PETROLEUM INDUSTRY

Overview
The petroleum industry includes the global processes of extraction, exploration, refining,
transporting (often by pipelines and oil tankers), and marketing petroleum products.

The largest volume products of the industry are gasoline (petrol) and fuel oil. Petroleum
(oil) is also the raw material for many chemical products, including solvents,
pharmaceuticals, pesticides, fertilizers, and plastics.

The oil and gas sector is among the eight core industries in India and plays a major role in
influencing decision making for all the other important sections of the economy.

India had 4.5 thousand million barrels of proven oil reserves at the end of 2018 and
produced 39.5 million tonnes in 2018. As of Apr 01, 2019, India had a network of 10,419 km
of crude pipeline having a capacity of 145.6 mmtpa.

The production of petroleum and oil in India has always been inadequate in relation to its
requirement for the same and thus India has to rely heavily on imports of petroleum and oil
lubricants.

Growth of Petroleum Industry

 Colonial Rule 1858-1947

The origin of the Indian oil & gas industry can be traced back to the late 19th century, when
first oil deposits were discovered at Digboi in Assam in 1889. The first well was completed in
1890 and the Assam Oil Company was set up in 1899 to oversee production. Initially oil was
used for domestic purposes, but later on application of oil shifted from domestic to
industrial and military usage.

 Pre reform period after India’s Independence (1947-1991)

In view of the significance of the gas & oil sector for overall economic growth, the
Government of India announced in1954 that petroleum would be the core sector industry.

Petroleum exploration & production activity was controlled by the government-owned

National Oil Companies (NOCs), namely Oil India Private Ltd (OIL) and Oil & Natural Gas
Commission (ONGC) which was set up in 1959 with an act of parliament to plan, organise
and implement programmes for the development of oil resources.
The government focussed more on oil exploration which resulted in discovery of many new
oil fields.

 Post reform period (1991- Till date)

After economic reforms, ONGC was transformed into Oil and Natural Gas Corporation and
around 2 percent of government held stocks were sold off. ONGC is responsible for 77% of
oil. Indian Oil Corporation (IOC) owns most of the refineries and is among top 20 oil
companies in the world. Reliance Industry is the first private sector refinery which was set
up in Jamnagar in 1999.

India’s refining capacity has more than tripled in the last 13 years. India had 4.5 thousand
million barrels of proven oil reserves at the end of 2018 and produced 39.5 million tonnes in
2018.

Challenges of Petroleum Refining Industry

1. Shortage of Petroleum Crude:
Petroleum industry in India has been suffering from the problem of shortage of raw
materials, i.e., petroleum crude. The petroleum industry has to depend too much on the
imported crude. Due to the increasing volume of demand-supply gap, the petroleum
refineries in India have failed to utilise their production capacity fully.

2. Dependence on Foreign Countries:

Petroleum industry in India has been depending too much on foreign countries for the
supply of petroleum crude and machineries. The petroleum industry of the country
depends too much on some foreign countries for meeting its requirement of various
drilling and refining machineries.

3. Price Hike:
The international prices of petroleum goods have been maintaining a constant hike since
1973-74. This has led to the excessive rise in our import bill on petroleum goods. In
2011-12, total import bill on petroleum oil and lubricants was to the tune of Rs 7, 43,075
crore as against Rs 5,587 crore in 1980-81.

4. Investment for Refineries:

 India lacks in hufe investment which is required in this industry considering expected
demand increase and current capacity utilisation at about 90%. FDI is playing an
important role in Petroleum industry for investments.

5. Technical Problems:

The petroleum industry of the country is also suffering from numerous technical
problems in respect of production of middle distillates, activating its fire fighting systems
etc. which need to be corrected and updated at the earliest possible time. The RD
facilities in the industry should be expanded with the maximum possible limit to face
these technical problems.

6. Pollution:
The growing pollution near the refineries and oil fields is a big problem for the industry.
The Government is trying to control such pollution by adopting certain effective
measures.

7. Shortage of Oil Refining Capacity:

In India there is a shortage of oil refining capacity as compared to total demand for
petroleum products. This has necessitated the expansion of existing refineries and also
setting up of new refineries under the joint sector

8. Lack of Market-Determined Pricing System:

The lack of a well-functioning market determined pricing system, partly because of the
lack of vibrant competition among the companies with diversified ownership, continues
to constrain the performance of petroleum industry. Despite the surge of international
prices of petroleum touching record level, the petroleum companies are not allowed to
revise their market price of petrol. This has resulted in a serious drain of the financial
resources of the petroleum companies.

There are ample opportunities in the industry to expand /add refinery capacity during the
immediate future. Various initiatives have been taken by government to promote the
industry. 100 percent FDI in exploration and production projects, measures to improve
quality of fuels in order to make them environment friendly, promotion of joint sector and
private sector participation can lead to growth in the industry.