On Wednesday, India’s Cabinet Committee on Economic Affairs approved the sale of domestic crude oil and condensate, which will end allocation in the domestic market from June 29, 2022. With the move, the government is removing market anomalies and ensuring free market pricing for all E&P operators. This move will have a major impact on India’s oil and gas industry, as the country is the world’s third-largest consumer of oil, and depends on imports for 85 percent of its energy needs.
While a deregulated crude sector will result in higher realisations, it will also increase government revenues. The government collects royalty based on a percentage of the price of crude and has set aside 20% of its revenue from onshore production, while ten percent of it is collected offshore. This additional revenue will offset the loss of nearly Rs 1 lakh crores in revenues due to excise duty cuts.
The price of crude petroleum fell six-and-a-half percent from January to April and then recovered by seventy-two percent from April to July. However, the price of imported petroleum increased in April and June by less than half. The decrease in prices came as a result of a decrease in the supply side and a positive shock in demand. With the deregulation of crude oil prices, India’s share price has fallen more than ten percent from its April peak.
Vedanta’s Cairn Oil & Gas will also get the freedom to sell its oil at Ravva, an offshore oil field. At present, Cairn sells its crude only to HPCL, the state’s largest refiner. After deregulation, Cairn Oil & Gas will be free to sell oil to any buyer, including private sector refineries.