The oil and gas industry has demonstrated remarkable growth and endurance during the previous three years. Between October 2021 and October 2024, the NSE 200 gained 46%, while the Nifty Oil & Gas index returned 47%.
Several government initiatives to increase production and strengthen the economy have benefited the upstream oil and gas industry. Oil-linked gas pricing with a cap of $6.5/mmBtu, windfall taxes on oil prices above $75/barrel, and a premium on well interventions (currently 12% of the oil price, or $9/mmBtu) have all contributed to increased profitability for domestic producers.
The spike in distillate spreads during the Russia-Ukraine war greatly benefited Indian refiners, sending Singapore GRMs skyrocketing to $21/barrel, much beyond the $5–7/barrel mid-cycle norm. The discounted imports of Russian crude, which comprised 35–40% of overall imports, have also allowed Indian refiners to profit.
GRMs have recently dropped to $3–4/barrel due to pressure from recent global macroeconomic issues, especially the recession in China. However, the refining industry is still expanding its capacity, albeit more gradually, which shows that long-term demand is anticipated.
There were conflicting outcomes in the gas industry, which has been a major reform focus. For some players, the integration of the pipeline network, which already covers around 24,600 km, has resulted in a 40–50% increase in tariffs.
Low margins in important goods like polyester, polymers, and intermediaries continue to put pressure on the petrochemicals industry. This is mostly because of the continuous slowdown in China, the unpredictability of the world economy, and the decline in demand for plastics. Even if India’s outlook is still better than that of its international counterparts, it might take a few years before the petrochemical cycle recovers significantly.
Overall, over the past few years, the Indian oil and gas industry has changed dramatically, demonstrating greater resilience and stability. As a result of sectoral changes and higher earnings, businesses are now more competitive globally.
But even with this upward trend, the industry is still undervalued to the overall market, with a high single-digit price-to-earnings ratio. Additionally, the industry provides a respectable dividend return of 3–4%, which appeals to investors looking for value and offers strategic investing options.
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