Highlights India imports 85% of its crude oil requirement.  Top three suppliers are Russia, Iraq and Saudi Arabia. Revenue generated from petroleum accounts for 14% of the central tax revenue and 15% of states’ own tax revenue.  Storage capacity of Strategic Petroleum Reserves (SPR) is below global standards. Access to clean cooking fuel is still poor; refill rates of LPG cylinders under the Ujjwala Yojana are low.

The Ministry of Petroleum and Natural Gas (MoPNG) is concerned with exploration and production of oil and natural gas, refining, distribution and marketing, import and export, and conservation of petroleum products.  This note looks at the proposed expenditure of the Ministry for 2026-27, and the trends in spending over the last few years.

Overview of finances

In 2026-27, the Ministry has been allocated Rs 30,443 crore, which is a 2% increase over the revised estimates for 2025-26.[1]  This is 0.57% of the total estimated expenditure (Rs 53,47,315 crore) of the government in 2026-27.  The revised estimates for 2025-26 are 54% higher than the budgeted estimates for that year.

 Table 1: Allocation for the Ministry of Petroleum and Natural Gas (in Rs crore) 

	2024-25	2025-26 RE	2026-27 BE	% Change
Total	16,962	29,800	30,443	2%
Of which:
LPG Subsidy	15,479	15,121	11,085	-27%
Strategic Oil Reserves	130	1,039	200	-81%
IGGL	612	300	700	133%
Mission Anveshan	50	200	200	0%

Note: RE is revised estimates, BE is budget estimates, % change from 2025-26 RE to 2026-27 BE.  IGGL is Indradhanush Gas Grid Limited – part of North East Natural Gas Pipeline Grid.
Sources: Union Budget Documents 2026-27; PRS.

Allocation towards LPG subsidy includes: Rs 9,200 crore for LPG connections to poor households, and Rs 1,500 crore for Direct benefit Transfer payments to consumers under PAHAL.

Union Budget Announcement 2026-27 The central government announced exemption of central excise duty on compressed biogas (CBG) blended with compressed natural gas (CNG).

In 2026-27, Rs 238 crore will be spent on capital expenditure.  The Standing Committee on Petroleum and Natural Gas (2025) observed unsatisfactory trends with capital expenditure by the Ministry (see figure 1).[2]  The Committee recommended that the Ministry ensure proper utilisation of the allocated capital budget for exploratory purposes.  In 2025-26, total capital expenditure at the revised stage is expected to be 79% lower (Rs 1,407 crore) than the budget estimate of Rs 6,626 crore.  This is mainly due to reduction in capital expenditure on strategic oil reserves, which was revised down from Rs 5,876 crore to Rs 870 crore.

 Figure 1: Capital Expenditure (in Rs crore) 

Note: BE is budget estimates.  For 2025-26, revised estimates taken as actuals.
Sources: Demands of Ministry of Petroleum and Natural Gas (2020-2026); PRS.

Analysis and key issues

Sources, production and consumption

India’s total energy supply reached 903 Million Tonne of Oil Equivalent (MTOE) in 2023-24.3  The energy mix remains dominated by fossil fuels; major source of energy are coal (60%), followed by crude oil (30%) and natural gas (7%).[3]  This also highlights the central role of hydrocarbons in meeting India’s energy needs.

Production and import of crude oil and gas

Domestic crude oil production has been steadily declining, recording CAGR of -2.67% over 2014-2023 (see Figure 2).4  The net imports of crude oil have been rising, with a CAGR of 2.39%, indicating India's continued reliance on foreign sources to meet domestic demand.  Domestic natural gas production grew at a CAGR of 0.98% over the same period, and net imports of natural gas recorded a CAGR of 6.13%.[4] (see Figure 3).

 Figure 2: Year wise production and net imports of crude oil (Million Tonne) 

Note: Provisional figures (P) for 2023-24. 
Sources: Petroleum Planning and Analysis Cell; PRS.

 Figure 3: Year wise production and net imports of natural gas (Billion Cubic Meter) 

Note: Provisional figures (P) for 2023-24. 
Sources: Petroleum Planning and Analysis Cell; PRS.

Production of petroleum products

Domestic production growth of petroleum products has declined in the past decade.5  Over 2014-2024, the CAGR for production of petroleum products was 2.5%, and for consumption of petroleum products was 4%.[5]^,[6]  Despite steady increase in capital expenditure by central public sector undertakings (CPSUs), crude oil production declined from 34.2 Million Metric Tonnes (MMT) in 2018-19 to 28.4 MMT in 2024-25.[7]  The Standing Committee on Public Undertakings (2025-26) attributed the decline to: (i) long development periods in exploration, (ii) ageing oil fields, and (iii) decline in natural oil and gas production.

2030 Decarbonisation Targets Key features of India’s Nationally Determined Contributions under the Paris Agreement include 2030 targets of: (i) reducing emissions intensity of its GDP by 45% (from 2005 levels), and (ii) ensuring 50% of installed electricity capacity is from non-fossil fuel-based energy resources.[8]

 Figure 4: Year wise domestic production and consumption of petroleum products (Million Tonnes) 

Note: Provisional figures (P) for 2023-24. 
Sources: Petroleum Planning and Analysis Cell; PRS.

Refining capacity

India has emerged as the fourth largest refining nation globally, with a total installed refining capacity of 258 million metric tonnes per annum in 2024-25.7  According to petroleum planning and analysis cell (PPAC) data, crude oil imports account for 85% of total petroleum imports in terms of value.10  India does not export crude oil.[9]  In 2024-25, top four export items in terms of value include: Diesel (43%), Petrol (26%), Aviation turbine fuel (14%), and Naphtha (8%).[10]  As of January 2025, India is the seventh largest exporter of petroleum products.[11] 

Figure 5: Import/Export of crude oil and petroleum products (Metric Tonne)

 

Sources: Petroleum Planning and Analysis Cell; PRS.

Energy Security

High import dependence

India imports about 85% of its crude oil requirement.^[12]  In 2023, India ranked second globally in net imports of crude oil at 4.6 million barrels per day, after China at 10.6 million barrels per day.13  The Middle East accounted for over 60% of India’s crude oil imports until Russia’s invasion of Ukraine.13  Following that, Russia’s share in India’s total crude imports rose from under 3% in 2021 to nearly 40% in 2023, while the Middle East’s share declined from about 61% to 45%.[13] 

In 2023-24, the top three suppliers of oil to India were Russia, Iraq, and Saudi Arabia.[14]  According to news reports, U.S. sanctions on Russian refineries from November 21, 2025 disrupted Russian crude imports.  While Russia remained India’s largest supplier, its share fell from one-third to less than one-quarter.[15]

 Figure 6: Countries from where India imports crude oil (in USD million) 

Sources: Department of Commerce Export Import Data Bank (HSN Code 2709); PRS.

The Standing Committee on Petroleum and Natural Gas (2023) had noted that overdependence on any region for crude oil and gas supplies can impact India’s energy security.[16]  It recommended that the Ministry take steps to diversify the imports of crude oil and gas.

Balance of Payments (BoP)

Figure 7: Net oil imports as % of net trade deficit (Million Dollars)

Sources: Reserve Bank of India; PRS.

Oil imports account for about half the trade deficit of India (see figure 7).  India’s BoP came under stress in 2011-12 due to a sharp increase in oil and gold imports.[17]  India’s current account deficit rose from 4.2% of GDP (2011-12) to 4.7% of GDP (2012-13), alongside a widening merchandise trade deficit from USD 190 billion to USD 196 billion.17

Volatility of International Prices

According to the International Energy Agency (IEA), global oil demand is estimated to rise by 0.83 million barrels per day (mb/d) in 2025 and 0.86 mb/d in 2026.[18]  Global oil supply growth is estimated at around 3 mb/d in 2025, and 2.4 mb/d in 2026, sustaining oversupply pressures.18  Observed global oil inventories rose to around 8,030 million barrels in October, a four-year high.18   Due to oil demand and supply conditions, Europe brent crude averaged around $63 per barrel in December, 2025 (see figure 8).  Sanctions on Russian oil exporters continue to add geopolitical uncertainty and price volatility.

 Figure 8: Europe Brent Spot Price (Dollars per Barrel)

 

Sources: U.S. Energy Information Administration; PRS.

In periods of high global prices, domestic price insulation has historically resulted in under-recoveries for oil marketing companies (OMCs).[19]  To offset losses, the government issued oil bonds to OMCs in lieu of cash subsidies from 2002.  As of February 2023, the outstanding value of the oil bonds is Rs 92,200 crore (Rs 1,06,933 crore including interest).  All the bonds will mature by April 2026 (see Table 7 in annexure).

Under-recoveries rose steadily in the early 2000s and peaked between 2008-14, reaching Rs 1.6 lakh crore (2012-13).  It declined sharply after, falling from Rs 72,000 crore (2014-15) to Rs 1,000 crore (2019-20) and zero in 2020-21 and 2021-22.19  Under-recoveries re-emerged in 2022-23 (Rs 22,000 crore), indicating renewed exposure to oil price shocks.19  Further, the revised estimates provide Rs 12,500 crore in 2025-26 and Rs 17,500 crore in 2026-27 to PSU OMCs for under recoveries in domestic LPG.

Revenue from petroleum

Contribution of taxes to government revenue

Petroleum serves as a significant source of revenue for both central and state exchequers.  As per provisionally available data, in 2024-25, the central government earned Rs 3.4 lakh crore from the petroleum sector, while states earned Rs 3.3 lakh crore.20  The revenue generated from petroleum accounted for 14% of the central tax revenue and 15% of states own tax revenue.[20]

Table 2: Contribution of petroleum sector to government revenue (2024-25, in Rs Crore)

	Tax revenue from petroleum	Total tax revenue	% of total tax
Centre	3,44,581	25,00,039	14%
States	3,25,505	22,34,604	15%

Note: For central government, total tax revenue is net tax revenue and for states it corresponds to own tax revenue.
Sources: PPAC; Union Budget and State Budget Documents; PRS.

Financial performance of CPSUs

Currently, 12 CPSUs operate within the sector (see table 9 in annexure).7  In 2026-27, investment in public enterprises is Rs 1,33,823 crore.  This is expected to be raised entirely through internal and extra budgetary resources.  No budget support is provided to public enterprises.

The Standing Committee on Public Undertakings (2025) noted revenue and profitability variations across major CPSUs under the Ministry over the last four years.7  These variations are linked to: (i) crude oil price movements, (ii) moderate operating margins, and (iii) higher overhead costs in certain entities.  Upstream companies such as ONGC and OIL have continued to record substantial profits and contribute significantly to the government revenue through taxes and dividends (see Figure 9, 10).7

Figure 9: Profit After Tax (PAT) of upstream companies (in Rs Crore)

Sources: Report no. 21, Standing Committee on Public Undertakings (2025-26), December 11, 2025; PRS.

Figure 10: Dividend paid to government of upstream companies (in Rs Crore)

Sources: Report no. 21, Standing Committee on Public Undertakings (2025-26), December 11, 2025; PRS.

The Committee also observed that operating margins of several CPSUs remain modest when compared to global benchmarks.7  While ONGC has maintained relatively strong margins, companies such as IOCL and HPCL have reported consistently lower operating margins (see table 3).7

Downstream companies such as HPCL have experienced sharp declines in profitability in some years, reflecting their exposure to crude oil price volatility and market conditions (see Figure 11).7 The Committee recommended: (i) strengthening risk management and hedging practices to handle price volatility, (ii) diversifying revenue sources (iii) improving efficiency in refining and marketing operations, and (iv) implementation of these measures by the Ministry to ensure the financial stability of CPSUs.7

Table 3: Operating margins of ONGC, IOCL, HPCL, BPCL (in %)

Year	2021-22	2022-23	2023-24	2024-25
ONGC	39%	41%	41%	37%
IOCL	4%	1%	6%	2%
HPCL	2%	-3%	4%	2%
BPCL	3%	0.5%	7%	7%

Sources: Report no. 21, Standing Committee on Public Undertakings (2025-26), December 11, 2025; PRS.

Figure 11: Profit After Tax (PAT) HPCL (in Rs Crore)

Sources: Report no. 21, Standing Committee on Public Undertakings (2025-26), December 11, 2025; PRS.

Reserves and overseas assets

India has 26 sedimentary basins covering an area of 3.36 million square kilometres.[21]  Indian sedimentary basins have been broadly divided into three categories based on their degree of prospectivity as presently known (see table 4). The Standing Committee on Petroleum and Natural Gas (2025) observed no significant oil discoveries despite increase in exploration efforts.2  It recommended (i) deep sea exploration in Andaman Basin (2,25,918 sq. km.) and (ii) extended shelf in eastern and western offshore beyond exclusive economic zone.

Table 4: Categories of Indian Sedimentary Basins

Type of Basin	Area (sq. km.)	Hydrocarbon Prospectivity
Category I (7 Basins)	9,98,325	Established commercial production.
Category II (5 Basins)	7,80,974	Discovered accumulation of hydrocarbons, no commercial production yet.
Category III (14 Basins)	1,22,388	No accumulation yet, prospective by analogy.

Sources: Ministry of Petroleum and Natural Gas; PRS.

India has invested in overseas oil and gas assets for ensuring energy security.22  Till March 31, 2025, Indian Oil and Gas PSUs recorded 45 assets in 21 countries.22  Out of the 45 assets, 21 are producing, 14 are under exploration, three are pipeline projects, and seven are under various phases of development.  In 2024- 25, overseas production of oil and gas was approximately 20.2 million metric tonnes of oil and oil equivalent of gas.[22]

Storage capacity of Strategic Petroleum Reserves (SPR) below global standards

The central government set up Indian Strategic Petroleum Reserve Limited (ISPRL) in 2004 to build SPR facilities. The objective is to ensure energy security in the country in case of supply chain disruptions.  The reserves have a total capacity of 5.33 MMT of crude oil at three locations namely (i) Vishakhapatnam (1.33 MMT), (ii) Mangaluru (1.5 MMT), and (iii) Padur (2.5 MMT).[23]  Cabinet approved development of additional capacity in Chandikhol (4 MMT) and Padur (2.5 MMT) in 2021.23  Market conditions determine the quantity of crude stored in the caverns. Low international prices enabled the reserves to be filled to full capacity in April and May, 2020.25  As of March, 2025, 3.52 MMT of crude oil was stored in the caverns.25

Total strategic oil reserves account for 1% (Rs 200 crore) of the Ministry’s budgetary allocation.[24]  Of this, 90% is allocated for filling of oil caverns and operations and maintenance costs, while 10% is allocated for construction of new caverns.  Against this allocation, SPR facilities can act as a buffer for around 9.5 days of crude oil requirements.25 

As per MoPNG, the current national capacity for crude and petroleum storage equals 74 days of cover.  This includes 64.5 days of storage capacity with the Oil Marketing Companies (OMCs).[25]

The Standing Committee on Petroleum and Natural Gas (2025) recommended the following: (i) ensure that caverns are filled with oil since it accounts for a significant share of the budget, (ii) remain proactive in exploring cheaper crude oil storage facilities, and (iii) strive to achieve 90 days of crude oil storage capacity as per global standards.[26] 

Energy sources

Emissions

According to the IEA, in 2023, India’s CO₂ emissions from fuel combustion amounted to 2,763 million tonnes, ranking third globally.27  This included: coal (74%), oil (23%), and natural gas (3%).[27]  Largest source of CO₂ emissions by sectors in 2023 include: electricity and heat producers (54%), industries (24%), and transport (13%).27  India’s ranking in CO₂ emissions per capita is lower, ranking 98 globally in 2022.27

Reducing import dependence and emissions by promoting alternative fuels

In 2020, the transport sector accounted for 13% of the CO₂ emissions from fuel combustion activities.27  As per MoPNG, shifting towards alternative fuels reduces import dependency and benefits the environment.28  Focused on this initiative, the central government has introduced a few strategies for increasing use of alternative fuels.[28] 

Transport decarbonisation strategies NITI Aayog (2023) highlighted the need to reduce emissions from the transport sector, a core driver of economic activity across G20 countries.[29]  Between 1990 and 2019, India’s transport-sector emissions grew 375%.29  Further, it is projected to increase 65% by 2030 and 197% by 2050, relative to 2020 levels.29 Road transport is the main contributor to India’s transport-sector emissions, followed by rail transport. In 2020, rail transport accounted for about 7% of emissions.29  Increasing shift toward heavier vehicles, including electric SUVs, undermines efficiency gains from lighter vehicles.29  Shifting mobility demand to alternative modes and expanding public transport infrastructure can improve urban quality of life by reducing congestion and air pollution.  Increased investment in energy-efficient passenger and freight transport can steer consumer demand toward lower-carbon options.  India achieved 99% electrification of its railways by November 2025, ahead of UK (39%), Russia (52%) & China (82%).[30]  In addition, India has set national EV deployment targets, which include: (i) 30% share of EVs in passenger light-duty vehicle sales by 2030, and (ii) installation of 2,877 charging points across 25 states, along with 1,576 charging points on nine expressways and 16 highways.  NITI Aayog (2023) recommended closer coordination among experts in information technology, transport systems, and power grids to achieve faster decarbonisation of transport sector.

• National Policy on Bio-Fuels: The National Policy on Bio-Fuels, 2018 was formulated to increase biofuel usage in the energy and transportation sectors.  India successfully achieved 20% blending of ethanol in petrol in current Ethanol Supply Year (ESY).31  According to the Ministry, since 2014, ethanol procurement (i) enabled Rs 1.2 lakh crore income to farmers, (ii) reduced crude imports by 239 lakh metric tons, and (iii) saved Rs 1.4 lakh crore in foreign exchange.[31]

• Pradhan Mantri Jaiv Indhan Vatavaran Anukool Fasal Awashesh Nivaran Yojana (PM JI-VAN): The scheme was introduced in 2019 to offer financial support for the establishment of bio-ethanol projects utilising biomass and other renewable feedstock.[32]  In 2026-27, the scheme has been allocated Rs 197 crore, a 418% increase from the revised estimates of 2025-26 (Rs 38 crore).1  The Standing Committee (2024) on Petroleum and Natural Gas  noted that only 13% of the fund allocated is utilised in last five years.[33]  It also observed that till October 2024,   one out of 10 plants had been commissioned. Further, the Standing Committee (2025) on Petroleum and Natural Gas observed that three out of 10 projects had been mechanically completed (no timeline specified in the report).[34]

• Sustainable Alternative Towards Affordable Transportation (SATAT): SATAT was launched by the Ministry in October 2018 for setting up 5,000 CBG plants for production of 15 million metric tonne (MMT) per annum of CBG by 2023-24.[35]  It seeks to promote the use of CBG in transport and domestic sectors.  As per the ministry, as on November 1, 2025, over 130 Compressed Bio Gas plants have been commissioned under the scheme.[36]

Low access to clean cooking fuel

Clean cooking fuels are fuels that have low level emissions.  This includes LPG, biogas, natural gas and electricity.  Dirty fuels such as coal, kerosene and biomass have high emission.  These emissions have a wider impact on health and socio-economic conditions.

The Ministry of Statistics and Program Implementation (MOSPI) conducted a survey in 2022-23 regarding access to clean cooking fuel in India.[37]  The Survey observed that in rural areas less than 30% of households use clean fuel for cooking in some states such as Madhya Pradesh, Rajasthan, Odisha and Chhattisgarh.³⁷  This figure was less than 50% for states such as Bihar, Tripura, and West Bengal (see Table 8 in annexure).

Figure 12: Percentage of households by primary source of energy used for cooking, 2020-21

Note: Other sources include other natural gas, dung cake, kerosene, coke, coal, gobar gas, other biogas, charcoal, electricity (generated by solar/ wind power generators), solar cooker.
Sources: Multiple Indicator Survey (2020-21), Ministry of Statistics and Programme Implementation; PRS.

According to the World Health Organisation (2022), breathing smoke from cooking with polluting fuels is harmful.[38]  It increases the risk of strokes, cancer, heart and lung diseases.  Women and children typically labour over household chores such as cooking and collecting firewood.  They spend more time exposed to harmful smoke from polluting stoves, and bear a greater health burden.  The time spent using and preparing fuel constrains other opportunities for health and development, such studying, leisure time, or productive activities.[39]

Schemes to promote LPG

One way to increase the use of clean cooking fuels is to provide LPG connections and LPG cylinder.  The Ministry runs the Pradhan Mantri Ujjwala Yojana (PMUY) which provides LPG connections to poor households.[40]  It also implements the PAHAL scheme under which beneficiaries buy LPG cylinders at market rate and subsequently receive subsidies directly in their bank accounts.[41] 

Table 5: Number of PMUY beneficiaries who have taken refills

Year	Total PMUY customers	One refill	Two refills	Three refills	More than six refills
2022-23	9,98,59,418	16%	16%	14%	17%
2023-24	10,32,66,007	16%	14%	12%	20%
2024-25	10,33,24,916	13%	11%	10%	27%

Sources: Unstarred question 1966, Lok Sabha, IOCL on behalf of PSU OMC, July 31, 2025; PRS.

The total LPG subsidy in 2026-27 is budgeted at Rs 11,085 crore which includes Rs 9200 crore for LPG connections to poor households, Rs 1103 crore for supply of natural gas to north eastern region, and Rs 1500 crore for direct benefit transfer of LPG subsidy.  Allocation to LPG subsidy constitutes 36% of the overall allocation to the Ministry.1 

Refill rates under Ujjwala Yojana

The Standing Committee on Petroleum and Natural Gas (2025) noted that the refill rate of LPG cylinders under PMUY is about 4 refills per year, compared to an average of about 6.5 refills for non-PMUY consumers.[42]  It also observed that the refill rate under PMUY remains below the policy provision of 12 subsidised refills per year for eligible beneficiaries. 

 Table 6: Refill Consumption rates of PMUY beneficiaries 

Year	Per Connection consumption (in terms of 14.2 Kg refills/consumer/Year)
2021-22	3.7
2022-23	3.7
2023-24	4
2024-25	4.5
2025-26 (till August, 2025)	4.8

Sources: Unstarred question 3088, Lok Sabha, IOCL on behalf of PSU OMCs, December 18, 2025; PRS.

The Committee recommended: (i) increasing the subsidy to a level that makes LPG refills affordable for poor households and (ii) encourage issuance of five kg and 10 kg cylinders.  This is expected to improve beneficiary coverage under the scheme, and enhance per capita consumption of LPG.  As per the Ministry, refill consumption rate was 4.8 till August 25, 2025 (see table 6).

Compensation to OMCs under PAHAL-DBT

In 2026-27, Rs 1500 crore has been allocated to DBT-PAHAL.¹  In 2025-26, the budget allocation for DBT-PAHAL was Rs 1500 crore, which has decreased to Rs 1000 crore in the revised estimates.[43]  Note that expenditure on subsidy is dependent on the difference between the subsidised and non-subsidised price for LPG.

As per the ministry, between 2020 and 2023, the international benchmark for LPG pricing rose from $415 per MT to $712 per MT.44  LPG prices continued to rise post 2024.  To protect consumers, costs were not passed through.  Instead, OMCs incurred losses, for which the Government provided Rs 22,000 crore in 2022-23, and Rs 30,000 crore in August 2025 as compensation.[44]  In the first batch of supplementary demand for grants 2025-26, Rs 12,500 crore was approved as compensation to OMCs for under recoveries in domestic LPG.[45]

PNG as an alternative to LNG

At present, the share of natural gas in India’s energy mix is 6.2%.46  The central government plans on increasing the share of natural gas in India’s primary energy basket from the current 6.2% to 15% by 2030.[46]  Import for consumption of natural gas has increased.  In 2011-12, 28% of natural gas consumed was imported.  This has increased to 46% in 2023-24.[47]  The government spent USD 6,832 million on LNG imports in 2011-12 and USD 13,405 million in 2023-24.[48]

 Figure 13: Natural gas consumption and import dependency (Million Standard Cubic Meter) 

Sources: Petroleum Planning and Analysis Cell; PRS.

Progress of IGGL natural gas pipeline project

The Standing Committee on Petroleum and Natural Gas (2025) noted that the North East gas grid natural gas pipeline project is being implemented by Indradhanush Gas Grid Limited.[49]  In 2026-27, Rs 700 crore is allocated for the programme, a 133% increase over the revised estimates for 2025-26 (Rs 300 crore).  The Committee was informed of physical progress at 84.08% in February, 2025.  It recommended the Ministry to urgently work towards removing the bottlenecks hampering the completion of the projects.