NEW DELHI: India's crude oil production will continue to fall in the next quarter century despite the government's ambitious targets, declining to less than half the current output as new reserves fail to compensate for the decay in existing fields, the International Energy Agency has said.

The Modi government has set a target of cutting oil import dependence by 10 per cent in next seven years as it hopes to reverse the decline in domestic oil output through a slew of policy measures, fresh investments and technological interventions.

But the Paris-based agency has poured cold water over the government's plan, underlining in its 'India Energy Outlook' report that low-quality reserves and insufficient policy responses will make the country more dependent on imports. By 2040, India's imports will rise to 90 per cent of the overall oil demand, from 70 per cent at present, according to the IEA.

India's crude oil production fell marginally in 2014-15 and was about the same in the seven months of the current fiscal as that a year-ago period. Crude oil production will fall 3.5 per cent annually to 0.3 million barrels a day (mbd) in 2040 from 0.7 mbd in 2013, as per the IEA, turning India into the secondlargest oil importer, behind China. During this period, oil demand in India will grow 4.6 per cent annually, as per the projection.

"The boost to output due to discoveries in Rajasthan subsides by 2020 and, although additional onshore discoveries of the magnitude seen in Rajasthan are not excluded, neither these nor the envisaged development of new reserves from the offshore basins are sufficient in the Outlook to outweigh the effects of declining production from existing fields," the report said.

The oil block in Rajasthan, operated by Cairn IndiaBSE 1.08 %, contributes about a quarter to the country's crude output. Most other contributions come mainly from the fields operated by state-run Oil and Natural Gas Corporation and Oil India. Proven reserves of 5.7 billion barrels against an annual crude demand of 1.4 billion barrels, and increasing every year, underline the "stark" mismatch between domestic resources and needs of the country, the agency said.

India's record in attracting big investments to the upstream sector has been dismal. Of the 254 blocks awarded under the New Exploration and Licensing Policy in about 15 years, only 128 discoveries have been made and 11 fields developed.

BP is perhaps the only global oil firm currently invested in the upstream sector. The government has just announced new financial terms to attract developers for 69 marginal fields set to be auctioned next year, and plans to replicate these terms in its policy being finalised for major blocks. But low oil prices can dampen investor interest.

"Getting the incentives right for an increase in exploratory activity, through sufficiently attractive licensing and pricing arrangements, may have only a limited effect on India's oil balance, but it could have a much more significant impact on the domestic gas supply," the agency added.

Source :economictimes.indiatimes.com