INDIAN INSTITUTE OF MANAGEMENT SAMBALPUR

Industry Analysis Report on Extraction of Crude Petroleum and Natural

Gas

Submitted to Prof Rihana Sheikh

Purpose : 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)

Date of Submission : 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.No Title Page No.

1. Overview of the Industry 5-6

2. Market share analysis 7-8

3. Frameworks 9-12

4. Challenges for respective Industry 13

5. Aftermath of COVID-19 14-15

6. Conclusion 16

7. References 17

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 1. Overview of the Industry

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.

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.

Products:
petroleum products include gasoline, distillates such as diesel fuel and heating oil, jet fuel,
petrochemical feedstocks, waxes, lubricating oils, and asphalt.

Geographic scope of the industry:

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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..

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.

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.

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

India's Drilling Ambitions: A Deep Dive into Crude Oil & Natural Gas Extraction
India, a nation on the ascent in the energy arena, holds a respectable stake in the global extraction of
crude oil and natural gas. While not yet a dominant force, its presence is undeniable, and its future
potential is brimming with promise.

Domestic Production: A Mixed Bag

India currently holds 1.7% of the world's crude oil production, ranking 11th among nations. This
translates to roughly 2.42 million barrels per day (bpd) as of 2022-23. However, this figure only paints
half the picture. While domestic production exists, it meets a meager 30% of the country's demand,
making India heavily reliant on imports to quench its insatiable thirst for energy. (Mordor Intelligence,
2023; Ministry of Petroleum & Natural Gas, 2023)

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State-Owned Giants and Private Players: A Collaborative Landscape
The Oil & Natural Gas Corporation (ONGC), a state-owned behemoth, reigns supreme over the Indian
oil and gas extraction industry. It controls a staggering 50% of domestic oil and gas production, a
testament to its dominant role. However, the scene isn't a one-man show.

Growth Drivers and Roadblocks: A Balancing Act

Several factors propel India's oil and gas extraction industry forward. Its booming economy, ever-
increasing energy demands, and government initiatives promoting domestic exploration and production
act as potent catalysts. Balancing the need for energy security with environmental sustainability will be a
crucial tightrope walk for India. (Euromonitor, 2023)

Future Glimmers: A Story of Potential

Despite the hurdles, India's oil and gas extraction industry is projected to witness a remarkable 5.20%
CAGR over the next five years. This surge will be fueled by technological advancements, foreign
investments, and a continued push towards unconventional resources.

In Conclusion: A Rising Star in the Energy Firmament

While India's current market share in crude oil and natural gas extraction might seem modest, the
potential it holds is anything but. Its vast reserves, driven by a potent cocktail of government support,
technological advancements, and a diversifying energy mix, paint a picture of a nation poised for energy
superstardom.

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 3. Frameworks

PESTEL Analysis

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.

Economic:
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.

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.

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.

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.
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Porter’s Five Forces framework:

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:
1. Royal Dutch Shell 385.6 billion dollars revenue for 2015
2. Exxon Mobil from USA 364.5 billion dollars revenue for 2015
3. BP from UK 6 billion dollars revenue for 2015
4. Total from France 194.2 billion dollars revenue for 2015
5. Chevron from USA 8 billion dollars revenue for 2015
6. Phillips 66 from USA 161.2 billion dollars revenue for 2015
7. Eni from Italy 132.8 billion dollars revenue for 2015

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 Top oil and gas companies by revenue 2015 ranking | Statistic. (n.d.). Retrieved February 19, 2016,
from http://www.statista.com/statistics/272710/top-10-oil-and-gas-companies-worldwide-based-on-
revenue/]

Threat of new Entrants :

 High Capital Requirements: Demanding substantial initial investment.
 National Oil Company Dominance: Over 90% of reserves controlled, creating entry barriers.
 Internal Industry Competition: Intensifying competition within the sector.
 R&D Disparity: Established firms' research dominance pressures new entrants to increase
spending.
 Economies of Scale: Larger companies benefit from scale advantages.
 Price Volatility: Fluctuations pose profitability risks for newcomers.
 Geopolitical Risks: Reserves often in regions with conflicts or instability.
 Legal Restrictions: National and international regulations impede entry.

Threat of substitutes:
The oil and gas industry faces potential substitutes in energy production, including nuclear energy, coal,
hydrogen, and renewable sources like biofuels, solar, and wind energy. The adoption of these
alternatives depends on factors such as performance, quality, and cost. However, the substantial
investments needed in research and development and production procedures make it unlikely for
substitutes to dominate the global energy mix until 2040.

Bargaining Power of Buyers :

Primary purchasers of oil and gas products encompass refineries, national and international oil and gas
companies, distribution entities, traders, and countries such as the USA, China, Japan, and EU nations.
The bargaining power of buyers in the oil and gas industry is limited due to the industry's inherent
nature. Buyers primarily focus on product price and quality.
Global oil benchmarks, including Brent Blend, West Texas Intermediate (WTI), and Dubai/Oman,
dictate oil prices, minimizing the influence of individual buyers on pricing. Buyers with substantial

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consumption, like the EU, China, USA, Japan, and India, possess comparatively higher bargaining
power. However, their influence lies mainly in selecting the quality of oil they purchase, considering
factors such as density and sulfur content.

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 http://www.eia.gov/todayinenergy/detail.cfm?id=18571

Bargaining Power of Suppliers :

The bargaining power of suppliers in the oil and gas industry is notably influential, particularly for fully
integrated entities operating across the industry's entire value chain. These major suppliers include
International and National Oil Companies, such as Chevron, Shell, Exxon Mobil, Saudi Aramco,
Gazprom, and Petrobras. Their ability to impact oil prices and the overall industry is substantial, given
their comprehensive involvement in all segments of the oil and gas sector.

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 4. Challenges for Respective Industry

• 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.

• 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.

• 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.

• 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.

• Political Instability: Operating in politically unstable locations entails significant risks, such as supply
chain interruptions, rapid regulatory changes, and even asset confiscation.

• Old Infrastructure: Many oil and gas fields rely on old infrastructure, which leads to greater
maintenance costs and increased vulnerability to operational failures.

• Technological Transition: Adopting and integrating new technologies, such as digitalization,

automation, and better oil recovery methods, necessitates the resolution of technical and organizational
issues.

• 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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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.

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.

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
 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

 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
 India Oil And Gas Market Insights. (n.d.). https://www.mordorintelligence.com/industry-

reports/india-oil-and-gas-market

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