Indian Institute of Management Sambalpur
Industry Analysis Report on Extraction of Crude Petroleum and Natural Gas
Submitted to Prof Rihana Shaik
In partial fulfillment of the course WAC
By Group 12 - Section C
Ankita Jaiswal (2023MBA167)
Shubhangi Ray (2023MBA225)
Shivani (2022MBA224)
Anshul Nema (2023MBA169)
Ishaan Tiwari (2023MBA183)
December 07, 2023
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Letter of Transmittal
December 07, 2023
Prof Rihana
Visiting Professor
IIM Sambalpur
Dear Ma’am,
Sub: Industry Analysis Report on Extraction of Crude Petroleum and Natural Gas
As per the guidelines, we are pleased to present the industry report on Extraction of Crude
Petroleum and Natural Gas and Service Activities Incidental to Oil and Gas Extraction. This
comprehensive analysis delves into the industry's history, market dynamics, competitive
landscape, and the challenges faced, culminating in a post-COVID-19 assessment.
We have employed frameworks such as Porters Five Force Model and PESTLE Analysis to
provide a thorough understanding of the industry's internal and external factors. The report
adheres to high-quality standards with a plagiarism rate of less than 10 percent.
We trust this report proves insightful for strategic decision-making in the dynamic landscape of
the oil and gas extraction industry. Please do not hesitate to contact us for any further
clarification or information.
Kindly evaluate the same and provide your valuable inputs.
Best Regards,
Group 12
Section C
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Executive Summary
The Extraction of Crude Petroleum and Natural Gas, along with Service Activities related to Oil
and Gas Extraction, constitutes a vital sector deeply embedded in global economic dynamics.
With a rich historical backdrop, this industry maintains its pivotal role in the contemporary
global economy. Despite encountering challenges, it consistently makes substantial
contributions across various facets of our world. This in-depth report delves into the industry's
historical evolution, current standing, market dynamics, competitive landscape, strategic
frameworks, challenges, and the profound repercussions of the COVID-19 pandemic. The
analysis underscores the sector's resilience and adaptability, highlighting its enduring
significance amid dynamic challenges. Throughout the report, key insights illuminate the
intricate relationships within the industry and its broader economic context. By scrutinizing
historical trends and current market conditions, the report aims to provide stakeholders with a
comprehensive understanding of the Extraction of Crude Petroleum and Natural Gas sector.
This knowledge fosters informed decision-making and strategic planning, recognizing the
sector's critical role in the global economic landscape.
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Table of contents
S Title Page No.
.
N
o
.
Letter of Transmittal i.
Executive Summary ii.
1 Overview of the Industry 1
.
2 Market share analysis 3
.
3 Frameworks 5
.
4 Challenges for respective Industry 9
.
5 Aftermath of COVID-19 11
iii
.
6 Conclusion 13
.
7 References 14
.
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1. Overview of the Industry
1.1 History of Industry
The petroleum business in India began in 1889 when the country's first oil deposits were discovered near
the town of Digboi in the state of Assam. India's natural gas industry began with the discovery of gas
deposits in Assam and Maharashtra in the 1960s (Mumbai High Field). As of 2018, India's estimated
reserves of natural gas were 1339.57 billion cubic metres (BCM) and crude oil were 594.49 million
metric tonnes (MMT). India produced 29.7 MMT of crude oil in FY22.
1.2 Market size
The gross domestic product (GDP) of India is projected to reach US$ 8.6 trillion by 2040, which means
that primary energy demand will almost double to 1,123 million tonnes of oil equivalent, according to
the IEA (India Energy Outlook 2021). India is the second-largest refiner in Asia, with a capacity of
253.91 MMT as of April 2023. Roughly 35 percent of the overall refining capacity was owned by
private enterprises.
In FY23, 222.3 MMT of petrol products were consumed in India. Petroleum product
consumption in India increased from 4.05 million barrels per day (BPD) in FY22 to around 4.44
million BPD in FY23. In April through July of 2023, India produced 1.59 million barrels per day
of crude oil. In January 2023, the gross production of LNG was 2,883 MMSCM.
1.3 Products
Petroleum products include gasoline, distillates such as diesel fuel and heating oil, jet fuel,
petrochemical feedstocks, waxes, lubricating oils, and asphalt.
1.4 Geographic scope of the industry
India's six main regional markets for natural gas are the Northern, Western, Central, Southern, Eastern,
and North-Eastern markets. The Western and Northern areas currently consume the most natural gas
because of improved pipeline connectivity.
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1.5 World view of the industry
After World War II, oil dominated the world's energy balance, accounting for 60–70% of oil
consumption worldwide. Although this tendency is beginning to reverse, the rising countries' overall and
per capita energy usage was much lower throughout this time. In all locations, the amount of petrol
utilised has been rising steadily. On top of the world's proven crude oil reserves, there is a substantial
amount of oil that has not yet been discovered in regions where the geological features indicate a high
likelihood of commercially viable reserves. Put simply, at present production rates, the world's proven
reserves alone, estimated at 1,100 billion barrels, will be enough to meet demand for almost 45 years.
1.6 Life cycle stage
There are two stages in the chain of events that produces crude oil: upstream and downstream. All
procedures beginning with crude oil exploration, drilling, extraction, storage, and shipping are
considered upstream activities. Transportation, storage, distribution, and refinement of crude oil are the
first steps in the downstream process.
1.7 Contribution to GDP
Oil and Gas Sector in India accounts for roughly 8% of the country's GDP. It also employs over 2
million people, either directly or indirectly.
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2. Market Share Analysis
2.1 India's Aspirations for Drilling
An in-depth look at the extraction of natural gas and crude oil
India is a country that is rapidly gaining prominence in the energy sector and contributes significantly to
the world's natural gas and crude oil exploitation. Even while it isn't a powerful force just now, its
influence is clear, and its prospects for growth are bright.
2.2 Homemade Manufacturing: A Complicated Mix
India is currently ranked eleventh among nations, producing 1.7% of the world's crude oil. By 2022–
2023, this corresponds to about 2.42 million barrels per day (bpd). But this figure just depicts part of the
story. India is highly dependent on imports to satisfy its ravenous appetite for energy because, although
domestic production occurs, it only accounts for a scant 30% of the nation's needs. (Mordor Intelligence,
2023; Ministry of Petroleum & Natural Gas, 2023)
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2.3 State-Owned Giants and Private Entities: A Joint Environment
In India, the oil and gas extraction sector is dominated by the state-owned Oil & Natural Gas
Corporation (ONGC). Its commanding 50% of the nation's oil and gas production is evidence of its
hegemonic status. The situation isn't a one-man show, though.
2.4 Growth Accelerators and Obstacles: A Modest Operation
The oil and gas extraction sector in India is growing due to a number of causes. Strong triggers include
its rapidly expanding economy, rising energy needs, and government programs encouraging domestic
exploration and production. For India, walking the tightrope between environmental sustainability and
the requirement for energy security would be extremely important. (Euromonitor, 2023)
2.5 Prospective Glimmers: A Tale of Possibility
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India's oil and gas extraction sector is expected to grow at an impressive 5.20% CAGR over the next
five years, despite the obstacles. Technological developments, international capital, and a persistent
drive for unconventional resources will drive this boom.
2.6 A Developing Star in the Energy Firmament
India may have a small present market share in the extraction of natural gas and crude oil, but its
potential is enormous. A country primed for energy superstardom is depicted by its massive reserves,
which are fueled by a potent combination of government support, technical developments, and a
diversified energy mix.
3. Frameworks
3.1 PESTEL Analysis
3.1.1 Political
Government policies impact exploration and extraction, with approval processes, tax policies, and trade
regulations influencing industry dynamics. Subsidies and special economic zones can either support or
hinder production levels.
3.1.2 Economic
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Economic growth correlates with increased oil and gas demand, driven by higher living standards.
Exchange rates affect import costs, and interest rates influence investment and demand. Lower interest
rates spur economic growth and boost the demand for oil and gas.
3.1.3 Social
Population size and urbanization levels influence oil and gas demand. The global shift towards green
energy contrasts with regions still reliant on conventional fuels. Behavioral patterns, such as energy
consumption habits, further affect industry dynamics.
3.1.4 Technological
Advancements in technology, including robotics and data analytics, enhance efficiency and address
environmental concerns. Carbon capture and storage technologies promote sustainability, shaping a
more efficient, profitable, and environmentally conscious oil and gas industry.
3.1.5 Legal
Strict environmental laws can lead to penalties for emissions, impacting the industry. Labor laws
mandating high wages may reduce profits. Competition-promoting laws are crucial for preventing
monopolies, while favorable business and contract dispute laws attract oil and gas companies to operate
in a country.
3.2 Porter’s Five Forces framework:
3.2.1 Competitive Rivalry
The competitiveness of oil and gas industry and especially in the upstream sector of the industry is
significantly intensive.
The big IOCs or as we call it Integrated Oil and Gas Companies (private sector), based on the below
graph these are:
i. The revenue for Royal Dutch Shell in 2015 was 385.6 billion dollars.
ii. Exxon Mobil's US revenue for 2015 was $364.55 billion.
iii. BP's $6 billion in revenue for the UK in 2015
iv. France's revenue for 2015 was 194.2 billion dollars.
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v. Chevron from the United States 8 billion dollars in sales in 2015
vi. The USA's Phillips 66 generated 161.2 billion dollars in revenue in 2015.
vii. Italy's Eni reported 132.8 billion dollars in revenue in 2015.
Top oil and gas companies by revenue 2015 ranking | Statistic. (n.d.). Retrieved February 19, 2016, from
3.2.2 Threat of new Entrants
i. High Capital Requirements: Demanding substantial initial investment.
ii. National Oil Company Dominance: Over 90% of reserves controlled, creating entry barriers.
iii. Internal Industry Competition: Intensifying competition within the sector.
iv. R&D Disparity: Established firms' research dominance pressures new entrants to increase
spending.
v. Economies of Scale: Larger companies benefit from scale advantages.
vi. Price Volatility: Fluctuations pose profitability risks for newcomers.
vii. Geopolitical Risks: Reserves often in regions with conflicts or instability.
viii. Legal Restrictions: National and international regulations impede entry.
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3.2.3 Threat of substitutes
In the energy production process, the oil and gas sector may encounter alternatives from nuclear, coal,
hydrogen, and renewable energy sources like biofuels, solar, and wind power. Adoption of these
alternatives is contingent upon a number of factors, including cost, quality, and performance. It is
unlikely that substitutes will dominate the global energy mix until 2040, though, given the significant
investments required in research and development as well as production procedures.
3.2.4 Bargaining Power of Buyers
The main buyers of oil and gas products are refineries, domestic and foreign oil and gas companies,
distribution companies, traders, and nations like the United States, China, Japan, and the European
Union. Because of the fundamental characteristics of the oil and gas sector, buyers' negotiating power is
constrained. Consumers prioritize the cost and caliber of products.
The pricing of oil is determined by global benchmarks such as Dubai/Oman, West Texas
Intermediate (WTI), and Brent Blend, which reduce the impact of individual buyers. Customers
who consume a lot, such as those in the EU, China, USA, Japan, and India, have more negotiating
power. But their real power comes from choosing the grade of oil they buy, taking density and
Sulphur content into account.
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Benchmarks play an important role in pricing crude oil – Today in Energy – U.S. Energy Information
Administration (EIA). (n.d.). Retrieved February 23, 2016, from
3.2.5 Bargaining Power of Suppliers
In the oil and gas sector, suppliers have significant influence when it comes to negotiations, especially
for fully integrated companies that work throughout the whole value chain. International and national oil
companies like Chevron, Shell, Exxon Mobil, Saudi Aramco, Gazprom, and Petrobras are some of these
significant suppliers. Given their extensive involvement in every facet of the oil and gas sector, they
have a significant ability to influence both oil prices and the industry as a whole.
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4. Challenges for Respective Industry
4.1 Regulatory Pressures
Stricter environmental rules, spurred by global climate change concerns, demand the business to adapt to
new emission standards, waste disposal procedures, and habitat conservation criteria.
4.2 Public Perception
Negative public attitude may cause project approvals to be delayed, legal challenges to be filed, and
issues in maintaining social licenses to operate.
4.3 Market Uncertainty
The business is extremely subject to swings in global oil and gas prices. Market conditions that fluctuate
quickly, impacted by geopolitical events, supply-demand dynamics, and economic trends, make revenue
forecasting and financial planning difficult.
4.4 Reliance on Global Factors
Political unrest, economic downturns, and geopolitical conflicts create enormous unpredictability in the
sector, making it difficult for businesses to plan and invest strategically.
4.5 Political Instability
Operating in politically unstable locations entails significant risks, such as supply chain interruptions,
rapid regulatory changes, and even asset confiscation.
4.6 Old Infrastructure
Many oil and gas fields rely on old infrastructure, which leads to greater maintenance costs and
increased vulnerability to operational failures.
4.7 Technological Transition
Adopting and integrating new technologies, such as digitalization, automation, and better oil recovery
methods, necessitates the resolution of technical and organizational issues.
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4.8 Operational Dangers
Accidents and spills, as well as worker health and safety problems, are all part of the extraction process.
Maintaining a safe working environment necessitates ongoing investment in safety measures, training,
and strict operational norms.
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5. Aftermath of COVID-19
Following the early 1980s restructurings, the industry produced extraordinary value for shareholders.
Total returns to shareholders (TRS) outpaced the S&P 500 index between 1990 and 2005 across all
industry segments, with the exception of refining and marketing firms.
Between January 2005 and January 2020, the global industry was unable to keep up with the broader
market, despite the persistence of macro tailwinds like robust demand growth and efficient supply
access. During this time, the average annual TRS growth generated by the oil and gas industry was
approximately seven percentage points lower than that of the S&P 500 (see figure below).
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5.1 Short-term forecasts of prices, supply, and demand
The pandemic has already had an effect, with petrol demand falling by 5 to 10 percent compared to
growth estimates made prior to the crisis. Refining is facing a crisis as a result of a minimum 20 percent
decline in demand for refined products. We believe that it will take two years at the very least for
demand to rebound, and jet fuel's future is especially bleak.
5.2 Long-term challenges
As we look past the current crisis and into the late 2030s, we can expect the macroenvironment to get
even more difficult. Let's start by discussing supply and demand. The demand for hydrocarbons,
especially oil, is predicted to grow until the 2030s, at which point it will gradually decline.
Most likely, the upstream cost curve will remain flat. The amplitude and duration of price fly-ups will be
lessened by new sources of low-cost, short-cycle supply, even though geopolitical risks will still have a
significant impact on supply. Despite its challenges, the shale oil and gas subsector will persist in
offering a supply that can be quickly brought online.
5.3 Key observations
Because of COVID-19, falling oil prices due to oversupply and demand contraction have negatively
affected refining throughputs, and as a result, GRMs are under stress. This will have an impact on new
and ongoing capex programmes, and the financial standing of companies is likely to be under some
stress.
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Conclusion
In conclusion, the realm of Crude Petroleum and Natural Gas extraction, coupled with ancillary services
linked to Oil and Gas extraction, epitomizes a convergence of technological ingenuity, economic
importance, and environmental stewardship. As this industry grapples with dynamic challenges and
embraces burgeoning opportunities, the linchpin for its sustained evolution lies in the adept adoption of
sustainable practices. The trajectory of this vital sector hinges on a delicate balance—leveraging
technological advancements to enhance efficiency while conscientiously mitigating environmental
impacts.
The economic significance of these activities cannot be overstated, as they underpin
global energy demands and contribute substantially to national revenue streams. However, the
imperative for environmental responsibility looms large. To secure the future of Crude Petroleum
and Natural Gas extraction, a proactive commitment to eco-friendly practices, renewable energy
integration, and stringent environmental regulations is indispensable.
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References
i. Barbosa, F., Bresciani, G., Graham, P., Nyquist, S., & Yanosek, K. (2020, May 15). Oil and gas
after COVID-19: The day of reckoning or a new age of opportunity? McKinsey & Company.
https://www.mckinsey.com/industries/oil-and-gas/our-insights/oil-and-gas-after-covid-19-the-
day-of-reckoning-or-a-new-age-of-opportunity
ii. Impact of COVID-19 on O&G industry. (n.d.). Deloitte India.
https://www2.deloitte.com/in/en/pages/energy-and-resources/articles/impact-of-covid-19-on-oil-
and-gas.html
iii. India Oil And Gas Market Insights. (n.d.). https://www.mordorintelligence.com/industry-
reports/india-oil-and-gas-market
iv. Oil demand in India http://www.statista.com/statistics/272710/top-10-oil-and-gas-companies-
worldwide-based-on-revenue/
v. Oil Benchmarks http://www.eia.gov/todayinenergy/detail.cfm?id=18571
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