KG-D6's output based on higher gas prices. As we already included this eventuality in our production forecast, we did not modify it significantly this quarter. We continue to expect that production will grow steadily throughout the forecast period.

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