Rajdeep Choudhury explains the legal ins and outs of hydrocarbon exploration and production in India

In 2012, India was the world’s fourth largest consumer of crude oil and petroleum products, with crude oil demand at 3.59 million barrels per day (mb/d) and demand for natural gas at 254 million standard cubic metres per day (mmscmd). Due to the relatively low level of domestic production, approximately 80% of crude oil demand is met through imports. There is an acute mismatch between the supply and demand of natural gas, with only 166 mmscmd of demand satisfied in 2012. Of the volume of natural gas supplied, 65% was satisfied by domestic production, and 35% from imports in the form of liquefied natural gas.

Production from maturing gas fields is stagnating. The prognosis for domestic natural gas production is poor until at least the end of the 12th five-year plan (financial year 2016/17). This is due largely to the former darling of the industry (Reliance Industries’ supposedly prolific D6 block in the Krishna-Godavari Basin) grappling with declining production, due ostensibly to geological factors.

Projections indicate a continued rise in the mismatch of demand and domestic natural gas supply, with official estimates pegging demand at 272 mmscmd for the 2014/15 financial year against domestic supply of 111 mmscmd. If rising demand for hydrocarbons is to be satisfied through imports, this will increase the financial burden on the exchequer and account for a disproportionately high share of India’s burgeoning current account deficit.

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Rajdeep Choudhury is a project development and finance lawyer based in Mumbai. He can be contacted at rajdeep@rajdeepchoudhury.com.