Boston, MA -- (SBWIRE) -- 11/08/2012 -- BMI View: While India's upstream oil prospects appear to be limited, the discovery and ongoing development of significant gas resources has changed the import picture for the better. However, the gas sector has been thrown into turmoil as the industry struggles to assess its future LNG needs. Oil demand trends are being distorted by subsidies and price differentials and there is a requirement for continued investment in refining capacity and a growing reliance on foreign crude. Licensing remains a hit-and-miss process, with disappointing results from the most recent round set to trigger changes.

We highlight these trends and developments in India's oil and gas sector:

- BMI estimates Indian total liquids production at 984,000 barrels per day (b/d) in 2011. This figure is set to remain at around this level during 2012, before edging higher in 2013 on the back of rising production from the Bhagyam and Mangala fields in the Rajasthan block. Production at Mangala has ramped up to the currently approved plateau rate of 125,000b/d. In addition, Bhagyam has the potential to produce 40,000b/d and Aishwariya another 10,000b/d.

- The second largest field, Bhagyam, came onstream in January 2012. Following the government's approval of higher Mangala offtake of 150,000b/d, production at the block has been raised to 175,000b/d. Beyond 2015, we have pencilled in a year-on-year (y-o-y) decline in Indian production, pending the commercialisation of new oil discoveries. Oil imports are forecast at 2.41mn b/d in 2012 and are set to exceed 3.0mn b/d by 2016. BMI's demand outlook suggests consumption of an estimated 3.40mn b/d in 2012 will rise steadily to 4.04mn b/d by 2016. Given forecast consumption of 4.89mn b/d, implied 2021 oil imports are put at 3.96mn b/d.

- Gas demand is rising fast across the industrial, residential and power sectors and consumption has risen more than 160% since 1995. Average annual demand growth of at least 6% is forecast over the next several years, accelerating as domestic field development and LNG import deals make more gas available. We expect 2012 gas production to be around 48bcm. We are predicting total gas consumption of almost 113bcm in 2016, up from an estimated 77bcm in 2012. By 2021, demand is put at 152bcm, requiring net imports of 77bcm.

- India has set up a committee to review the country's existing production sharing contracts (PSCs) with oil and gas companies. According to an official statement, the objective is to 'look into the design of future PSCs in order to 'enhance production of oil and gas and the government's share' while 'minimising procedures for monitoring the expenditure of producers'. The main issues in this review are: profit-sharing mechanism in PSCs; alternative models that can maximise output (and the government's associated share) more effectively; how to improve the management of PSC implementation; and possible reforms to the gas price regulatory mechanism.

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