India Struggles to Meet Demand & High GDP Growth

Like China, India is trying to secure supply in an era of high prices…

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The energy sector: A SWOT analysis

September 18, 2004 07:15 IST

The energy sector has witnessed mixed news during the current fiscal so far. While crude prices firmed up in the global market, the government’s freeze on prices of petro-products affected margins of oil companies in 1QFY05.

However, the government took a series of steps starting mid-June including excise duty reduction and price increases. This was followed by another series of duty cuts (this time excise as well as custom duties).

Given this backdrop, we feel that there is a compelling reason for a SWOT analysis on the oil sector at the current juncture.
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Developing economy: Historically, demand for petroleum products has traced the economic growth of the country. With GDP expected to grow at near 7% in the long-term, the energy sector would benefit from the same, going forward.

To put things in perspective, diesel sales grew by nearly 12% (which constitutes 40% of the entire petro-products basket), petrol sales by 9% and a double-digit growth in LPG (liquefied petroleum gas) in 1QFY05

…Crude prices: Nearly 70% of India’s crude requirements are fulfilled by imports and this figure is likely to increase going forward…

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Equity Oil: Major oil marketing companies are now venturing into upstream exploration and production activities so as to secure crude supply.

To put things in perspective, IOC and OIL India are likely to jointly bid for oil fields aboard. At the same time, ONGC’s wholly owned subsidiary, ONGC Videsh (OVL) has acquired stakes in over 9 countries in its quest to attain the 20 MMT (million metric tonnes) by 2020. This backward integration is an opportunity for IOC to secure at least 25% of its crude oil requirements for the refineries.

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Natural Gas: Natural gas has the potential to be the fuel of the future with demand outpacing supply by more than two times. Such high scarcity of natural gas provides a big opportunity for oil companies.