Page 54 - FIPI - Policy & Economic Report May 2026

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

restaurants in the southern parts of the country The Indian Navy has escorted many commercial ships
from the Hormuz in the past few weeks, and also increased surveillance in the Arabian Sea. It plans to do
the same for the ships that will head to the Persian Gulf to load the necessary energy cargo. India has also
launched a marine insurance program offering uninterrupted coverage for Indian ships and cargoes in
high-risk waters, including the Strait of Hormuz.

3. India cuts royalty rates on crude oil, natural gas: What it means, who benefits?

Union Minister of Petroleum and Natural Gas Hardeep Singh Puri announced rationalization of royalty
rates for India's upstream sector in the oil and gas industry. Calling it a "major step towards regulatory
clarity," Puri said that the government has rationalized royalty rates and methodologies for crude oil,
natural gas, and casing head condensate a light liquid hydrocarbon that separates from natural gas during
production. In a post on social media platform X, Puri wrote, “The revised Schedule removes longstanding
inconsistencies across regimes to ensure a stable, predictable, and investor aligned framework for India’s
upstream sector.” In simple words, this means that the Centre has changed the rules for how companies
pay the government for extracting natural resources.

Rate Cuts: Who Benefits

Under the revised framework, the effective royalty rate on onshore crude production will decline from
16.66% to 10%, while offshore royalty will reduce from 9.09% to 8%. Royalty on natural gas has also been
reduced to 8% from the earlier 10%.

According to a report by global brokerage CLSA, the decision is expected to provide a significant boost to
state-run Oil and Natural Gas Corporation (ONGC) and Oil India. The effective royalty burden for ONGC's
onshore crude production could decline substantially under the revised framework, news agency ANI
quoted from CLSA's report.

What this means:

In the oil and gas industry, the ‘upstream’ sector refers to companies which look for underwater or
underground oil and gas fields, drill exploratory wells, and then operate these wells. For the extraction of
every barrel of oil or every cubic meter of natural gas, these companies pay a 'royalty' fee to the
government. Until now, the royalty was different for different companies and depended on when the
contract was signed. But now, the Union government has standardized these rates by under the Oilfields
(Regulation and Development) Amendment Act, 2025 and Petroleum and Natural Gas Rules, which
established new methodologies for royalty on crude oil, natural gas, and casing head condensate.

“This decision is a culmination of a decade-long effort to modernize our regulatory landscape by replacing
complexity with consistency to fuel India's energy future,” Hon’ble Minister Mr. Puri wrote.

This comes at a time when crude prices have shot up as a result of the West Asia war a contributing factor
to Prime Minister Narendra Modi's appeal to Indians to conserve petrol and diesel. The announcement
can be seen as an attempt to encourage domestic oil production, reduce import dependence and move

May 2026 Page | 53