Impact of COVID-19 on the Indian oil and gas sector

Impact of COVID-19 on the Indian oil and gas sector

Coronavirus has so far affected more than 200 countries worldwide. There are around 24 lakh total cases and more than 1.5 lakh have lost their lives. It has affected almost all economies across the globe. The global economy was already in a precarious position in 2019, the risk of a global recession in 2020 is very high as nations cease economic activity. Once the epidemic is controlled, the shape and speed of the US and China will be the major factors determining the nature and traction of the global economy.UNCTAD in its latest report predicted that the major economies least exposed to the recession would be India and China.

India's real GDP in 3Q 2019-2020 was the lowest in six years and the outbreak of the virus posed new challenges to the economy.

Measures to prevent the spread of the virus, such as nationwide lockdown have put economic activities at a halt and may affect both consumption and investment. The three major contributors to Indian GDP are private consumption, investment, and external trade and it is expected that all three contributors will be affected by the epidemic. However, the IMF predicted that India would grow at a rate of 7.4% in the financial year which would start in April 2021. But for this to happen, controlling the epidemic, ending the lockdown, and reducing the already existing stimulus in India is necessary, and some initial steps should be taken on monetary policy and fiscal policy. Due to the outbreak of the virus, there is a significant effect on consumption which is the largest component for the demand side. In virus-infected nations, China is the largest import source for India.

There may be a shortage of raw materials in China due to the shutdown of factories and consequent delays in the supply of goods from India. Falling oil prices is a positive outcome for India. 80% of the oil required for the Indian economy is met through imports, so a fall in prices could lead to an additional income of INR 390 billion.

Sectoral Impact:

India is the third-largest energy consumer after the United States and China, 5.8% of the world's primary energy consumption in 2018. It has 619 MMT(2019) crude oil reserves and imported oil of ₹7659.50 billion from April 2019 to Jan 2020. It is expected that global oil demand will fall from 13.7% in Q1-2020 to 1.2% in Q2-2021. (Sectors include Non-Conventional Energy, Petroleum and Natural Gas.)

As crude oil prices have fallen, India's import bill will be reduced and there will be less impact on the Indian oil and gas sector as oil and gas are essential. There is no manpower shift or apex effect, but the future CAPEX effect is expected. The export of diesel and petrol to neighboring countries has come down due to lockdown and low demand. For transport fuels, there will be a perceptible slowdown due to the moderation movement of goods and the drop in passenger movement. Turbine fuel has been affected due to the shutdown of international and domestic flights.

There will be no drop in LPG demand for domestic demand, but there may be a slight drop in industrial demand. Natural gas will be affected by the supply chain perspective.

Recommendations:

It is a very crucial time for the government to intervene It should ease tax and compliance issues, ease the financial stress on oil and gas companies, and support the customers who are in need. The government must roll out GST for the fuels and gas category, it is for long run support. It should look after daily wagers and laborers by providing adequate wages. Banks should provide some cash to oil and gas companies to avoid any short-term working capital issues.

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