Weekly Offshore Rig Review: India In-Depth

This week, worldwide offshore rig utilization inched down slightly to 84.2% as a net total of one rig came off contract this week.

Two weeks ago, we looked at the strong growth in the Chinese economy, and its ever-growing appetite for oil. This week, we will look at India, the other Asian giant that will likely be the world's third-largest economic power during much of this century.

India's Economy
India currently has the world's second-largest population, with just over 1 billion people, second only to China's 1.3 billion citizens. This large, and growing, population has helped to fuel the growth of the Indian economy over the last 25 years, during which time the Indian economy has grown at an average rate of nearly 6% each year.

Currently, India is the world's fourth-largest economy, generating about US$3.7 billion in GDP for 2005. This places it only about US$300 million behind the Japanese economy, which it is likely to surpass within the next 5 to 10 years.

Looking forward, the Indian economy is expected to continue its strong growth, with predicted average GDP growth of 5.5% to 6.5% over the next 20 years. As such, by 2025, India will likely have a GDP of US$12-14 trillion, placing it at about 60% of the projected size of the US and Chinese economies at that time.

India's Oil and Gas Consumption
Although India is home to more than 15% of the world's population, it consumes only about 2.3 million barrels of oil per day, or 3% of the world's daily oil production. By contrast, China, with a population about 20% larger than India's, consumes 7.6% of the world's oil. And the United States, with less than 30% of India's population, consumes more than 20% of the world's oil.

India's energy needs are rising sharply, however. During 2004, India's crude oil consumption increased by 10 percent. And its oil consumption is expected to continue growing at a rate between 5 and 7% over the next 20 years. That is about 3 to 4 times the 1.8% projected growth rate for the world as a whole, and even further above the 1% growth rate for developed economies in the US and Europe.

By 2025, India will be consuming over 5 million barrels of oil per day, more than double its current consumption.

Moreover, India is highly dependent on oil imports. Close to 70% of India's oil is imported (1.5 million bopd) and oil imports account for one-third of the total value of all India's imports. By 2025 India is expected to have to import 80% of its energy needs, or about 4 million bpd of oil.

At the same time, India also is a growing consumer, and importer, of natural gas. Between 2002 and 2005, Indian natural gas consumption rose from 2.46 billion cfd to 3.32 billion cfd, a 35% increase in just 3 years. And that amount is expected to more than double within 10 years to 6.8 billion cfd. At present, the country has to import more than 50% of its natural gas needs.

India's Oil and Gas Production
According to the USGS World Petroleum Assessment 2000, India has only 5.4 billion barrels of proved oil reserves and a further 10.6 billion barrels of undiscovered and probable reserves. At current production rates, India will exhaust its proved reserves in just over 20 years.

Last year, India's oil production fell 5.3%, or about 40,000 bpd, from about 682,000 bpd to 642,000 bpd, although this was due primarily to the explosion at the Mumbai High field last summer. Conversely, Indian natural gas production rose slightly, about 1.4%, to 32.2 billion cubic meters for 2005.

India's Offshore Rig Fleet
The rig fleet offshore India currently consists of 27 jackup rigs, 5 drillships, and 1 semisub, all of which are currently under contract. Of course, in the Indian market, there are rarely idle rigs as they almost always demobilize to another market rather than remain idle in-country. Thus, the fleet size is nearly equal to the number of contracted rigs, which is a key element to forecasting rig demand in India.

ONGC, India's Oil and Natural Gas Corporation, is the leading offshore rig owner and operator in Indian waters, with 10 of its own rigs working and another 21 rigs contracted from major drilling contractors. Thus, the future for ONGC is very much the future for activity offshore India, and the company is looking to invest significantly in offshore exploration, with expanded exploration in both shallow and deep waters.

Thus, for India we forecast that the demand for jackup rigs will grow from 27 rigs today to 35 rigs by May of 2008, then decline. The behavior demonstrated in this market also indicates that this scenario is most likely to unfold if the day rate is around $55,000 per day. Should average jackup day rates in India remain around the current level of mid-$40,000 per day, the fleet size will remain under 30 rigs. If day rates were to increase to $60,000 per day and above, the fleet size might temporarily exceed 35, but a fleet of this size is likely not sustainable for long.

In conclusion, India's rapidly growing economy and high oil prices, in conjunction with other factors, are likely to push Indian offshore rig demand to new highs in the next two to three years.

What About the Rest of the World?
In addition to forecasts for the jackup fleet offshore India, the new RigOutlook for Worldwide Jackup Demand provides in-depth analysis and mid-term forecasts for the jackup fleet around the world, with specific focus on the Gulf of Mexico, Persian Gulf, Southeast Asia, and other key regions. Based on a newly developed and very accurate analytical model, the market-by-market and worldwide rig utilization forecasts in this 38-page report present a heretofore unavailable look at future offshore rig activity. For more information about this report and other rig demand forecasts, please call +1-281-345-4040 or email tbeebe@rigzone.com.

For More Information on the Offshore Rig Fleet:
RigLogix can provide the information that you need about the offshore rig fleet, whether you need utilization and industry trends or detailed reports on future rig contracts. Subscribing to RigLogix will allow you to access dozens of prebuilt reports and build your own custom reports using hundreds of available data columns. For more information about a RigLogix subscription, visit www.riglogix.com.


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