;The oil and gas sector is among the six core industries in India. It plays a major role in influencing decision making for all the other important sections of the economy. Let’s analyze oil and gas industry outlook for 2018 keeping India at center. Image Credit: Bloomberg
Oil and Gas Industry Outlook for 2018
We have referenced many sources of data available publicly. Let’s focus on few key parameters and understand the oil and gas industry outlook for 2018.
Oil and gas industry size in India
Oil imports rose sharply year-on-year by 27.89 per cent to US$ 9.29 billion in October 2017. India is the third-largest oil consuming nation in the world.
India is the fourth-largest Liquefied Natural Gas (LNG) importer after Japan, South Korea and China, and accounts for 5.8 per cent of the total global trade. Domestic LNG demand is expected to grow at a CAGR of 16.89 per cent to 306.54 MMSCMD by 2021 from 64 MMSCMD in 2015.
The country’s gas production is expected to touch 90 Billion Cubic Metres (BCM) in 2040; from 21.3 BCM in 2017-2018 (Apr-Nov).
How did oil price fare in 2017?
The price of oil rose in 2017 as the supply-cut agreement signed by the Organisation of the Petroleum Exporting Countries (OPEC) in 2016 managed to survive despite a lot of speculation otherwise. Brent crude oil trades at around $64 a barrel currently, which represents a gain of over 12% year to date, after dropping to an intra-year low of just below $45 in June. It is notable that the price rise this year looks quite subdued compared to the rally in 2016 which saw prices almost double after dropping below $30 in January. Still, the current price of oil is far from the historic highs, of well over $100, that lasted until the latter half of 2014.
Expected brent crude oil price in 2018
The World Bank predicts Oil prices to average $56/b in 2018, higher than the average price in 2017. BofA Merrill Lynch 2018 predictions for WTI and Brent prices are $52/b and $56/b respectively; lower than their 2017 predictions. BofA Merrill Lynch predicts U.S. natural gas prices to average $3.30/million BTU in 2018.
Road ahead for oil and gas industry in India
India’s oil demand is expected to grow at a CAGR of 3.6 per cent to 458 Million Tonnes of Oil Equivalent (MTOE) by 2040, while demand for energy will more than double by 2040 as economy will grow to more than five times its current size, as stated by Mr Dharmendra Pradhan, Minister of State for Petroleum and Natural Gas.
Gas production will likely touch 90 Billion Cubic Metres (BCM) by 2040, subject to adjustment to the current formula that determines the price paid to domestic producers, while demand for natural gas will grow at a CAGR of 4.6 per cent to touch 149 MTOE.
The demand for petroleum products is estimated to reach 244,960 MT by 2021-22, up from 186,209 MT in 2016, and the demand for natural gas is expected to reach 606 MMSCMD by 2021-22 as against a demand of 473 MMSCMD in 2016-17.
Government focus on oil and gas industry in India
Modi Government has been seriously infusing natural gas to complement the existing fuel mix and spread natural gas network across the country. The Modi government working on priority to increase gas accessibility in the eastern states. Government sets target to reach 10 million households and additional thousands of industrial and commercial customers across the country by 2019. 2018 is going to be the defining year for natural gas in India.
In 2017, the Government implemented many transformative initiatives to improve availability, accessibility, and affordability of clean fuel. During April-November, 2017, 46.2 lakh double bottle connections and 206.9 lakh new connections were released out of which 115.8 lakh were released under PMUY. By 2019, the Government intends to achieve close to 100% penetration of clean cooking fuel in India.
Indian oil demand to bounce back in 2018
India’s consumption of oil products will accelerate in 2018 after unusually slow growth in 2017; according to a new report by ESAI Energy. The report explains that, due to a faltering economy, demand growth slowed for almost every fuel in 2017, with kerosene, naphtha, and fuel oil use all declining. Petroleum coke demand was stagnant this year after booming in 2016. Consumption of all petroleum products, except kerosene, will return to faster growth in 2018.
After total oil demand growth slowed to just 60,000 b/d in 2017; consumption should accelerate to 200,000 b/d in 2018 as the economy recovers from multiple disruptions this year. After growing by 140,000 b/d in 2016, petcoke consumption stayed flat this year due to higher prices and a sharp decline in cement manufacturing. Next year, petcoke demand should return to growth of 40,000 b/d.
Source: Financial journey
Our Stock picks on the basis of oil and gas industry outlook
Oil and gas industry is such an industry which gets impacted heavily by macro factors. Due to uncertainty and volatility this is not one of the go to sector for us.
However considering government thrust on clean energy we have selected three stocks from the oil and gas industry in India.
One is HOEC (Hindustan Oil Exploration Company Ltd.) which is going to reap the benefits due to recent expansion. second company is quoting a price lower than it’s fair price at the moment and third pick is one of the major in gas network.
You may contact us for the details.
Hope you find you find oil and gas industry outlook for 2018 in India to be useful. If you feel this will benefit others then do share this post with your friends.