Oil, Gas & Consumable Fuels Sector Playbook
This playbook covers the Oil, Gas & Consumable Fuels sector of the Indian stock market. Use it to understand how companies in this sector make money, what me...
Sector Overview
This playbook covers the Oil, Gas & Consumable Fuels sector of the Indian stock market. Use it to understand how companies in this sector make money, what metrics matter most, and how to value them.
What you will learn
- Business Model: Upstream (E&P), midstream (pipelines), downstream (refining & marketing)
- Refining & Marketing: GRMs, marketing margins, under-recoveries (historical), OMC economics
- Gas Economy: APM pricing, spot LNG, city gas distribution, PNGRB regulations
- Government Policy: Administered pricing, windfall taxes, green energy transition impact
- Valuation: Reserve-based (upstream), EV/EBITDA (refining), DCF for pipelines
Sub-industries in this sector
| Basic Industry | Playbook |
|---|---|
| Coal | View playbook |
| Gas Transmission/Marketing | View playbook |
| LPG/CNG/PNG/LNG Supplier | View playbook |
| Lubricants | View playbook |
| Offshore Support Solution Drilling | View playbook |
| Oil Equipment & Services | View playbook |
| Oil Exploration & Production | View playbook |
| Oil Storage & Transportation | View playbook |
| Refineries & Marketing | View playbook |
| Trading - Coal | View playbook |
| Trading - Gas | View playbook |
How to use this playbook
Start with the Business Model lesson to understand how companies in this sector generate revenue. Then move through metrics, risks, and valuation in sequence. Each lesson builds on the previous one.
1. Oil, Gas & Consumable Fuels — Business Model
What you will learn
- The three segments: upstream (E&P), midstream (pipelines/gas), downstream (refining & marketing)
- Key Indian players in each segment and their economics
- India's oil dependency: 85% import reliance and its macro implications
- How each segment's profitability works (oil price ↔ segment impact)
- The integrated model (Reliance, ONGC) vs pure-play companies
Industry structure — three distinct segments
Key Indian players by segment
Upstream (Exploration & Production)
| Company | Production (Oil+Gas) | Revenue (₹ Cr) | Key Assets | Government Stake |
|---|---|---|---|---|
| ONGC | ~45 MTOE/year | 1,40,000 | Mumbai High, KG Basin, OVL (international) | 58% |
| Oil India | ~6.5 MTOE | 35,000 | Assam fields, Mozambique | 57% |
| Vedanta (Cairn) | ~15 MTOE (incl. Cairn) | 45,000 (O&G segment) | Rajasthan block (MBA-1) | Private |
| Reliance (KG-D6) | ~30 MMSCMD gas | Part of RIL | KG-D6 deepwater gas | Private |
Midstream (Gas Infrastructure)
| Company | Function | Revenue (₹ Cr) | Key Asset | Model |
|---|---|---|---|---|
| GAIL | Gas transmission + marketing + petchem | 1,35,000 | 16,000 km pipeline | Tariff + trading margin |
| Petronet LNG | LNG import terminal | 55,000 | Dahej + Kochi terminals | Tolling (conversion charge) |
| IGL | City gas distribution (Delhi NCR) | 16,000 | CNG stations + PNG network | Retail gas sales |
| MGL | City gas (Mumbai) | 7,500 | CNG + PNG in Mumbai/MMR | Retail gas sales |
| Gujarat Gas | CGD (Gujarat) | 18,000 | Industrial + residential gas | Volume × spread |
Downstream (Refining & Marketing)
| Company | Refining Capacity (MMTPA) | Revenue (₹ Cr) | Outlets | Government Stake |
|---|---|---|---|---|
| IOC (Indian Oil) | 80.7 | 8,50,000 | 35,000+ | 51% |
| BPCL | 38.3 | 5,30,000 | 22,000+ | 53% |
| HPCL | 28.5 | 4,50,000 | 21,000+ | 54% |
| RIL (Jamnagar) | 71.0 (no retail) | Part of RIL | 0 (no retail network) | Private |
| Nayara (Rosneft) | 20.0 | 1,50,000 | 6,500+ | Private |
India's oil dependency — macro context
| Metric | Value | Implication |
|---|---|---|
| Crude oil import dependence | ~85% | Vulnerable to global oil prices |
| Oil import bill (FY24) | ~$130 Bn (₹11L Cr) | Largest single import item |
| Gas import dependence | ~50% (as LNG) | Growing — domestic production flat |
| Oil demand growth | 3-4% CAGR | One of the fastest growing globally |
| Refining capacity | 255 MMTPA (5th largest globally) | Self-sufficient + export surplus |
How profitability works in each segment
Upstream — directly tied to oil price
| Crude Price ($/bbl) | ONGC Realization | Net Profit Impact | Windfall Tax Risk |
|---|---|---|---|
| <$60 | Low realization | Profit declines sharply | No windfall tax |
| $60-75 | Moderate | Healthy profitability | No windfall tax |
| $75-90 | High | Very profitable | Windfall tax kicks in |
| >$90 | Capped (windfall tax) | Govt takes excess via tax | Full windfall tax |
Midstream — relatively stable (tariff/volume)
| Model | Revenue Driver | Sensitivity to Oil Price |
|---|---|---|
| Pipeline tariff (GAIL) | Volume throughput × regulated tariff | Low — tariff fixed |
| LNG terminal (Petronet) | Conversion charge per MMBTU | Very low — pass-through |
| CGD (IGL, MGL) | Retail price − procurement cost | Moderate — input cost linked |
Downstream — refining margin + marketing margin
| Component | Driver | Typical Range |
|---|---|---|
| Gross Refining Margin (GRM) | Global crack spreads (product − crude) | $5-15/bbl |
| Marketing margin | Retail price − cost (govt-influenced) | ₹3-7/liter for OMCs |
| Inventory gain/loss | Crude price movement during holding period | ±₹2,000-5,000 Cr/quarter |
The integrated model advantage
| Company | Upstream | Refining | Marketing | Petchem | Advantage |
|---|---|---|---|---|---|
| RIL | ✓ (KG-D6 gas) | ✓ (71 MMTPA) | ✗ | ✓ | Refining + petchem integration |
| ONGC + MRPL + HPCL | ✓ (largest E&P) | ✓ (via MRPL, HPCL) | ✓ (via HPCL) | ✗ | Full value chain |
| IOC | ✗ | ✓ (80.7 MMTPA) | ✓ (35K outlets) | ✓ | Largest domestic network |
Indian context
🗣️
"Oil & Gas mein sab segment alag-alag kaam karte hain. Upstream ko oil price zyada chahiye (ONGC), downstream ko moderate chahiye (IOC/BPCL — jyada crude expensive toh input cost badh jaata hai), aur midstream ko oil price se koi matlab nahi (Petronet LNG, IGL — volume game). Pehle samjho ki company kaun se segment mein hai, phir oil price ka impact calculate karo."
✅ Checklist
- ○I can identify whether a company is upstream, midstream, or downstream
- ○I understand India's 85% crude import dependency and its investment implications
- ○I know the key profit drivers: oil price (upstream), GRM (refining), marketing margin (retail)
- ○I track midstream as the "toll booth" model with lower oil price sensitivity
- ○I recognize the integrated model advantage (RIL, ONGC group)
Key takeaway
India's oil & gas sector has three fundamentally different segments with opposite oil price sensitivities. Upstream (ONGC, Oil India) benefits from high oil but faces windfall tax above $75. Downstream OMCs (IOC, BPCL, HPCL) are squeezed by high crude but benefit from stable marketing margins. Midstream (GAIL, Petronet LNG, IGL) is the most defensive — tariff/volume-driven with minimal commodity exposure. Always identify the segment before assessing oil price impact.
2. Oil, Gas & Consumable Fuels — Refining & Marketing
GRM (Gross Refining Margin) — the single most important refining metric How India's OMCs (IOC, BPCL, HPCL) actually make money Marketing margins: the stable...
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3. Oil, Gas & Consumable Fuels — Gas Economy
India's gas ecosystem: domestic production, LNG imports, distribution APM (Administered Price Mechanism) gas pricing and its impact Spot LNG vs longterm cont...
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4. Oil, Gas & Consumable Fuels — Government Policy
How government policy controls profitability across the oil & gas value chain Windfall taxes: triggers, rates, and impact on upstream companies Fuel pricing...
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5. Oil, Gas & Consumable Fuels — Valuation
Segmentspecific valuation methods (upstream ≠ downstream ≠ midstream) Reservebased valuation for E&P companies (EV/2P reserves, EV/boe) EV/EBITDA for refinin...
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