Crude oil sale deregulated

„ONGC can now sell crude to pvt firms

The government has allowed firms to sell their crude oil to any company in the domestic market as the Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Narendra Modi on Wednesday approved the deregulation of the sale of domestically produced crude oil.

The government move is aimed at removing market anomaly and help domestic crude oil manufacturing companies to get better prices for crude. Besides, it will also cut down imports of crude oil from overseas markets. The new policy comes into effect on October 1.

While contracts for oilfields awarded since 1999 gave producers the freedom to sell oil, the government fixed buyers for crude produced from older fields, such as Mumbai High of ONGC and Ravva of Vedanta. This restriction will now be removed.

That would mean ONGC can auction its 13-14 million tonnes a year of crude oil produced from Mumbai High field to any refiner, including private sector Reliance Industries Ltd and Rosneft-backed Nayara Energy.

The firm at present has to sell the Mumbai High crude oil to Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL). It could not sell the oil to its own Mangalore refinery, which had conceived a petrochemical complex on the premise that 5 million tonnes of Mumbai High crude could be turned into value-added PTA and benzene.

In the present system, the government fixes the quantity each buyer will pick. This limits the scope for price negotiations and often sellers sold oil at discount.

Now, the sellers can eauction the crude to anyone paying the highest price.

An official statement said the government has decided to cease allocation of crude oil and condensate with effect from October 1, 2022.

Hailing this as a "winwin decision" for government and industry players, information and broadcasting minister Anurag Thakur said, "Policies will be transparent and revenue will not be impacted. Of the quota allocated to refineries, around 80-90 per cent was used in 2018-19 and 59 per cent in 2019-20. However, this move will cut down import in the longer run and there will be no revenue loss.

The government move comes against a backdrop of India producing historically low amounts of crude oil in decades.

India's domestic crude output has been on a consistent decline. Despite being the third-largest consumer of oil, the nation depends on imports to meet over 85 per cent of its needs. In FY22, the country's crude oil import bill ballooned to $120.4 billion as the crude prices surged.

As per government data, in FY22, the production slipped to 28.4 mt, the lowest in over two decades. The production in 2021-22 represented a decline of 11.8 per cent from 32.2 mt in FY1995, increasing the economy's vulnerability due to skyrocketing global oil prices.

Experts said high dependency on imports has inflated India's crude import bill and widened the trade deficit. "Even state-owned ONGC, which accounts for a bulk of domestic crude production, has seen its output decreasing steadily," they said.