Impact of Oil/Gas finds on India’s GDP

Updated on 31st March’09: The KG Basin is thought to be one of the largest gas finds for the country and is expected to almost double India’s domestic gas production.

Reliance is likely to ramp up its gas production to a peak capacity of 80MMcm/d by the end of FY 2010, while the MA crude discovery is likely to lead to peak capacity of 40Mbbl/d by FY 2010. For the FY 2010-12 period, the overall refining capacity of Reliance Petroleum Limited (RPL) is thought likely to be 580kbpd. On the other hand, Cairn’s MBA (Mangla Bhagyam Aishwarya) project for crude production is expected to reach peak output of 175Mbbl/d by FY 2011/12.

In FY10, India’s GDP will be up by more than 1.5% from the commissioning of RIL Gas production from KG basin, Cairn India’s Oil production from Rajasthan fields and Rel Petroleum refinery at Jamnagar according to ICICI Pru AMC.

According to HSBC, the net benefits accruing to the current account balance are expected to be in the range of $8.3bn to 12bn in FY 2010 (0.6% to 0.9% of GDP) assuming Brent Crude at $71 and 50% & 100% substitution. $11-25bn in FY 2011(0.8% to 1.7% pf GDP). For FY 2012, the estimated benefits are even higher, ranging from $12.4bn to $27bn. Addition to GDP would be 40bp in FY10 and 50bp in FY11.

I-Sec estimates savings of $70bn through FY10-14E. Overall, benefits to various sectors through reduced petro-products consumption, lower urea imports, higher LPG production, surplus naphtha and FO availability will be Rs171bn (US$4.3bn), Rs451bn (US$11.3bn), Rs628bn (US$15.7bn), Rs736bn (US$18.4bn) and Rs810bn (US$ 20.2bn) in FY10E, FY11E, FY12E, FY13E and FY14E respectively. Additional benefits are reduced cost of power generation, urea and LPG production, and higher GRMs of refineries (by switching to cheaper gas from Fuel Oil.

Deutsche Bank projects addition of $103bn to India’s GDP over the next four to five years.

According to Goldman Sachs, gas production will lead to reduction in the oil import bill by $8-$13bn, add $2.5-$4.5bn annually to the exchequer, lead to cost savings of $2-4.8bn across various industries between 2010-11 and 2013-14.

GSPC’s gas find in KG-8, KG-15 and KG-28 has been certified at upwards of $6bn. So far, the GSPC has drilled 12 wells and is going ahead with drilling four more in the Deen Dayal block, which is spread over 100 sq kms. Most of the action is happening on the south-west of the block in an area of 15 sq kms. GSPC had claimed a commercial potential of 5.6 TCF before the DGH, but the DGH has certified a minimum discovery of 1.26 TCF, which is subject to upward revision on a more detailed appraisal. If GSPC’s claimed figure of 5.6 TCF is finally confirmed, KG-8, 15 and 28 together would be worth $ 28 billion (Rs 1.40 lakh crores). Plans are afoot that GSPC’s gas from KG basin would land in Gujarat by Christmas of 2011 to meet the energy needs of a state.

According to Cairn India CEO, its field may cut India’s oil import bill by as much as 7%. The explorer may generate more than $1bn in 2010 based on current oil prices ($50) and $2bn annually starting 2011, once it reaches the peak output rate.

In short, depending on the Crude price, gas price, exchange rate and refining margins, impact on economy growth and current account balance will be significant.

Related linkMacquarie’s take on RIL gas


One response to “Impact of Oil/Gas finds on India’s GDP

  1. Pingback: 9% economy growth in FY11? « Long & Short of Indian Equities

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s