8 Major Problems of Petroleum Industry in India

Some of the problems faced by the Petroleum Industry in India are: 1. Shortage of Petroleum Crude 2. Dependence on Foreign Countries 3. Price Hike 4. Shortage of Oil Refining Capacity 5. Exploration of New Reserves 6. Technical Problems 7. Pollution 8. Lack of Market-determined Pricing System.   

Problem # 1. Shortage of Petroleum Crude:

Petroleum industry in India has been suffering from the problem of shortage of raw materials, i.e., petroleum crude. Total refining capacity in the country has reached the level of 148.97 million tonnes in 2006-07 as against the total indigenous production of only 34.0 million tonnes.

Thus, the petroleum industry has to depend too much on the imported crude. Due to the increasing volume of demand-supply gap, the petroleum refineries in India have failed to utilise their production capacity fully.

Problem # 2. Dependence on Foreign Countries:

Petroleum industry in India has been depending too much on foreign countries for the supply of petroleum crude and machineries. Total consumption of petroleum crude has increased to 146.5 million tonnes in 2006-07 as against the total production of petroleum crude of 34.0 million tonnes. This has resulted in the import of 105.5 million tonnes of petroleum crude in 2006-07.

Moreover, the petroleum industry of the country depends too much on some foreign countries for meeting its requirement of various drilling and refining machineries.

Problem # 3. Price Hike:

The international prices of petroleum goods have been maintaining a constant hike since 1973-74. This has led to the excessive rise in our import bill on petroleum goods. In 2011-12, total import bill on petroleum oil and lubricants was to the tune of Rs 7, 43,075 crore as against Rs 5,587 crore in 1980-81.

Problem # 4. Shortage of Oil Refining Capacity:

In India there is a shortage of oil refining capacity as compared to total demand for petroleum products. Total refining capacity of the country stands at 214.1 million tonnes as compared to the total consumption of 220.5 million tonnes of petroleum products in 2011-12. This has necessitated the expansion of existing refineries and also setting up of new refineries under the joint sector.

Problem # 5. Exploration of New Reserves:

In India, the production of petroleum crude of existing old reserves has been shrinking due to normal technical reasons. The proved oil reserves in India constitute only 0.5 per cent of the world oil reserves (proved). At this present level of consumption, the proved reserves will be depleted within next 15 to 20 years.

The country has now increasingly facing the growing demand-supply gap of petroleum crude. The country has also been facing the problem of mounting import bill of POL items. Under the present circumstances, it is quite urgent to intensify the exploration activities of the oil sector sincerely.

Problem # 6. Technical Problems:

The petroleum industry of the country is also suffering from numerous technical problems in respect of production of middle distillates, activating its fire fighting systems etc. which need to be corrected and updated at the earliest possible time. The RD facilities in the industry should be expanded with the maximum possible limit to face these technical problems.

Problem # 7. Pollution:

The growing pollution near the refineries and oil fields is a big problem for the industry. The Government is trying to control such pollution by adopting certain effective measures.

Problem # 8. Lack of Market-Determined Pricing System:

The lack of a well functioning market determined pricing system, partly because of the lack of vibrant competition among the companies with diversified ownership, continues to constrain the performance of petroleum industry.

Despite the surge of international prices of petroleum touching record level, the petroleum companies are not allowed to revise their market price of petrol and HSD accordingly and allowed only a limited freedom to revise the prices as per revised methodology. This has resulted a serious drain of the financial resources of the petroleum companies.