Oil and Gas Industry

(An Economic analysis)

Prepared by- Group-9

Ankit Gaurav
Mohil Bhatt
Rajvardhan Desai
Sonali Gagneja
Srinath Raju
Vrishav Shirodkar
CONTENTS:

1. Introduction
2. Industry structure
3. Supporting Industries
4. Important government policies regarding the industry
5. Pricing mechanism
6. Positive and Negative externalities
7. Conclusion
8. References
Executive Summary:
This report describes the current Oil and gas industry and various factors which regulates
the working of this industry. The future growth and scope of expansion has also been looked
into. Oil and Gas account for more than 65% of total energy resources available in the entire
world. The current Oil and Gas industry generates over 3.3trillion overall revenue. oil and
gas represent global commerce on a massive scale. India is world’s fastest growing energy
market. It is the 3rd largest energy and oil consumer after US and China.
 1. INTRODUCTION:
Energy Mix alludes to the scope of fuel wellsprings of an area, either sustainable or non-
inexhaustible. These sources might be available in various extents and keeping in mind that
figures change essentially starting with one nation then onto the next petroleum products,
for example, oil and gas overwhelm the energy blend at the worldwide level. Oil and gas are
mostly utilized, for instance, for creating power, giving fuel to transportation and warming
and cooling private and modern structures.
Below is the depiction of world energy mix percentage in the form of a line graph for the
given years. As we can see Oil and Gas account for more than 65% of total energy resources
available.

World Energy Mix %

2000 2010 2025
45
40
35
30
25
20
15
10
5
0
Oil Gas Solids Hydro/nuclear/renewables

This makes oil and gas industry as one of the most important industries which affects the
economy of a country significantly. Oil and gas include in our daily lives as they are the
building blocks of many services we receive and provide. They are the driving force of our
livelihood as we have grown more dependent on services like transport, electricity etc. and
these services are of no use without oil and gas. They are one of the biggest imports and
exports of a region depending on its availability. Oil is essential to the worldwide monetary
system, particularly for its biggest makers: The United States, Saudi Arabia, Russia, Canada
and China. The oil and gas industry being one of the biggest industries generates around
3.3trillion revenue overall. From 2014-2019, the costs of gaseous petrol and unrefined
petroleum have wavered steeply even with consistent development underway, and this has
caused wild income motions. Costs spiked essentially in the years paving the way to the
announcing time frame, topping in 2012. oil and gas speak to worldwide trade for a
monstrous scope. World energy markets are ceaselessly extending, and organizations burn
through billions of dollars yearly to keep up and increment their oil and gas creation. Many
countries are allowing companies to come to their lands and try to look for oil reserves
which in turn would when found would make the country rich in oil and gas supply and
create jobs for local people. From the below graph we can see top 5 global biggest industry
by revenue and oil and gas industry is at 3rd position making it one of the highest revenues
generating industry.

Top 5 Global Biggest Industry by Revenue

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Revenue

Oil and Gas Industry in India:

India is worlds quickest developing energy market. It is the third biggest energy and oil
buyer after US and China. This makes it one of the core industries that has a direct and
significant effect on the Indian economy today. The petroleum and natural gas sector which
is responsible for refining, transporting and marketing of these products contribute to about
15% of India’s GDP. As we can see how big of an impact oil and gas industry has on India
following are few facts about the industry structure and size in the country.

India's present refining limit remains at 249 MMTPA, containing 23 treatment facilities—18
under open area, 3 under private area and 2 of a joint endeavor. Indian Oil Corporation
(IOC) is the biggest homegrown purifier with a limit of 80.7 MMTPA. Top three organizations
– IOC, Bharat Petroleum Corporation (BPCL) and Reliance Industries (RIL) - contribute
around 66.7% of India's absolute refining creation from FY 2018 - 19.
At present around 16,788 km petroleum gas pipeline is operational and around 12,672 km
gas pipelines are being worked on.
India has seen a consistent increment underway just as utilization of oil-based commodities
throughout the long term. The creation of oil-based goods remained at 243.5 MMT during
2016-17 to 262.3 MMT in 2018-19.
Cumulative raw petroleum creation during April-August, 2020 was 12,886.26 TMT. Gaseous
petrol creation for the long stretch of April 2020 was 2155 MMSCM as against creation
focus of 2551 MMSCM, demonstrating an accomplishment of 84.48%.
Liquefied Natural Gas (LNG) gracefully is continuing onward on the two coasts, with 8 new
R-LNG terminals (4 on the west and 4 on the east coast) coming up. Along with the six
existing terminals, generally limit will arrive at 74 MMTPA
 2. Industry Structure

The Oil and Gas industry is primarily divided into three parts
1.Upstream
2.Midstream
3.Downstream

Upstream businesses are very high investment ones, which involves ground and deep-sea
exploration in search of raw material for the further production processes. It involves all the
processes involved from extraction to refinery. This sector involves searching for water
sources, crude oil sources, mining sources and these are followed be digging up of well and
then extraction of crude oil and/or natural gas. They involve high risks and high capital
expenditure. These are the inputs to Midstream businesses.
These are commonly called E&P companies, which are technology agnostic. The term
extends to Exploration and production. Virtually all cash flow and income statement line
items of E&P companies are directly related to oil and gas production. They are further
divided into three parts:
a. Exploration
b. Development
c. Production
Midstream businesses are those that are focused on transportation. They are the ones
responsible for moving the extracted raw materials to refineries to process the oil and gas.
Midstream companies are characterized by shipping, trucking, pipelines, and storing of the
raw materials. The midstream segment is also marked by high regulation, particularly on
pipeline transmission, and low capital risk. The segment is also naturally dependent on the
success of upstream firms.
Midstream operations include the following three primary processes

a. Gathering: This process is concerned with accumulating the Upstream output. It involves
connecting the low-pressure oil and gas pipelines to high pressure pipelines or processing
units.
b. Transportation: Oil and Gas are transported from one place to other in this process.
Primary transportation involves movement to refinery units and secondary ones being to
the end customers.
Among various options available, pipelines are the cheapest, which are even used for inter-
continental transportation of Oil and Gas. Trucks and ships are also used but they serve
better purpose for small distances.
c. Storage: Terminals are used throughout the system to store Oil and gas. They are
primarily located near the refinery units and distribution centres. They ensure sufficient and
timely supply during high demand.

Downstream businesses are the refineries. These are the companies responsible for
removing impurities and converting the oil and gas to products for the general public, such
as gasoline, jet fuel, heating oil, and asphalt.
Theis is the process responsible from refining to Sales. Marketing is also an integral part of
the process. End product is distributed to the end customers which can be very diversified.
The downstream sector includes oil refineries, petrochemical plants, petroleum product
distribution, retail outlets and natural gas distribution companies.
The Oil and Natural Gas Value Chain
1.Exploration
2.Preparing the Drill
3.Drilling
4.Extracting the Oil
5.Production
6.Transport
7.Market

2.1 Exploration
2.1.1 Seismic exploration-
1.This involves locating Hydrocarbons on land or under the sea.
2.This process gives overall insight about where to drill

2.2 Preparing the Drill

2.2.1 This involves clearing land and build access roads. It is made sure that a water source
is present nearby.
2.3 Drilling
2.3.1 This is done to get the required resource. Drill the surface whole and then after
reaching the pre-set depth, cement the casting so, it does not collapse. Drilling is done in
stages. They drill, they run and cement new castings, then they drill again. It is always
advisable to run frequent tests to ensure proper depth is maintained
2.4 Extracting the Oil
2.4.1 This step involves removing the drill and introducing a pump which can extract the
resource out of the well. If the Oil is too heavy, an extra well is dug and stream pressure is
applied for better results. This is done to ensure that the heat from steam thins the oil and
the pressure pushes it up the well.
2.5 Production
2.5.1 Gas and Oil are gathered and further transported, through pipelines or ships, to
processing facilities.
2.5.2 Gasoline and natural gas are used as fuel in transportation sector.
2.5.3 Oil and Gas can also be used as fuel in generation of electric power.
2.5.4 Oil and Gas are exported either as refined products or crude oil in specialized tankers.

2.6 Transport
2.6.1 Oil and gas are then transported to the desired location, either by pipeline or ship to
processing facilities. At processing facilities, it is refined and we get a refined output from
these units.
2.7 Market
2.7.1 Finally, they reach at gas pumps and from there, petrochemical and refined products
are distributed to end customers.

Petroleum Industry Structure

The Petroleum industry can be primarily divided into 5 Parts:
1.Broad Oil Segments
a. Crude Oil exploration and Production segment
b. Refining segment, and
c. Product distribution and Sales segment
2.The American petroleum institute divides the petroleum industry into 5 sectors
a. Upstream sectors (exploration, development and production of crude oil or natural gas)
b. Midstream sectors
 c. Downstream sectors (oil tankers, refiners, retailers and consumers
d. Pipeline sectors
e. Service and supply sectors
3.The Oil industry can be sub divided into four major company types.
a. National Oil Companies (NOCs) and
b. International Oil Companies (IOCs).
c. Operator Companies (or Exploration and Production (E &P) Companies)
d. Service Companies
4.On the basis of main categories of participants in the international Oil market.
a. National Oil Companies (NOCs);

b. International Oil Majors Companies (IOCs) and Their Trading Arms;

c. Independent Oil Trading Companies;

d. Financial houses and non-industry speculator

5.Oil companies used to be classified as sales.

a. Supermajors Companies (BP, Chevron, ExxonMobil, ConocoPhillips, Shell, Eni and Total S.A.)

b. Majors Companies, and

c. Independents (or Jobbers) Companies

3. Supporting Industries
 
The growth of the Oil and gas industry is a direct or indirect result of the performance of the
many other industries. Demand created for oil and natural gas by different industries will
work as a supporting industry for the Oil and gas industry. The Oil and gas industry is one of
the most significant ventures for the development of numerous businesses. For the scope of
the report, we have considered the following supporting industries:
1. Transportation
2. Aviation Industry
3. Bitumen Industry
4. Electricity Industry
5. Pulp and Paper Industry
6. Aluminium Industry

Transportation-
Transportation is a significant industry in the economy that deals with the movement of
individuals and goods. Oil costs are a key factor for transportation, as prices of gas and fuels
increase the overall cost of transportation will increase. Due to which inflation will be there,
most of the goods and traveling will become expensive.
As the prices of fuel rise, transporters have to raise costs or bear losses. Thus, the increase
in the price of fuel doesn't just impact the transportation company. It is an outward domino
impact, If, it costs more for the cargo transporter to move the cargo, he will charge more to
the manufacturer company to move goods. This implies that the goods will be offered to
customers at greater expenses to compensate for the higher transportation and fuel costs.
Fundamentally, higher fuel costs cause inflation and will have an impact on the transporter,
manufacturer, and consumer.
Transportation is one of the important factors which influence tourism, hence an increase in
fuel prices will increase in travel cost. Which will adversely affect the tourism industry. But if
fuel prices are lowered then it will increase demand for fuel and it will help growing Oil and
gas industry.

Aviation Industry-
During the last 3 years, the aviation business in India has become one of the fastest-growing
industries inside the country. India’s rank in domestic aviation market is 3 by size of market.
For aviation, Aviation Turbine Fuel (ATF) or Jet fuel is used, which is basically petroleum-
based fuel. Nowadays new fuels such as biofuel, Compressed Natural Gas (CNG), and
Liquified Natural Gas are used. So, the growth of the aviation industry will also lead to an
increase in demand for fuels, hence the Oil and gas industry will grow.

Bitumen Industry-
Bitumen is a binding material, it is a semi-solid hydrocarbon product of crude oil distillation,
which is produced by removing the lighter fractions (such as liquid petroleum gas, petrol,
and diesel) from heavy crude oil during the refining process. Hence the bitumen industry is
heavily dependent on the Oil and gas industry. The current Indian bitumen market is valued
at $2.8billion and it is projected that it will be $3.6 billion by 2026. So, demand in the
bitumen industry will help the growing Oil and gas industry. The properties of bitumen are
binding, water-resistant, hardness, ductility, and higher softening point. Hence bitumen is
heavily used for paving and roofing purpose. If we consider current roads in India then
almost 90% of roads are constructed by using bitumen. Hence the bitumen industry is one
of the industries which is creating demand for crude oil.

Electricity Sector-
India is the third-largest producer and consumer of electricity in the world. India has an
installed capacity of 372693 MW. 6.8% of total electricity generation is generated using gas,
and diesel. Hence an increase in demand for electricity will also lead to the growth of the Oil
and gas industry.

Fuel MW % of Total

Total Thermal 2,31,421 62.1%

                                             Coal 1,99,595 53.6%

                                             Lignite 6,360 1.7%

                                             Gas 24,957 6.7%

                                             Diesel 510 0.1%

Hydro (Renewable) 45,699 12.3%

Nuclear 6,780 1.8%

RES (MNRE) 88,793 23.8%

Total 372,693

Source: https://powermin.nic.in/en/content/power-sector-glance-all-india

Aluminium Industry-
India has a market share of around 3% in the manufacturing of aluminium. Hence this
industry is very important for the GDP growth of India. For the manufacturing of aluminium,
major sources of energy are coal, natural gas, electrical power, and oil. Hence the
aluminium industry is heavily dependent upon the Oil and gas industry. And this industry
increases the demand for oil and natural gas which will help in growing the Oil and gas
industry.
Pulp and Paper industry-
The pulp and paper industry utilizes 6% of total global industrial energy utilization, and it is
the fourth biggest energy purchaser around the world. Different types of energy and fuels
are required to carry out operations such as, creating steam for turbines that make power
for engines and pumps. Steam is additionally used to dry the paper. Most of the boiler fuel
comes from oil, coal, and gas.
From the following chart, we can observe the global requirement of different forms and
amounts of energy for the Pulp and Paper Industry.
Hence, we can say that the growth of the Pulp and paper industry will increase the demand
for oil and gas.

Global demand of energy for Pulp and Paper

Industry
8
7
6
5
Energy in EJ

4
3
2
1
0
00 01 02 03Bioenergy
Other renewables 04 05 06 Imported 10 11Electricity
07 08 09heat 12 13 14 Gas
15 16Oil17 18
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
Coal

Source- https://www.iea.org/reports/pulp-and-paper
4.Important government policies regarding the industry
The government policies with regard to Oil and Gas Industry can be mainly divided into 2
parts

1. Exploration and Production

2.Natural gas

3. Refining policies

The new government in 2014 though reformed the oil and gas industry by launching various
innovative policies especially in licensing system to cover hydrocarbons along with the
existing products but tied the hands of the oil exploration companies via the new policy
HELP which extends to Hydrocarbon Exploration Licensing Policy .This policy launched in
2016 replaces the earlier NELP(New Exploration Licensing Policy to overcome serious
procedural and structural flaws. HELP replaced the otherwise liberal and much needed
profit sharing model with Revenue sharing model before adjusting costs thus depriving the
exploration companies of required profit margin and burdening them from the very start.
the new system did reduce the procedural flaws of taking multiple licenses for each of the
Hydrocarbon exploration site making it easier for the contractors. Along with the above
government opened the earlier restricted Acreage Licensing policy by way Open Acreage
Licensing Policy where the freedom to choose a particular exploration site lies with the
contractor. The HELP also made sure the risks of the deep-water blocks were mitigated by
way of reduced rates. In order to elevate the status of India in ease of doing business in the
Oil and Gas industry, the exploration time period for the deep water/Ultra water was
increased from 8 to 10 years. Similarly, for the On Land and shallow water the exploration
period was increased from 7 to 8 years. With a new found marketing and pricing freedom
for new gas production from deep water /ultra-water and huge pressure -high temperature
areas, the reforms came full circle in catering to the needs of exploration and production
companies. The current year saw the government slashing price ceiling for gas produced
from deep water ,ultra -deepwater and high pressure high temperature areas of
sedimentary basins by almost 33 percent. Thus as we can see government still caps the
maximum price any energy producer can change from customers mainly because the India’s
gas market is yet to mature .

Coming on to the government policies on direct impact on the consumers, there have been
numerous new policies that came into picture as an attempt to give benefits to the
consumers. One of such successful policies involved the idea of social volunteerism where
citizens were asked to voluntarily surrender their subsidy .An estimated 1.04 crore people
actually gave up the subsidy to be used for the Pradhan Mantri Ujjwal Yojana (PMUY) .PMUY
is a scheme that aimed to provide free LPG connections to the women belonging to the
below poverty line .This was initiated by directing the Oil management companies to create
a separate funds from their own resources and to release the LPG Connections also known
as cold clean fuel in layman terms. The target set for the same was to cover around 5 crore
BPL households over the period of 3 years. The government also tried giving heavy
preference to north Eastern region by way of subsidies up to 40 percent not just via the
government companies but also incentivizing the private players for exploration and
production purposes as well. Another scheme launched by Indian Government is to cut
down the subsidy leakages via the “ghost accounts “, multiple accounts and inactive
accounts to curb the diversion of subsidized LPG for commercial purposes. Another way
government tried to curb the subsidy leakages is by way of distribution and allocation
reforms under the Direct Benefit transfer scheme in PDS Kerosene scheme.

Addressing the elephant in the room for which the government of India as well the state
governments have been regularly criticized is the levy of excise and other taxes on the oil
available to retail customers. Owing to the OPEC-Russia petroleum war in March this year
that increased the production of the oil with not much takers due to pandemic, the prices
crashed big time for oil world over, but the effect of same was much visible for the oil made
available to the consumers . The onus of this goes to around 70 percent taxes levied by the
government where excise was slightly less than the double the price at which dealers
brought the petrol and diesel. To add to all of it ,the Credit of the duties paid to motor
spirit ,high diesel oil and light diesel used in the manufacture of goods cannot be availed by
the producing companies creating extra burden on the people .However in addition to the
subsidies made available there are over and above certain exemptions /concessions given to
the manufacturer for catering to the export market or for certain notified projects . Still
keeping the petroleum and crude oil products out of the ambit of GST and continuation of
heavy Central Excise duty and VAT seems to very anti socialist move by the Government of
India.
5. Pricing Mechanism for Oil and Gas Industry
In today’s time the world economy is highly dependent on the oil and gas industry and
demands for these resources often creates political unrest as large no of the reservoir is
controlled by small number of the countries. Industry prices are determined by supply and
demand in the market generated by consumer and producers.
The USA, Saudi Arabia and Russia are the highest oil producer in the current market. In the
19th and early 20th Century US was the major oil producer in the world with their oil well in
Texas which had capacity of producing 100,000 barrels per day. A group was formed in
1960 named Organization of the petroleum exporting countries (OPEC) which consists of
world’s largest oil producers. OPEC countries had 70% of the total oil reservoir and they
produce 41% of the total oil production. Because of this they had distinct advantage in
setting supply and price at an international level specially in 20th century.

Oil Contracts
Investors can purchase two different oil contracts:
1. Spot Contracts
2. Futures contracts
The spot contracts refer to the current market price for the crude oil commodity, whereas
the futures price show that what price consumer would like to pay at the time of delivery.
There is no surety that commodity price will reach the predicted value at the time of
delivery, it is the price anticipated by both buyer and seller at the time of transaction. The
price of the commodity in the future depends on certain factors which will be discussed
later.
Commodity contracts bought through spot market take effect immediately and purchaser
accepts the delivery then and there only. An oil futures contracts is the agreement between
two parties two buy and sell certain number of contracts at a set price in the future. The
more accurately the buyer is able to forecast the price the higher chances are there for
them to get the maximum profitability out of it.
There are two important and widely known contracts in which oil market participants are
most interested in. In USA and western region, the benchmark for oil futures is west Texas
Intermediate (WTI) which trades on New York Mercantile exchange (NYMEX). In Europe,
Africa and Middle east the price index is North Sea Brent Crude which trades on
International Exchange (ICE). While two contracts move similarly but, WTI is more sensitive
towards American economic and political developments and Brent responds more to those
oversea.
Factors that affect the oil prices
1. Supply
2. Demand
3. Geo-political factors

For several decades the OPEC has been the controlling player on world trade floor. In the
recent times the grip of OPEC in the market has reduced somewhat because of the
competition presented by the Non-OPEC countries influence in the oil market. But, still opec
plays important role in the market and it is closely observed by the traders, investors and
policy makers.
The supply of the crude oil also depends on the external factors like weather patterns,
innovation and exploration and production cost. One example for this would be the shale
technology that USA has started to follow, it has helps them become one of the largest
suppliers of crude oil in the market. The supply disruption triggered by the political news
have affected the oil prices drastically.

Strong economic development is the primary driving force for the increasing demand of the
crude oil for the country. Especially the example for the given situation is Asian countries
which has seen drastic growth in short span of time. Other important factors that affect the
demand for the crude oil is the transportation, population growth and seasonal changes. For
example, the oil consumption increases in the winter season when consumption of the
heating oil increases. One more factor is that affects demand severely and will definitely
cause disruptions in the industry is the use of renewable energy in the countries.

How Price is determined in Indian market?

India has been for a long-time oil importer country. India is not blessed with large oil
reserves so they have to depend on the imports to fulfil the drastically increasing demand.
In theory the retail prices of the petrol and diesel in India in linked to the global crude oil
prices. In reality there is supposed to be high level of decontrol of the consumer end prices
of auto fuels, which means if price of the oil is decreasing in the international market then it
should be reflected in the retail price of the fuels as well. But for India this is not the case.
The Indian Government historically has subsidised the crude oil prices from 1947 to 2010.
This was done to protect the consumers from the price volatility of the international
markets and also to provide energy access to the poor. This placed huge burden on the
government. The subsidies were within acceptable limits when a barrel price was around
20USD but the government did not increase the price even when the price of the barrel
went as high as 120USD. Both government companies and oil companies absorbed huge
losses. From 2010 petrol prices were freed from government control and in 2014 diesel
prices were freed from government control.
Indian government now controls the price in indirect way by applying excise duties, vat and
other special duties on petroleum products. This is basically done to generate additional
revenues and to control the fuel consumption.
Recently when the price of the crude oil reached 0 USD still, in India the price was not much
affected. There are two reason behind that. First is whenever the crude oil prices decrease,
the government imposes additional taxes and duties. They do theses to cover the huge debt
they have incurred in the past because of the subsidy. The other reason is that more than
70% of the import is done from Europe and Middle eastern region, and they follow Brent
crude Index, which less sensitive towards the US political and economic situation.
The retail price of the fuel has following component. It includes base price of crude oil,
production cost to oil marketing companies and their profit margin, central government
taxes and duties, state government taxes and commission to pump dealers. Before the covid
situation government imposed 107% tax (Both VAT and Excises duty) on petrol and since the
price of the petrol is decreasing the government taxes percentage is increasing. Post first
revision in march the government was able to collect 134% of taxes on base price and after
second revision it increased to 256% in May-2020.
Example calculation of how price is determined.
6. EXTERNALITIES
Negative Externalities
Impact on environment due to oil spill
Oil spills create a huge impact on the environment, and the best example to state will be
Deepwater Horizon oil spill which is considered to be the largest accidental marine oil spill
to date. On 20th April 2010, an explosion on the oil rig – located 66 KM from the coast of
Louisiana – gave rise to a series of events that lead to the spilling of crude oil from the drill
hole on the ocean floor into the Gulf of Mexico for 87 days. A reported 5 million barrels of
oil eventually spilled into the ocean forming a slick extending over149,000 square KM of the
Gulf of Mexico.
Thousands of birds, turtles, fishes and dolphins were covered with the leak oil. Some of
them eventually died due to contamination. Many dolphins suffered from lung disorders to
be linked to oil exposure. Birds were particularly affected by the oil as it interferes with their
ability to regulated body temperatures. An endangered species – The brown pelican was
affected the most. According to a study conducted in 2014, up to 800,000 birds have been
died due to direct and indirect effects of the oil spill. The impact on smaller species was
more difficult to determine as numerous species of fish spawned in the area. Coral reefs
within the radius of 20 KM from the Deepwater well were heavily affected. Lab studies
conducted found out that oil dispersants made coral reproduction more difficult.
There have been 7 Major oil spills as of October 2020, oil spills are generally difficult to
contain and the cleanup costs are exorbitant. The environmental damage that they leave
behind takes lot of years to revert back to normal.

Impact on our climate due to carbon emissions

Due to globalization & advancement in the industrial and transportation sector our demand
for fossil fuel and Natural/LPG been on a steady rise. As of 2019 it was estimated India
consumed approximately 211 million metric ton of petroleum products, and this demand is
only increasing. Burning a liter of petrol produces 2.3 kgs of CO 2 emissions, with the rise in
the number of new automobiles added every year you can imagine the scale of emission
released annually.
The byproducts on combustion of oil and gas increases the greenhouse gas concentration in
our atmosphere (mainly consist of methane, nitrous oxide and carbon dioxide). These gases
reflect back the heat reflected from earth, essentially trapping it inside which rises the
temperature of earth year by year, also termed as global warming.
Some experts suggest the rise in temperature will melt the polar ice caps and glaciers, rising
the sea level. This would lead to flooding of the coastal areas and threaten the low-lying
coastal communities with chronic flooding. The rise in temperature will lead to acidification
of the oceans, this will threaten marine life and affect the communities that rely on
harvesting of marine life for their livelihood.
Unfortunately, many critics still deny the fact that global warming is a reality despite all the
facts and figures mainly because it would require us to break our dependence on oil & gas.
Economic Impact of Importing Oil & Gas
Our modern-day economy is dependent on sources like oil & gas to meet its need for energy
production, manufacturing, transport, etc. If a country doesn’t have natural reserve of oil or
gas there need to import it from oil producing nations like OPEC, Russia, US. This
dependency on other nations can become a problem on the economy, Oil as a commodity is
very volatile in terms of pricing, if there are increase in prices of crude oil per barrel –
reasons can vary from supply and demand to natura disasters and political wars – so does
everything. The immediate impact would be seen by the transportation sector, this will
increase the shipping price of every single commodity. This can cause a problem especially
in developing countries, if not handled properly the economy can spiral out of hand easily.

Positive Externalities
Economic benefits
In UK the number of people employed in oil and gas industries were close to 269,000 and
another 30,600 were directly employed in jobs supported by the offshore oil and gas
industries. Employees are well-compensated and trained for, to help bring energy to
consumers.
Oil and gas industry support thousands of indirect jobs to, engineering. Law, safety,
accounting, environmental management and many more. Businesses like hotels,
restaurants, vehicle rentals, cafes, retail outlets whose success depend on oil and gas
industry also induce employment.

Supporting other industries

During the refining process of crude oil, apart from fuel & gas, many other residual by-
products are obtained. Lubricants released as byproduct are also put to use by industries
that further refine it according to the various standards for engine oil, transmission oil,
general lubricants, grease, etc. Lubricants play an essential role in automobile sector to
reduce the wear and tear on the internal parts of the engine. Paraffin wax obtained are used
by cosmetic industries as an ingredient in their formulations, it is also used extensively to
make candles and in moisturizers.
As a whole oil and gas industries support a dozen of other industries through the byproducts
that are produced in the refining process.
Conclusion
The Oil and gas Industry can be divided into three structural components namely Upstream,
Midstream, Downstream. The level of investment, technology requirement and exposure
vary across the three segments. Further, Petroleum industry can be divided into five ways,
which are then further sub divided, depending upon region, international participation, and
sales. These classifications provide a well-defined structure to the industry and makes
exploration and control uniform across all segments.
The demand for crude oil and natural gas depends upon many industries, such as
transportation, aviation, bitumen, electricity sector, and manufacturing industries (like pulp
and paper, aluminium, and many more). So, the growth of the Oil and gas industry mostly
depends upon the performance of these industries.
The gas price ceiling fixed is usually levied by the government on the exploration of crude oil
from the Deepwater, ultra-deep water and other such high-pressure temperature areas of
Indian sedimentary basins and not on the gas prices charged from the retail consumers
because government has freed that domain from its control.

In the International market the oil is traded on two price indices. One is Western trade Index
(WTI) and second is North Sea Brent Crude index. India imports more than 70% of the crude
oil from, the countries that follow Brent crude oil index. WTI is very sensitive to US political
and economic situation where as Bent crude oil is less sensitive to it. In India price of retail
petrol and diesel price ha tax component of 70%. That is why when oil price changes in
international markets, Government increases taxes on it, and the lower price is not reflected
in retail price.
When it comes to externalities Oil and Gas industry have lots of positive effects on the
economic aspect, they create jobs generate profits and increase the economic conditions of
the region. It is hard to imagine industrial & economic progress without oil & gas. Agreed
that there are other sources of energy, but the convenience and energy density of oil and
gas are superior than others.
But all this convenience and ease of use come at a cost, increase in carbon emissions are the
major factor behind the climate change. Today, we are using more fuel and gas than ever
before, producing almost twice the emissions than 10 years ago. Secondly, we are
experiencing more & more oil spills every year adversely affecting the delicate marine life.
These are some of the things we need to take care of going forward with using oil & gas.
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