INDIA'S OIL SECTOR HAS MORE SETBACKS

India's petroleum sector continues to lag expectations.

Indian crude oil production is expected to fall by 20,000 b/d in fiscal 1992-93 from the current fiscal year ending Mar. 31.

At the same time, India's imports of crude and refined products are projected to jump sharply in the coming fiscal year.

Meantime, despite earlier pronouncements to the contrary, it's apparent only one of three 120,000 b/d grassroots refineries planned for the 1991-95 planning period in India will proceed, likely at Paradip in Orissa state.

Citing capital constraints and the lapse of a year, that's what India's Planning Commission has told the Petroleum Ministry. India's 12 refineries have a combined capacity of 1.037 million b/d. The government had targeted expansion of total refining capacity to 1.56 million b/d by 1995.

In other news, the Indian government extended the deadline for submission of bids under its fourth exploration bidding round to Apr. 15, 1992, from the original date of Feb. 29. The extension came at the request of foreign operators, notably some new entrants.

The government has put up 33 onshore and 39 offshore blocks for bid, ending a long practice of reserving the most prospective areas for state owned Oil and Natural Gas Commission and Oil India Ltd. Foreign operators have spent $120 million for exploration in India the past 5 years without commercial success.

PRODUCTION SLIDING

India's production of crude oil in fiscal 1992-93 is expected to slip to 610,000 b/d from an estimated average of 630,000 b/d in fiscal 1991-92.

That compares with an original target of 670,000 b/d for fiscal 1991-92.

Indian industry officials cite shut-ins associated with gas flaring and reservoir maintenance pro-rams in the Bombay High offshore area, which accounts for two-thirds of the country's oil production. Some estimates place the loss from Bombay High at as much as 60,000 b/d.

Offsetting the Bombay High decline in part is gradual restoration of full production in Assam state, disrupted in 1991 by civil strife.

The production target for 1991-92 is the lowest in 7 years and cuts India's crude self-sufficiency to 60% compared with 70% in 1984-85.

Fiscal woes at India's biggest state owned oil company, ONGC, also are contributing to the production decline. ONGC profits in fiscal 1990-91 plunged to $616.5 million from $1.347 billion in fiscal 1989-90. It was the company's first decline in profits in a decade.

The company cited a change in accounting rules governing dry hole expenses and revaluation of commercial debt following depreciation of the rupee.

However, Indian industry officials cite a recent sharp slide in ONGC production caused in part by an increase in well shut-ins.

ONGC had targeted production of 660,000 b/d in 1990-91 but missed that goal by 66,000 b/d, the first time in more than a decade the company failed to register a production increase.

ONGC crude production is expected to fall again in fiscal 1991-92. The original projection for fiscal 1991-92 in the current 5 year plan had ONGC producing as much as 682,000 b/d. Instead, industry officials expect ONGC to produce only about 540,000560,000 b/d in the current fiscal period.

INCREASED IMPORTS

India will have to import 540,000 b/d of crude and 246,000 b/d of refined products in 1992-93, according to government estimates.

That compares with imports of 468,000 b/d of crude and 200,000 b/d of refined products for the fiscal year ending Mar. 31.

Government officials peg total demand for refined products at 1.21 million b/d in 1992-93 vs. 1.144 million b/d estimated for 1991-92. Strongest growth is expected in demand for diesel fuel and liquefied petroleum gas-used mainly for cooking.

The Indian government continues to rein growth in oil consumption by bringing domestic product prices more in line with world market prices.

Effective Jan. 1, the central government increased prices for motor gasoline, high speed diesel fuel, kerosine, and LPG. That's a tradeoff for discontinuing the practice of reimbursing state owned oil companies for taxes paid to state governments.

The move allows the state companies to recover another $200 million in product prices by the end of the current fiscal year.

Despite efforts to cut consumption, the Petroleum Ministry has projected an increase in oil consumption of 6% in the coming fiscal year. However, other industry sources project a more likely increase of 8%.

The spike in oil imports has contributed to a slowdown in fiscal reforms in India, where a proposed easing of import curbs on raw materials and capital goods has been delayed over concerns that a sharply higher oil import bill will drain foreign exchange reserves. That may be alleviated somewhat by the recent decline in crude and product prices because of economic recession and surplus production.

IMPORT CONCERNS

India faces a new concern regarding a traditional source of imported oil.

The former Soviet Union suspended supplies of crude and products to India last December, apparently not wanting payment in rupees. those exports had not resumed as of mid-February.

During 1991, exports of crude and products from former republics of the Soviet Union fell far short of contract volumes.

Former Soviet republics supplied India only 58,000 b/d of crude vs. a contract supply of 90, 000 b/d, 22,000 b/d of diesel as a contracted 34,000 b/d, and 8,300 b/d of kerosine vs. a contracted 10,000 b/d.

India's government has approached Norway, Australia, Yemen, and Oman for possible oil supply arrangements for fiscal 1992-93 beginning Apr. 1.

But those sources may not fully offset the lost supplies from the former U.S.S.R. because India's waterborne imports of oil are constrained by limited tanker loading facilities.