MANAGERIAL ECONOMICS

PROJECT REPORT-“ DEMAND ANALYSIS

ON OIL AND natural gas ”

SUBMITTED TO SUBMITTED BY- PGDM GENERAL(2K91)

MS.SHURUCHI AGARWAL ABHISHEK VOHRA A04

LECTURER, AIM ANAMIKA SHISHODIA A10

ANKIT JAIN A15

ANKUR SEN A16

GAURAV OBEROI A38

MEENAKSHI SHAH A53

1
 TABLE OF CONTENTS

S.NO PARTICULARS PAGE NO.

1. SYNOPSIS 3

2. INTRODUCTION 5

3. MAJOR PETROLEUM CO.S 9

4. INDIA’S RESOURCE BASE 12

5. EXPLORATION AND 13
PRODUCTION

6. REFINING 17

7. DEMAND 20

8. REASONS FOR SHIFT IN 24

DEMAND CURVE

9. COMPANY’S DEMAND 26

10. DEMAND SCHEDULE 27

11. CONSUMPTION AND 28

DEMAND OF PETROLEUM
IN INDIA

12. OIL AND GAS DEMAND 30

13. DEMAND OF NATURAL 31

GAS

14. BIBLIOGRAPHY 33

Synopsis
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DEMAND:- It is a quantity of a commodity which a buyer is willing to purchase at
various price per unit of time.

DEMAND function:-It explains the functional relationship between the demand of the
commodity & its determinants.

Dn=f(Pn,Pr,Y,T,P,Yd)

Pn=price of good ‘n’.

Pr=price of related goods.

Y=income of consumer.

T=taste & preference.

P=population.

Yd=distribution of income.

Determinants of Demand

The determinants of demand are also known as demand shifters. They result in the leftward
(decrease) or rightward (increase) shifts in the demand curve.

1.) tastes or preferences of consumers

• an increased taste in a product increases its demand

• a decreased taste in a product decreases its demand

2.) number of consumers in the market

• more consumers increases a products demand

• fewer consumers decreases a products demand

3.) the money incomes of consumers

“Superior goods or normal goods “

Superior goods

3
• As income increases, a superior good's demand increases

• As income decreases, a superior good's demand decreases

• Superior goods are most common goods

normal Goods

• As income increases, an inferior good's demand decreases

• As income decreases, an inferior good's demand increases

4.) prices of related goods

Substitute Goods

• As price of A increases, demand for B increases

• As price of A decreases, demand for B decreases

• Example: Nike's and Reeboks

Complementary Goods

• As price of A increases, demand for B decreases

• As price of B decreases, demand for A increases

• Example: computers and computer games; gasoline and motor oil

Independent Goods

• As price of good A changes, demand for good B does not change

5.) consumer expectations about the future prices and incomes

• if consumers expect a price increase in near future, demand increases

• if consumers expect a price decrease in the near future, demand decreases

Oil and Gas Indust ry in India

4
Oil exploration in India began in 1867, when oil was struck at Makum, near Margherita
in Assam. However, exploration and production (E& P)started in a systematic way only
in 1899, after the Assam Oil Company (AOC) was formed. At the time of
Independen ce, India’s domestic oil production was just 250,000 tonnes per annum.
Under its Indust rial Policy Resolution of 1954, the Government announ ced that
petroleum would be considered as a core sector in the country. The Geological
Survey of India, carried out extensive reconnaissan ce surveys and mapping s, to
locate structures suitable for exploration of oil and gas. However, petroleum
exploration in the country received the real thrust only after the setting up of Oil
and Natural Gas Commission (ONGC), in 1955.

Several foreign companies have entered the Indian E & Pscene since the early fifties.
These included Indo Stanvac Project, a joint venture between the Government of India
and Standard Vacuum Oil Company for West Bengal onlan d. In the early
seventies, Carlsbons Natomas stepped in for Bengal offshore, Assamerc for Cauvery
offshore and Reading and Bates, for Kutch offshore. Later entrants include Shell, for
Kerala offshore and Chevronn- Texaco, in Krishna - Godavari offshore.

The first oil and gas pool was discovered in Jwalamukhi (Punjab) and Cambay
(Gujarat) in 1958 and Oil India Limited (O IL),was set up in the the same year. The two
public sector companie s, ONGC and O IL,discovered over 260 oil and gas fields located
in Assam, Bomb ay Offshore Cambay, Cauvery, Krishna-Godavari, Tripura-Cachar and
West Rajasthan basins. The discovery of the vast Bomb ay High field in 1974, in the
west coast offshore was the most significant event in India’s upstream pet roleum
sector.

The Government of India, further liberalised the petroleum exploitation and

exploration policy in 1991, and invited private companie s, both foreign and
Indian, to participate in the exploration of oil and gas. Under the Petroleum Sector
Reforms (PSR), the fourth, fifth, sixth, seventh and eighth rounds of exploration
bidding were announ ced between 1991 and 1994. For the first time Indian
companies with or without previous experience in E& Pactivities were permitted to
bid. The Governme nt, then announ ced the Joint Venture Exploration Programme, in
1995. The exploration blocks were located in those areas for which the Petroleum
Exploration Licence was with the National Oil Companies (NOCs)and these companies
were required to have a 25-40 per cent participating interest from day one. The
Government of India has signed Production Sharing Contracts (PSCs) for 28
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 exploration blocks under Pre-NELP (New Exploration Licensing Policy) round s, since
1993. Out of thes e, 10 blocks have been relinquished/ surrende red. At present, 17
exploration blocks are under ope ration. More recent developme nts in E & P in the
country are detailed in the relevant sections in this report.

IN S T IT U T IO N A l ST R U C T U R E

O v e r v ie w o f t h e I n s t it u t io n a l S t r u c t u r e a n d le a d in g c o m p a n ie s

The Ministry of Petroleum and Natural Gas, is the primary agency for regulating this
sector in India. It is entrusted with the responsibility of handling legislation and issues
related to E & Pof oil and natural gas, such as, refining, distribution and marketing; and the
import, export, and conservation of petroleum products and Liquefied Natural Gas (LN G ).
There are several leading Public Sector Undertakings (PSUs) and private players across the
value chain.

6
duction

PSUs in Oil and Gas Sector

• B alm er Lawrie & Co. Ltd.
• B harat Petroleum Corporation Ltd.
• B iecco Lawrie Co. Ltd.
• Bongaigaon Refinery and Petro-Chemicals Ltd.
• Chennai Petroleum Corporation Ltd.
• Kochi Refineries Ltd.
• Engineers India Ltd.
• Gas Authority of India Ltd.
• O il and Natural Gas Commission (O N GC), Hindustan Petroleum 7
 KE Y B O D I E S U N D E R T H E M IN IS T R Y O F P E T R O L E U M A N D N A T U R A L

Apart from the PSUs, the Ministry has a range of other organisations working under
its umbrella. These include

Oil Industry developme nt board

This Board was formed under the Oil Indust ry (Developme nt) Act, 1974, to render
financial and other assistance and funding of research and developme nt
programmes for sustainable developme nt of the oil indust ry.

Oil Industry Safety directorate (OISd)

This is a technical directorate under the Ministry that formulates and coordinates the
impleme ntation of self regulatory measu res, aimed at enhancing safety in the oil and gas
industry in India.

Petroleum conse rvation Research Association

(PCRA)
It was set up in 1976 as a part of the Governme nt’s response to the oil crisis of early
seventies, to unde rtake studies to identify the oil potential and to make
recommend ations for achieving conservation of petroleum products in the economy. It
sponsors R & D activities, for the developme nt of fuel-efficient equipme nt/devi ces and
organises multi-media campai gns, for creating mass awareness for the conservation.

Petroleum Planning and Analysis cell (PPAC)

This cell was set up subseque nt to the dismantling of the Administered Pricing
Mechanism (APM ) in the pet roleum sector, with effect from 1st April 2007 and the
abolishme nt of Government of India’s Oil Coordination Committee (OCC). PPAC assists the
Government in discharging some of the functions earlier being performed by OCC, these
functions include administration of subsidy on Public Distribution System (PDS),
kerosene and domestic LPG and freight subsidy for far flung areas; mai ntenan ce of
information data bank to deal with emergencies; analysing the trends in the oil prices
forecasting petroleum import and export trends and operationalising the sector specific
surcharge scheme s, if any.

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Petroleum federation of India (Petrofed)

PetroFed was registered in 2007, under the Societies Registration Act of 1860, to
coordinate with governme nts, regulatory agencies and other representative bodies in
the petroleum indust ry, work for global competiti veness of the petroleum industry
optimise resources promo te safety, healthy environment and energy conservation and
coordinate with oil marketing companie s, for ensuring compliance of ‘Good Business
Practices’.

Leading players in the indust r y

The key players in the industry are the PSUs operating under the Ministry. These
PSUs are involved in a range of operations, from exploration to production, refining,
marketing, infrastructure and diverse multi-sector operations. Some of the
leading players in the industry are as follows:

Gas Authority of India ltd. (G A Il)

G A ILis India’s flagship natural gas compa ny, present along all aspects of the natural gas
value chain (including E &P, processing, transmission, distribution and marketing).
Today, G A ILis spea rheading the move to a new era of clean fuel industrialisation and is
also expanding its business to become a player in the international market. Its business
infrastructure comprises of:
• 5,800 kilometres of natural gas high pressure trunk pipelin e, with a capacity to
carry 130 Million Metric Standard Cubic Metres per Day (M M SCMD) of natural gas
across the country
• 7 LPG processing units, to produce 1.2 Million Metric Tonnes Per Annum (MMTPA)
of LPG and other liquid hydrocarbons
• Gas-based integrated petrochemical complex at Pata, with a capacity of producing
310,000 tonnes per annum of polymers
• 1,922 kilometres of LPG transmission pipeline network, with a capacity to transport 3.8
MMTPA of LPG
• 30 oil and gas exploration blocks and 3 coal bed methane blocks
• 13,000 kilometres of optical fibre cable network, offering highly dependable bandwidth
for telecom service providers
• Joint venture companies in Delhi, Mumbai, Hyderaba d, Kanpu r, Agra, Lucknow,
Bhopal, and Pune, for supplying Piped Natural Gas (PNG) to households and
comme rciausers and Compressed Natural Gas (CNG) to the transport sector
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• Participating stake in the Dahej LNG Terminal and the upcoming Kochi LNG
Terminal in Kerala

Besides, G A IL has been entrus ted with the responsibili ty of reviving the LN G
terminal at Dabhol, as well as sourcing LNG.It has established a presence in the CNG
and city gas sectors in Egypt, through equity participation in three Egyptian
companie s, namely, Fayum Gas Company SAE, Shell CNG SAE and National Gas
Company SAE. It also has a stake in China Gas Holding, to explore opportunities in
the CNG sector in mainland China and a wholly-owned subsidiary company G A IL
Global (Singapore) Pte Ltd, in Singapo re.

Oil India limited (O Il)

OIL is a premier national oil compa ny, engaged in the business of E& P and
developme nt of crude oil and natural gas, transpo rtation of crude oil and production
of LPG.The company has over 100,000 square kilometres of licence area. Today, it is an
integrat ed upst ream petroleum compa ny.

ONGC

ONGC is India’s flagship energy company, which is fully integrated across the
hydrocarbon value chain. ONGC is ranked number one amongs t E &P companies in
Asia and third amongst global E&P companies. It figures in the Fortune Global 500 list
of 2007. It also has the distinction of being the first Indian public enterprise to have its
Clean Development Mechanism (CDM) projects registered by the United Nations
Framework Convention on Climate Change (UNFCCC). Some of the company’s
achievements include Discovery of six of the seven oil producing basins in India
• Establishment of over 75 per cent of the 8.5 billion metric tonnes of in-place
hydrocarbon reserves discovered so far in India
• Production of over 1 million barrels of Oil Equivalent per day
• Contribution of around 80 per cent of domestic oil and gas production

ONGC Videsh Limited (O V L ), a wholly-owned subsidiary of ONGC, operates

exclusively in foreign markets, with the mission to acquire 60 MMTPA of oil and gas by
2025.

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 BHARAT PETROLEUM CORPORATION LIMITED (BPCL )

B PC L is one of India’s largest PSU companie s. It is involved in the refining and

retailing of petroleum products, which include Speed brand of pet rol, high speed
diesel, auto lubricants, LPG and aviation turbine fuel. B PC Lhas a number of refineries
in India. Some of these include the Mumbai Refinery - 12 MMT capaci ty, Kochi
Refinery - 7.5 MMT and Numaligarh Refinery - 3 MMT. B PC Lis also a Fortune Global
500 compa ny.

HINDUSTAN PETROLEUM CORPORATION LIMITED (HPCL)

HPCL is India’s second largest oil company and is involved in the refining and
retailing of petroleum products. HPCL.has a number of refineries in India, including its
Mumbai refinery, having a 5.5 MMTPA capacity and its Visakhapatnam refinery, with a
7.5 MMTPA capaci ty. HPCL is a Fortune Global 500 compa ny.

IN D I A N O IL P E T R O L E U M L(IOC
I M IT
LE)D

IO C Lwas formed in 1964 through the merger of Indian Oil Company Ltd. and Indian
Refineries Ltd. It is India’s largest oil company and is involved in the refining and
retailing of petroleum products, including pet rol, diesel, lubricants, LPG, auto LPG,
aviation turbine fuel, naphtha, bitumen, paraffin, kerosene and mineral turpentine
oil. It has a number of refineries. The key locations include Haldia, Panipat, Digboi,
Barauni, Guwahati, Mathura and Bongaigaon. It holds controlling stake in C PCL
Limited, which operates a refinery at Chennai. The total capacity of the company is
about 55.20 MMTPA . IO C L has approximately 16,000 petrol stations. The company is
the highest ranking Indian company in the Under 6 rounds of N E LP, 162 were
blocks awarded, of which 56 blocks were to private companies and joint ventures
prestigious Fortune Global 500 listing. It is also the 20th largest petroleum company
in the world and the number one petroleum trading company amongst the NOCs in
the Asia-Pacific region. Besides, the involvement of several public sector companies in
the oil and gas sector, India has witnessed significant activity by the private sector
including Indian as well as foreign/transn ational companie s, especially in the NELP
era.

Impo rtant private players include, Reliance Indust ries, British Gas and Cairn Energy. Some
of the key developme nts in the oil and gas industry from the private sector include:
• Reliance Indust ries struck gas in the offshore Krishna Godavari Basin with estim ated
reserves of 14 TCF, in 2007 (world’s biggest gas discovery of 2007)
• Cairn Energy plc discovered oil onshore in Rajasthan in
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 2006, with estimated production capability of 100,000 barrels per day (4.9 MMTPA)
and has since invested over US$ 1 billion in the state
• Petronet LNG Limited has a regasification terminal at Dahej. It was the first LNG
terminal to get commissioned and it has commen ced LN Gimports from Qatar
• Shell, a transnational giant and Fortune 500 compa ny, with a focus on petro
marketing, natural gas, lubricants, LPG, petrochemicals and solar energy has the Shell
Hazira LN G project, the second LNG project to be commissioned in India, with an
investme nt of US$ 650 million. Its LNG terminal at Hazira which was commissioned
recently is expected to support imports. Three more LNG terminals are expected to be
commissioned in the near future
• British Gas (BG), a transnational player with interests in natural gas, E & P and city
gas projects has primary operations in India, focused on E & P and city gas distribution.
It has investme nts of over US$ 800 million, in its upst ream and downst ream activities.
B G India, also has 30 per cent stake in Panna Mukta Tapti fields, with combined
investme nt of US$ 900 million along with its consortium partners
• British Petroleum (BP), another transnational major, also a Fortune 500 company with
focus on petro marketing, E & Pand LNG and a leading private player in lubricants has made
its presence felt in India. It has signed a Memorandum of Understanding with Hindustan
Petroleum Corporation Limited, to set up a 9 MMTPA refinery in Bhatinda, which involves
an investme nt of US$ 444 million. Possibility of partnership with ONGC and R IL , for
deepwat er exploration is being examined by BP

IN D IA H A S A V A S T O IL A N D G A S R E S O U R C E B A S E A S D E P IC T E D B E L O W

Sedimentary Area 3.14 million square

kilometres (~4 per cent of
Sedimentary 26 (exploration initiated in
basins
Prognosti cated 15
205basins)
billion barrels (for 15
Resources basins only)
Established 61 billion barrels (as of 1st
Reserves April 2008)
The total sedimentary area in India is 3.14 million
square kilometres, of which onland is 44 per cent and
deep water is 43 per cent. The rest is accounted for
by shallow offshore. Reserves (balance recoverable) in
India*

Reserv 2003 2004- 2005 2006 2007 2008

Crude Oil (million 70 73 74 73 73 78
Natural Gas (billion 76 76 75 85 92 110
*As of 1st April of initial year

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 Source: Public Sector Undertakings, D G C I& S,Kolkata, Ministry of Finance

Exploration and Production

Of the extensive resource base in India, E & P has been initiated in earnest only in 44
per cent of the area. Since 1980, eight exploration round s, one round for joint venture
and six rounds under NELP have been offered for global biddin g. The Government of
India, offered 69 small and medium sized oil and gas fields in onshore and offshore to
private sector, in 1992 and 1993. Under the first round, NElP I Government of India,
invited bids on 8th Janua ry 1999 for 48 blocks, for exploration of oil and natural gas.
The PSCs were signed for 24 exploration blocks. Since then, within a short period, a total
of 16 discoveries have been made in two Krishna-Godavari deepwat er blocks and one
shallow offshore block of Mahanadi – NEC.

Status of Exploration in India

Initiated 44
Unexplored 21
Well Explored 20
Poorly Explored 15

Under the second round, NElP II, Government of India, invited bids on 15th
December 2008 for 25 blocks for exploration of oil and natural gas. The PSCs were
signed for 23 exploration blocks. A total of 5 discoveries have already been made in
two blocks, viz. CB-ONN-2008/1 and CB-ONN-2008/2 located in Cambay basin and
Krishna Godavari basin.
Under the third round, NElP II I, Government of India, invited bids on 27th
March 2007, for 27 blocks for exploration of oil and natural gas. The PSCs were signed for
23 exploration blocks.
Under the fourth round, NElP Iv, Government of India, invited bids on 8th May 2008,
for 24 blocks for exploration of oil and natural gas. The PSCs were signed for 20
exploration blocks.

In 1990 there were three prolific producing basins and two E & P operators. By 2007,
these numbers grew to 10 and 21, respe ctively
Under the fifth round, NElP v, 20 exploration blocks have been awarded to
different consortiums/individual companie s.
55 exploration blocks were offered under the sixth round, NElP vI, on 23rd Februa ry,
2008, the highest offering so far, covering an area of 352 thousand square kilometres.
The Government of India, had received 165 bids for 52 blocks by the bid closing date.

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Three deepwat er blocks did not receive any bids. A total of 68 companie s, including
36 foreign companies and 32 Indian companie s, submit ted bids either on their own or
as joint ventures and 52 deep water blocks have been allocated to 13
companies/ consortiums.

A seventh round of exploration, NElP vI I, is currently under offer. The details of

the current exploration status are as presented below:

Status of Exploration Under the PSc Regime

Pre-N E L P N E LP- I,
(1993 – II, III, IV&
2008) V
(2006-08)

2D Seismic Survey 24,091 109,305

(LKM)
3D Seismic Survey 5,30 67,773
(SKM ) 4
Exploratory Wells (No.) 167 93

PSC Blocks 28 138

Number of discoveries 25 40
(Up to 15th April 2007)

Investment made on 781.65 1,451.18

exploration
(US$million)

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 Annual Production of crude Oil, Petroleum Products and Natural Gas
2003-04 2004-05 2005-06 2006-07 2007-08

Crude Oil (in 32.0 33.0 33.3 33.5 32.1

MMT) 3 5 7 8 9
ONGC 24.7 26.0 26.0 26.0 24.4
1 1 6 8 0
O IL 3.1 2.9 3.0 3.2 3.2
8 5 0 0 4
Private/ JV 4.1 4.0 4.3 4.3 4.5
4 9 1 0 5
Share of offshore in 62.9 65.3 65.7 66.7 64.5
total % % % % %
Petroleum Products 100.00 104.14 113.46 118.58 119.75
(in MMT)
Natural Gas (in 29.7 31.1 32.6 32.3 32.6
bc M) 1 9 2 7 0
ONGC 24.0 24.0 24.2 23.5 22.9
4 4 4 8 7
O IL 1.6 1.7 1.8 2.0 2.2
2 4 9 1 7
Private/ JV 4.0 5.4 6.4 6.7 7.3
5 1 9 8 6
Share of offshore in 73.6 72.7 70.4 70.4 69.8
total % % % % %

Most of the crude oil and natural gas production in India, is offshore. The production
of oil and gas in India by operator, is given in the table above.

Significant discoveries of oil and natural gas have been made in India, from the
year 2008 onwards, depi cted as follows :

Of the 65 discoveries made in India, 16 have been appraised, 12 have been

commercially establishe d, the Ministry has approved developme nt plans for eight, 11
15
are under commercial evaluation and the developme nt plans for four, are under scrutiny
by the DGH.

India, has more recently discovered extensive reserves of alternative fuels, such

as, Coal Bed Methane (C BM ),gas hydrates and shale oil. India has 35,400 square

kilometres of coal bearing area and 44 coal and lignite fields in 12 states, with

a resource potential of 162 Trillion Cubic Feet (TC F) of CB M .Out of which,

13,600 square kilometres have been opened up for CBM exploration by the

DGH and 26 exploration blocks (with a resource base of 50 TC F) have been

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 awarded to E & Pagencie s.

India, has estim ated offshore resources of 1,894 Trillion Cubic Metres (TCM ) of natural
gas in the form of hydrates. A fresh impetus was given by the Ministry in the form of the
National Gas Hydrate Programme (NGHP),in September 2008. Since then, geo-scientific
studies on the east and west coasts of India have been carried out and three prospe ctive
areas have been mappe d. Drilling/coring of gas hydrate was carried out in the east and
West Coast and Krishna-Godavari basin. Scientific studies on the cores are under
progress. Likewise, resource estimation of oil shale is currently in progress in Assam and
expected to be comple ted by 2008. The Ministry, has also tied up with foreign
institutions having experience and expertise in oil shale exploration and exploitation.

Petroleum Exploration licence Areas Under Operation currently

Under NOcs and Private/Jv companies
cOMPANy/OPER Area Share
ATO R (square
ONGC kilomet
575,046.2 53.92%
R IL 329,684.0 30.91%
O IL 38,260.02 3.59
HOEC 33,922.96 3.18
C A IR N 30,926.00 2.90
FOCUS 18,771.16 1.76
ENI 14,445.00 1.35
OAO GAZPROM 7,779.00 0.73
G SPC L 4,843.17 0.45
GGR 3,155.00 0.30
E N PRO FIN A N C E 2,360.00 0.22
PONEI 1,906.00 0.18
CANORO 1,444.70 0.14
T U LLOW 1,277.00 0.12
N IKO 957. 0.09
HEPI 859. 0.08
ESSA R 430. 0.04
Playerwise details
G EO PETRO L 295. 0.03 (As of 1st April 2008, thousand tonnes)
JOGPL 206. 0.02 Installed capacity Refinery crude
TOTA L 1,066,567. throughput
Public sector

Refining IO C L 41,350 38,522

BPCL 12,000 10,298

Today there are 19 refineries in HPCL 13,000 14,229

KRL 7,500 6,939
the country, 17 in the public
CPCL 10,500 10,362
sector and two in the private B R PL 2,350 2,356
sector, with an NRL 3,000 2,133

installed capacity of 149 MTPA (as of January 2007) ONGC 78 93

M RPL 9,690 17 12,014
Private sector
Reliance 33,000 33,163
 India has witnessed a spectacular
growth in the refining sector over
the years.

OPPOR TUNITIES IN REfINING

• Exports of capital goods: With such phenomenal growth in this sector, there is
ample scope and oppo rtuni ty for the transfer of technolo gies required and exports of
capital goods to India. The technolo gies required will be for upgrading the bot tom
of the barrel, to meet the predomina nt demand for middle distillates and also to
improve the quality of petroleum products, to make them environment friendly.

Production of Petroleum Products (‘000 tonnes)

Produ 2003-04 2004-05 2005-06 2006-07 2007-08

light distillates 26,5 28,619 31,971 32,865 32,4
L PG 39
4,77 4,90 5,34 5,57 27
5,52
Mogas 8
9,69 3
10,361 8
10,9 0
11,057 5
10,50
Naphtha 9
9,18 9,65 99
11,3 14,100 2
14,50
Others** 0
2,88 0
3,70 17
4,30 2,13 9
1,89
Middle Distillates 2
54,4 5
55,937 7
60,018 8
62,509 1
64,4
Kerosene 09
9,68 10,028 10,1 9,29 32
9,07
AT F/ RT F/ Jet A-1 1
2,59 3,05 87
4,28 8
5,20 8
6,19
HSD 5
39,8 3
40,207 9
43,3 1
45,903 6
47,57
LDO 99
1,70 2,07 16
1,65 1,54 2
92
Others*** 3
53 9
57 9
56 6
56 3
66
heavy Ends 1
19,0 0
19,584 7
21,474 1
23,205 3
22,8
Furnace Oil 56
7,48 7,52 8,73 10,560 91
10,32
LSHS/HHS/RFO 8
4,73 9
4,63 7
4,63 4,41 0
3,98
Lube Oils 9
65 8
68 5
66 0
64 5
67
Bitumen 1
2,56 4
2,94 6
3,39 6
3,34 7
3,57
Petroleum Coke 1
2,78 1
2,65 7
2,74 9
3,16 6
3,18
Paraffin Wax 4
45 9
42 3
53 2
64 2
63
Other waxes 37 3 0 4 3
Others**** 75 1,08 1,24 1,01 1,08
TOTAl 1
100,004 8
104,140 3
113,463 0
118,579 5
119,750
L PG 2,20 2,37 2,32 2,24 2,18
5 0 0 0 5
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• Building refineries, including inland refineries: India, has a large reserve of trained and
highly skilled manp ower, available at a relatively lower cost when compa red to the
advanced countries. The country has also acquired enough experience in the installation
and efficient operations of petroleum refineries, in the last 35 years. It is, therefore,
estim ated that the operating costs will be low and the value-addition in Indian
refineries will be high. Thus, setting up of refineries in India for the domestic market as
well as for exports will be economically attractive.Most of the new refineries will be
located on the coasts, while the major centres of demand for the petroleum products are
in the inland locations, particularly in the North/North-West regions. Therefore,
opportunities exist for building inland refineries in the country. The refineries in the
country are also allowed forward integration in petrochemicals for better value-
addition, which opens up another vast area for investme nts.

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 DEMAND

DEMAND:- It is a quantity of a commodity which a buyer is willing to purchase at

various price per unit of time.

DEMAND function:-It explains the functional relationship between the demand of the
commodity & its determinants.

Dn=f(Pn,Pr,Y,T,P,Yd)

Pn=price of good ‘n’.

Pr=price of related goods.

Y=income of consumer.

T=taste & preference.

P=population.

Yd=distribution of income.

Determinants of Demand

The determinants of demand are also known as demand shifters. They result in the leftward
(decrease) or rightward (increase) shifts in the demand curve.

1.) tastes or preferences of consumers

• an increased taste in a product increases its demand

• a decreased taste in a product decreases its demand

2.) number of consumers in the market

• more consumers increases a products demand

• fewer consumers decreases a products demand

3.) the money incomes of consumers

“Superior goods or normal goods “

Superior goods

• As income increases, a superior good's demand increases

• As income decreases, a superior good's demand decreases

• Superior goods are most common goods

normal Goods

• As income increases, an inferior good's demand decreases

• As income decreases, an inferior good's demand increases

4.) prices of related goods

Substitute Goods

• As price of A increases, demand for B increases

• As price of A decreases, demand for B decreases

• Example: Nike's and Reeboks

Complementary Goods

• As price of A increases, demand for B decreases

• As price of B decreases, demand for A increases

• Example: computers and computer games; gasoline and motor oil

Independent Goods

• As price of good A changes, demand for good B does not change

5.) consumer expectations about the future prices and incomes

• if consumers expect a price increase in near future, demand increases

• if consumers expect a price decrease in the near future, demand decreases

In economics, demand is the desire to own something and the ability to pay for it. The term
demand signifies the ability or the willingness to buy a particular commodity at a given point
of time. Demand is also defined elsewhere as a measure of preferences that is weighted by
income.

Economists record demand on a demand schedule and plot it on a graph as an inverse

(downward sloping) demand curve. The inverse curve reflects the relationship between price
and demand: as price decreases, demand increases. The demand curve is equal to the
marginal utility (benefit) curve. If there are no externalities, the demand curve is also equal to
the social utility (benefit) curve.

Demand curve

An example of a demand curve

Demand curve can be defined as the graph depicting the relationship between the price of a
certain commodity, and the amount of it that consumers are willing and able to purchase at
that given price. It is a graphic representation of a demand schedule. The demand curve for all
consumers together follows from the demand curve of every individual consumer: the
individual demands at each price are added together.

Demand curves are used to estimate behaviors in competitive markets, and are often
combined with supply curves to estimate the equilibrium price (the price at which sellers
together are willing to sell the same amount as buyers together are willing to buy, also known
as market clearing price) and the equilibrium quantity (the amount of that good or service that
will be produced and bought without surplus/excess supply or shortage/excess demand) of
that market.[2]

The demand curve usually slopes downwards from left to right; that is, it has a negative
association (for two theoretical exceptions, see Veblen good and Giffen good). The negative
slope is often referred to as "law of demand".
"law of demand”:-law of demand states that other things being equal price of a commodity
& its quantity demanded are inversely related i.e. if the price of commodity falls ,demand
expands& if price rises demand contracts.

Law of Demand - all else constant, as price falls, the quantity demanded rises. Similarly, as
price increases, the corresponding quantity demanded falls. This relationship leads to the
downward sloping demand curve.

Rationale:

1.) Common sense and simple observation seems to substantiate this assertion

2.) Consumption is subject to diminishing marginal utility - consuming successive units of a

particular product yields less and less extra satisfaction. For example; after the first
hamburger getting a second hamburger is less appealing because the person is not as hungry.

3.) The income effect - a decline in the price increases the purchasing power of a buyer's
money, enabling him or her to buy more of the product than before.

4.) The substitution effect - at a lower price, buyers have the incentive to substitute the
cheaper good for similar goods which are now relatively more expensive. For example, at a
lower price, beef is relatively more attractive and is substituted for pork, mutton, chicken, etc.

which means people will buy more of a service, product, or resource as its price falls; see
also price elasticity of demand. The demand curve is related to the marginal utility curve,
since the price one is willing to pay depends on the utility. However, the demand directly
depends on the income of an individual while the utility does not.Thus it may change
indirectly due to change in demand of other commodities. These individual factors come
together to determine the budget constraint and indifference curve of consumers.

DEMAND CURVE falls from left to right

Terminology Clarification

"change in demand" - a shift in the entire demand curve either to the right (an increase in
demand) or to the left (a decrease in demand).

Shift of a demand curve

The shift of a demand curve takes place when there is a change in the relationship between
quantity and price that is brought about by a change in any of the factors influencing demand
except price. A demand shift results in a new demand curve[3].

When income rises, the demand curve for inferior goods shifts left, while the demand curve
for normal goods shifts right. When the price of a good (eg a hamburger) rises, the demand
curve for substitute goods (eg chicken) shifts right; while the demand curve for
complementary goods (eg tomato sauce) shifts left[4]. (aThere is more demand for the
substitute goods than complementary goods.)

Shift in demand curve from D1 to D2

Causes of shift in demand

• Changes in disposable income

• Changes in taste and fashion (changes in preferences)

• The availability and cost of credit

• Changes in the prices of related goods (substitutes and complements)

• Population size and composition

• Expectations

• Change in Education level

• Change in the Geograhical situation of buyers

• Change in climate or weather

Movement along a demand curve

"change in quantity demanded" - designates the movement from one point to another point -
from one price-quantity combination to another - on a fixed demand curve

There is movement along a demand curve when a change in price causes the quantity
demanded to change[5]. It is important to distinguish between movement along a demand
curve, and a shift in a demand curve.

Movement along the demand curve is due to changes in quantity demanded which refer to
expansion or contraction of demand which is due to changes in prices of commodity other
things being equal.

Movement along a demand curve

 Company’s demand
As per the estimates by DGH,

Coal comprises 54 per cent of India’s primary energy consumption, while oil comp rises
about 33 per cent (as of 1st April 2008). The growth in demand is projected to catapult
the overall demand to 196 MMT in 2011-12 and 250 MMT in 2024-25. The growing
demand-supply gap has led the Indian governme nt to open up E& Pto private participants,
through N ELPand develop a more holistic strategy for acquisition of equity oil abroad. On
the gas front, when compa red to mature natural gas based economies like, Japan, Korea,
and the United States, India is a relatively new entrant. However, the increasing
significance of this fuel in the Indian context can be gauged from the fact that, by 2025,
the country is expected to leave behind both China and Japan in having the largest
natural gas demand in Asia. The demand in each of these countries is expected to be in
the range of 350 MMSCMD. The registered demand with G A ILalone, for natural gas in the
country is around 260 M MSCMD. The Government of India, has also constitu ted an
Expert Group to assess the realistic demand for natural gas.

In view of the large difference

between availability and deman d,
natural gas supply is allocated by the
Governme nt, based upon the Impu ted
Economic Values (IEVs) of natural gas
use. Further, it is fractionated to Energy Consumption Mix in India
derive the value added products and Coal 54%
Oil 33%
heavier fraction, C2/C3, is being used
Hydel 8%
for petrochemicals industry and LPG NG 8%
as a domestic fuel. An allocation of Nuclear 1%

92.92 MMSCMDhas been made so

far. Power and fertiliser sectors get
preference, with allocation to power
sector amou nting to 42.41 per cent
and 32.05 per cent to the fertiliser
sector. Natural gas to the extent of 11
per cent is also being used as a fuel
source in industries and the balance is
used for production of LPG and C2/C3.
 Demand schedule
Demand schedules are tables that contain experimentally obtained information of buying
habits at varied prices. From these data a demand curve is then estimated and graphed,
usually with the amount of a good or service demanded graphed to the x axis (often named in
equations as "Q") and the price at which the good or service would be purchased on the y axis
(often named in equations as "P").eg:-

Demand schedule

quantity
Price(rs/unit) demanded
1 10
2 8
3 6
4 4
5 2

Consumption of Petroleum Products in India

Ye consumption
ar (in MMTPA)

1980- 30.9
81
1984- 38.8
85
1989- 54.1
90
1996- 79.2
97
2006- 100.4
02
2007- 104.1
03
2008- 107.7
04
2006- 111.6
05
2007- 111.9
06
2008- 117.5
07*
The consumption growth has slowed down over the past few years due to the
substitution of nap htha by LNG.

Demand of Petroleum Products (‘000 tonnes)

Produ 2004 2005 2006 2007 2008

light distillates 29,6 31,7 34,335 35,2 33,49
L PG 18
7,72 55
8,35 9,30 01
10,4 7
10,30
Mogas 8
7,01 1
7,57 5
7,89 25
8,25 4
8,64
Naphtha 1
11,7 0
11,9 7
11,8 1
13,9 8
12,26
NGL 28
27 29
32 68
0 93
0 02
Others 3,12 3,87 5,26 2,71 2,28
Middle distillates 4
51,4 3
52,0 5
52,023 2
53,9 3
54,20
SKO 39
10,4 65
10,4 10,2 07
9,39 0
9,35
AT F 32
2,25 05
2,26 30
2,48 5
2,81 9
3,29
HSDO 6
36,5 9
36,6 4
37,0 3
39,6 9
40,15
LDO 46
1,59 44
2,06 74
1,61 50
1,47 2
88
Others 2
61 3
68 9
61 7
57 5
50
heavy Ends 3
19,3 4
20,3 6
21,393 2
22,5 5
24,22
Furnace Oil 75
8,45 06
8,02 8,31 26
9,13 3
8,84
LSHS/HHS 1
4,53 7
4,71 2
4,63 6
4,40 2
3,89
Lubes/Greases 1
1,13 1
1,25 3
1,42 4
1,34 0
2,10
Bitumen 7
2,58 0
2,98 7
3,37 8
3,33 4
3,51
Petroleum Coke 4
1,79 6
2,56 3
2,87 9
3,12 5
4,43
Paraffin Wax 8
45 3
41 7
41 9
80 2
23
Other Waxes 51 13 20 0 2
96
Others 77 71 71 1,09 1,11
Total 8
100,432 5
104,126 0
107,751 0
111,634 2
111,920
Refinery Fuel 7,27 7,65 8,24 8,53 9,12
3 0 0 7 5
GRANd TOTAl 107,705 111,776 115,991 120,171 121,045

According to the estimates given by the Integrated Energy Policy Report, Planning
Commission of India, 2008, the total energy requirement (including oil, gas, coal,
nuclear and hydro energy sources) in the country by 2032 would be,651 Million Tonnes of
Oil Equivalent (MTOE).This assumes an 8 per cent GDP growth rate through 2032.

Demand for the petroleum products have increased in the successive years
The shift of demand curve shows higher demand of petroleum product in the successive
years

Demand in the year 2007=111634*

Demand in the year 2008=111920*
Difference in the demand =286*
*(000) tonnes
 Oil and Gas demand forecasts (2008)
demand and
Production of
crude Oil
(20
06-
Total Oil Gas 02
Energy to
Aggregate consumption 1,651 486 197 202
(MTOE) 4-
25)
Per capita (KGOE) 1,124 331 134

Source; Planning Commission of India 2008

The significant potential for year crude Oil (MMT)

natural gas demand is being Demand Supply Gap

driven by the following key 2003-04 99.70 32.03 67.67

2004-05 114.30 33.05 81.25
factors:
2005-06 140.00 33.98 106.02
• The share of natural gas in 2007-08 199.60 33.47 166.13
India’s energy basket is only 2008-09 376.50 61.4 315.1

around 9 per cent, as compa red

to the world average of around
24 per cent. More than 50 per
cent of natural gas (NG) volume
goes to sectors in which it is a
substitu te to petroleum products
and the rest goes to the power
sector where it substitu tes coal.
The share of NG in the fuel mix,
is expected to go up, from the
present 8.8 per cent levels to 22
 per cent in 2031-32
• Per capita consumption of NG in India is currently amongst the lowest in the world,
at 29 cubic metres when compa red to the world average of around 538 cubic metres

Estimates by DGH suggest that by 2024-25, demand of crude oil will outstrip supply
by a huge extent.

In the coming years the demand for natural gas in the country is also expected to outstrip
the supply significantly.

Demand of Natural Gas

(2003-04 to 2008-09)
Currently, more than 71 per cent of natural gas is used
for energy purpose s. For non energy purpose s, the
major industries that are users of natural gas in India
are fertilisers and pet rochemical s.

year Natural gas (MMScMd)

Demand Supply Gap
2003-04 151.00 81.40 69.60
2005-06 231.00 94.84 136.16
2007-08 313.00 158.05 154.95
2008-09 391.00 170.00 221.00
 Demand for natural gas have increased but the supply have not increased
correspondingly. So equilibrium is attained at p1 at which quantity demanded is q1.

Usage of petroleum and gas in v arious industries

Industry-wise off take of Natural Gas in India

Energy consum ption 2003-04 2004-05 2005-06 2006-07 2007-08

18,234 19,767 20,940 21,328 22,052

Power generation 9,21 10,5 11,4 12,0 11,8

Industrial fuel 4
2,97 10
2,93 78
3,09 99
3,56 78
3,78
Tea plantation 9
14 9
11 9
14 9
14 0
15
Domestic fuel 7
48 9
65 2
93 2
34 1
75
Captive use/ LP G shrinkage 5
5,33 4
5,40 4,86 3
4,94 5,04
Others 9
70 9
13 5
1,26 4
23 8
1,12
6 3 1 0

Non-energy Purposes 9,80 10,197 9,96 9,44 8,97

Fertiliser industry 3
90 1,02 6
1,12 7
1,23 3
1,17
Petrochemicals 9
90 7
1,02 8
1,1 6
1,23 5
1,17
CNG 90 70 18 06 05
Others 93 1,21 94 38 36
7 5 8
GRANd TOTAl 28,037 29,964 30,906 30,775 31,025

*Provisional

Source: O N G C O
, IL ,G A IL DGH
,
 BIBLIOGRAPHY

WEBSITES
• www.api.org
• www.ibef.org
• www.petroleum.nic.in
• www.nymex.com

BOOKS

• Damodaran, Suma. Managerial Economics

• Sachdeva, C.B. Economics