Upstream push in India, China gathers steam, but growth paths seen diverging

India and China are accelerating their upstream push to ensure energy security at a time when geopolitical turbulence and clean fuel drive are altering the global landscape, but analysts believe that while Beijing will continue to witness early wins, New Delhi has a bigger battle on the policy front.

Taking cues from the most recent yearly data of 2023, the much slower upstream output growth in India compared to China is an indication that the former has to quickly find ways to revive upstream output if it wants to achieve its ambitions to reduce dependence on imported fossil fuels.

India's overall oil and gas output rose 1.3% on the year to 1.15 million boe/d in 2023. Upstream output has been declining nearly 1.1% on a compound annual growth rate over the past 10 years due to natural drop in mature fields of state-run upstream producers ONGC and Oil India, as well as due to a lack of monetization of existing discoveries and reduced number of new discoveries, according to S&P Global Commodity Insights.

"The upcoming federal elections in 2024 in India and government stability could result in the revival of the upstream environment in the country and attract international oil companies to invest. However, such change will be dependent on more favorable upstream policies," said Mansi Anand, senior research analyst at S&P Global.

Some progress seen

Analysts said state upstream producers are continuing to assess their production portfolio with commitments to fulfill government's mandate to raise oil and gas production.

"ONGC-operated KG-DWN-98/2 project in the Krishna-Godavari region will move the needle for India's upstream production, a 3% year-on-year rise in 2024 after years of continuous decline," she added.

ONGC's growth path continues to remain challenging but the company's project development pipeline, which includes the K-G Cluster III and the Daman Upside Development project, could be game changers and boost the overall production in India in the coming decade, according to S&P Global.

New Delhi has announced numerous upstream policy reforms to attract international oil companies. ONGC is also looking for international partners, having deepwater and ultra-deepwater operating experience, for its difficult fields and acreages in the country. Therefore, participation of international companies in the upcoming Open Acreage Licensing Program (OALP) bid rounds will be critical.

"India's upcoming upstream story now largely depends on ongoing and planned upstream activities and successes in the recently awarded OALP blocks," said Rahul Chauhan, upstream analyst at S&P Global.

"So far, discoveries in OALP blocks are not big enough to make a key change to country's oil and gas production portfolio. However, ongoing and planned offshore campaigns, primarily in deepwater, ultra-deepwater and frontier basins can flip the coin, if operators would be able to discover a field similar to the size of Mumbai high in frontier basins," he added.

China tells a different story

China's upstream story sounds relatively more promising at this stage. It continues to boost crude production, with output reaching a nine-year high of 4.2 million b/d in 2023, rising 2% on the year, data from China's National Bureau of Statistics showed.

The volume accounted for 27% of the total crude supplies to China, as state-owned oil giants accelerated efforts to ensure energy security.

China's annual crude production reached a high of 4.22 million b/d in 2014 before easing to as low as 3.81 million b/d in 2018 due to aging of the flagship onshore oil blocks -- Daqing and Shengli. But output began to recover in 2020, with offshore oil production being the main contributor of China's crude production growth.

Tianjin city and Guangdong province, where the offshore blocks Bohai and South China Sea are located, led the year-on-year production growth with 5.4% and 6% in 2023, respectively, NBS data showed.

"The Chinese government has been putting energy supply security at the forefront of its energy policies. They have been investing heavily in domestic upstream, striving to stabilize crude production and accelerate that of natural gas. The program has yielded satisfactory results thus far. It reversed the country's declining trend of crude output since 2015 and ramped up gas production quickly," said Baihui Yu, senior research analyst at S&P Global.

"We expect in the coming decade that China's upstream growth momentum will be maintained since energy supply security would remain an overarching goal in mainland China's energy policies," she added.

According to S&P Global, China's national oil companies have been investing in exploration to curb the decline of reserve base, with each of them persistently investing nearly 20% of its total capex in exploration. They are now targeting complex and technical-challenging plays for future source of growth.

Although announced in-place volumes tend to be substantial, it poses great challenges to the group to unlock these newly discovered domestic barrels.

"Nevertheless, they have little strategic optionality as the nation's energy security is on their top agenda. More domestic discoveries are to be made. Although the size might be smaller and little costly," Yu added.