All About Crude Oil & LNG

What Indian Students Should Know (ICC Blog # 157)

Imagine a world where your school bus doesn't move, your kitchen stove doesn't light up, and the lights in your room go out. That is what happens if a country runs out of Crude Oil and Natural Gas.

In 2026, India is the 3rd largest consumer of oil in the world. But where does it come from? How is it made? Let’s dive into the fascinating world of Energy.

What is Crude Oil? (The Basics)

Crude oil, also known as petroleum, is a naturally occurring, yellowish-black liquid found in geological formations beneath the Earth's surface.

• Etymology: The word "Petroleum" comes from the Latin Petra (rock) and Oleum (oil)—literally "Rock Oil."

• Composition: It is a complex mixture of hydrocarbons (compounds made of hydrogen and carbon) along with small amounts of sulfur, nitrogen, and oxygen.

How is it Made? (The 100-Million-Year Recipe)

Crude oil is a fossil fuel. It wasn't made from dinosaurs, but rather from microscopic sea organisms like plankton and algae.

1. Accumulation: Millions of years ago, these tiny organisms died and sank to the ocean floor.

2. Burial: They were covered by layers of silt, sand, and mud.

3. Heat & Pressure: Over eons, the weight of these layers created intense pressure and heat (60-120 degree Centigrade), chemically transforming the organic remains into liquid oil.

4. Migration: The oil then seeped through porous rocks until it got "trapped" under impermeable rock layers, forming the reservoirs we drill today.

Refining: From "Sludge" to "Fuel"

Raw crude oil is useless in its natural state. It must be sent to a refinery where it undergoes Fractional Distillation.

Because different hydrocarbons have different boiling points, the oil is heated in a tall tower. The lighter components rise to the top, while the heavier ones stay at the bottom:

• Gases (Top): LPG (cooking gas), Butane.

• Light Distillates: Gasoline (Petrol), Naphtha (used for plastics).

• Middle Distillates: Kerosene, Jet Fuel (ATF), Diesel.

• Heavy Bottoms: Fuel oil (for ships), Lubricating oils, and Bitumen (used for making roads).

Think of Crude Oil Like a Big Fruit Basket

Imagine a basket with many fruits mixed together.

If you want to sell them, you must sort them into apples, bananas, grapes, etc.

Similarly, crude oil contains many substances mixed together. Refineries separate them into useful fuels.

This process is called Fractional Distillation.

From Crude Oil to Useful Fuels

Step 1: Heating the Crude Oil

In an oil refinery, crude oil is heated to about 350–400°C.

It becomes vapour (gas) and enters a tall tower called a distillation column.

Inside the tower:

• Light substances rise to the top

• Heavy substances stay at the bottom

Each fuel comes out at different levels.

Step 2: Different Fuels Come Out at Different Levels

Top of the Tower (Lightest Gases)

These gases come out first.

LPG (Liquefied Petroleum Gas)

• Used in home cooking cylinders

• Main components: propane and butane

• Stored as liquid under pressure

Example: Household gas cylinders.

LNG (Liquefied Natural Gas)

LNG is actually produced from Natural Gas, not crude oil.

• Main component: methane

• Used in power plants and transport

• Liquefied at –162°C for transport

Upper-Middle Level

Petrol (Gasoline)

Petrol is a light liquid fuel.

Uses:

• Cars

• Motorcycles

• Small engines

Characteristics:

• Burns quickly

• Produces high energy

• Suitable for spark-ignition engines

Middle Level

Diesel

Diesel is heavier than petrol.

Uses:

• Trucks

• Buses

• Tractors

• Generators

Characteristics:

• More energy per litre

• Used in diesel engines

Slightly Lower Level

Aviation Turbine Fuel (ATF)

This fuel powers jet aircraft.

Example aircraft:

• Boeing 737

• Airbus A320

ATF is similar to kerosene but more refined.

Properties:

• Burns smoothly

• Works in very cold temperatures

• Very high safety standards

Bottom of the Tower (Heaviest Products)

These include:

Lubricating oils

• Used in engines and machines

Wax

• Used in candles and cosmetics

Bitumen / Asphalt

• Used for road construction

One Important Thing Refineries Also Do

Modern refineries don’t just separate oil — they modify molecules.

A process called Catalytic Cracking breaks large heavy molecules into smaller ones to produce more petrol and diesel.

Crude oil is heated in a refinery tower, where different fuels separate based on how heavy they are — lighter gases like LPG come out at the top, petrol and diesel in the middle, and heavy materials like bitumen at the bottom.

How Much Oil India Produces vs Imports

India's Oil Production & Import Comparision

India produces only a small portion of crude oil domestically.

• About 85–90% of crude oil is imported

• Only 10–15% is produced in India 

So the basic model is:

Import crude oil → refine it in Indian refineries → produce petrol, diesel, LPG etc.

Which Fuels India Produces Domestically

Most fuels used in India are refined inside the country:

Produced domestically in refineries:

• Petrol

• Diesel

• Aviation Turbine Fuel (ATF)

• Kerosene

• Lubricants

• Bitumen

India even exports petrol and diesel to other countries.

Domestic Oil Production in India

India does produce some crude oil from its own fields.

Major oil-producing areas include:

• Mumbai High

• Assam

• Krishna Godavari Basin

• Rajasthan

Companies involved:

• Oil and Natural Gas Corporation

• Oil India Limited

• Cairn Oil & Gas

But this production is not enough for India's huge energy demand.

Where India Refines Oil

India has some of the largest refineries in the world.

Major companies:

• Indian Oil Corporation

• Reliance Industries

• Bharat Petroleum

• Hindustan Petroleum

The world's largest refinery complex is in

• Jamnagar Refinery

India actually exports some refined fuels after processing imported crude.

Where India Imports Crude Oil From

India's Biggest Crude Oil Suppliers in the Last 5 years

India buys crude oil from many countries to avoid dependence on one supplier.

Biggest suppliers

1. Russia

   ~30–40% of imports recently

2. Iraq

   ~20%

3. Saudi Arabia

   ~14–18%

4. United Arab Emirates

   ~8–10%

5. United States

   ~3–7%

Other suppliers include:

• Kuwait

• Nigeria

• Mexico

• Angola

India imports about 4.7–5 million barrels per day of crude oil

Fuels India Still Imports

Some fuels are still partly imported.

LPG (Cooking Gas)

India produces some LPG during refining but still imports about half of its demand.

Major suppliers:

• Qatar

• Saudi Arabia

• United Arab Emirates

• Kuwait

LNG (Natural Gas)

India imports a lot of LNG for power plants and industry.

Main suppliers:

• Qatar

• Australia

• United States

Simple Way to Understand India’s Energy System

India imports most of its crude oil from countries like Russia, Iraq, and Saudi Arabia, refines it in large Indian refineries, and then produces fuels like petrol, diesel, LPG, and aviation fuel for domestic use and export.

Think of India like a large kitchen.

• Raw ingredient (crude oil) → mostly imported

• Cooking (refining LPG & LNG) → Partially done inside India and balance imported from outside

• Final dishes (petrol, diesel, ATF) → produced domestically

So the system looks like:

Foreign crude oil → Indian refineries → fuel used in India

LNG (Liquefied Natural Gas) is made by cooling natural gas to extremely low temperatures until it becomes a liquid. The purpose is mainly to make the gas much smaller in volume so it can be transported easily by ships.

Let’s explain it in simple steps.

1. Natural Gas Is Extracted from Underground

Natural gas comes from gas fields or oil fields.

It is mainly methane (CH₄).

Major gas-producing regions include:

• Qatar

• United States

• Australia

• Russia

The gas comes out mixed with:

• water

• carbon dioxide

• sulfur

• heavy hydrocarbons

So it must be cleaned first.

2. Gas Is Purified

At a processing plant the natural gas is cleaned and separated.

Impurities removed include:

• water vapour

• carbon dioxide

• hydrogen sulfide

• dust and other gases

This step ensures the gas does not freeze or corrode equipment during cooling.

3. Gas Is Cooled to Extremely Low Temperature

The clean gas is cooled to –162°C.

At this temperature methane becomes liquid.

This process is called Liquefaction.

When natural gas becomes liquid:

• Its volume shrinks about 600 times.

Example:

• 600 liters of gas → becomes 1 liter of LNG

This is why LNG transport is practical.

4. LNG Is Stored in Special Tanks

The liquid is stored in cryogenic tanks (very cold insulated tanks).

These tanks keep LNG at –162°C so it stays liquid.

5. LNG Is Transported by Ships

LNG is shipped in large LNG carrier vessels.

Example vessel type:

• Q-Max LNG Carrier

These ships carry LNG across oceans to countries that need gas.

India imports LNG mainly from:

• Qatar

• Australia

• United States

6. LNG Is Turned Back into Gas

When LNG reaches the importing country, it goes to a regasification terminal.

Here it is warmed up and converted back into natural gas.

Then it is sent through pipelines to:

• power plants

• industries

• city gas networks

• households

Simple One-Line Explanation

LNG is natural gas that has been cleaned and cooled to –162°C so it becomes liquid, reducing its volume 600 times and making it easier to transport by ship.

In India, LNG (Liquefied Natural Gas) is mainly used for industry, electricity generation, transport, and city gas networks. It plays a different role from LPG, though there is some overlap.

Let’s break it down simply.

1. Main Applications of LNG in India

1️⃣ Power Generation

Natural gas from LNG is used in gas-based power plants to generate electricity.

These plants produce electricity by burning gas in turbines.

Advantages:

• Lower emissions than coal

• Faster start-up for electricity generation

2️⃣ Industrial Fuel

Many industries use gas from LNG for heat and energy.

Examples:

• Fertilizer plants

• Steel plants

• Glass manufacturing

• Ceramic industries

Gas burns cleaner and more efficiently than coal or furnace oil.

3️⃣ City Gas Distribution

After LNG is converted back into gas (regasified), it is sent to city gas networks.

Two major uses:

PNG (Piped Natural Gas)Gas supplied directly to homes through pipelines.

CNG (Compressed Natural Gas)Gas used as fuel for vehicles.

Example transport in cities like:

• Delhi

• Mumbai

• Ahmedabad

4️⃣ Transport Fuel (LNG Trucks & Buses)

Heavy trucks and long-distance transport are increasingly using LNG.

Reasons:

• Cheaper than diesel

• Lower emissions

• Longer range than CNG

The government is promoting LNG corridors for trucking.

LNG Import Terminals in India

India imports LNG through special terminals where it is turned back into gas.

Major terminals include:

• Dahej LNG Terminal

• Hazira LNG Terminal

• Kochi LNG Terminal

• Dabhol LNG Terminal

Is LNG a Substitute for LPG?

Short answer: Not directly, but partially.

They serve different systems.

Feature	LNG	LPG
Main chemical	Methane	Propane + Butane
Storage	Extremely cold liquid (-162°C)	Liquid under pressure
Household use	Usually via pipelines (PNG)	Cylinders
Transport	LNG ships & tankers	LPG cylinders

Where LNG Can Replace LPG

If homes receive PNG pipelines, they may stop using LPG cylinders.

Example:

Many homes in cities like Delhi and Mumbai

now use piped natural gas instead of LPG cylinders.

Where LPG Still Dominates

In rural and small towns, LPG cylinders are still easier because:

• pipelines are expensive

• infrastructure is limited

Programs like Pradhan Mantri Ujjwala Yojana expanded LPG access widely.

Simple Way to Understand

Think of it like this:

• LNG → big energy for industry, power plants, and city gas networks

• LPG → convenient cooking fuel in cylinders for households

✅ One-line explanation

LNG in India is mainly used for electricity generation, industry, city gas networks, and transport fuel, while LPG is primarily used as a cooking fuel in household cylinders.

Compare LPG vs LNG consumption in India,

LPG Vs LNG Consumption in India

• LPG is usually measured in million tonnes (MMT)

• Natural gas/LNG is measured in billion cubic meters (BCM)

So I’ll convert them into cubic meters and liters so the comparison is easier.

LPG Consumption in India

India consumed about 31.3 million tonnes of LPG in 2024-25.

Density conversion

1 tonne LPG ≈ 1,960 liters

So:

31.3 million tonnes ≈

• 61.3 billion liters of LPG per year

• 61.3 million cubic meters of LPG

Household understanding

A standard Indian LPG cylinder:

• 14.2 kg

• ≈ 27 liters of LPG

So the total LPG consumption equals roughly:

≈ 2.3 billion household cylinders per year

LNG / Natural Gas Consumption in India

India’s total natural gas consumption is about 71 billion cubic meters (BCM) per year.

This includes:

• LNG imports

• Domestic natural gas production

Conversion

1 cubic meter = 1,000 liters

So:

71 BCM =

• 71 billion cubic meters

• 71 trillion liters of gas

Converting LNG to Liquid Volume (For Comparison)

When natural gas is liquefied into LNG:

• Volume shrinks about 600 times

So:

71 BCM gas → about

118 million cubic meters of LNG

Which equals:

• 118 billion liters of LNG

LPG vs LNG Consumption (Simplified)

Fuel	Annual Consumption	In Liters
LPG	~31.3 MMT	~61 billion liters
LNG (as liquid equivalent)	~118 million m³	~118 billion liters
Natural Gas (gas form)	~71 BCM	~71 trillion liters

Key Insight

In liquid terms:

• LNG consumption ≈ 2× LPG consumption

But in energy use sectors, they are very different:

LPG

• Mainly household cooking

• Some commercial kitchens

LNG / Natural Gas

• Power plants

• Fertilizer industry

• City gas (CNG/PNG)

• Refineries

• Heavy transport

✅ Simple takeaway

India uses about 61 billion liters of LPG per year (mostly for cooking), while LNG equivalent consumption is about 118 billion liters, mainly for electricity, industry, and transport.

Top Crude Oil Consumers

While the world consumes roughly 105 million barrels per day (bpd), the top three nations alone account for more than a third of that total.

Top LNG Consumers

The world is consuming approximately 450 million tonnes of LNG per year. Daily Average: This translates to roughly 1.23 million tonnes per day. Gas Equivalent: If you turned that liquid back into gas, the world consumes about 60–65 billion cubic feet (Bcf) of LNG-sourced gas every single day.

Crude Oil Import Bill of India

India's import bill for crude oil, LPG (cooking gas), and LNG (liquefied natural gas) is a massive part of its energy story — it's like the "fuel cost" for powering the country's growth! These numbers fluctuate with global prices, volumes, exchange rates (mostly paid in USD), and geopolitics.

Here's the latest picture (based on FY 2024-25 full year data where available, and partial/estimates for FY 2025-26 as of early 2026). All figures are approximate in USD billion (since imports are priced globally in dollars).

• FY 2024-25 (April 2024–March 2025): Around $130–137 billion (full-year estimates from various reports; some sources cite ~$137 billion for 243 million tonnes imported).

• Recent Trends (FY 2025-26 partial):

  • April–December 2025: ~$90.7 billion (down ~12% YoY due to lower prices).

  • Full FY 2025-26 projections vary widely — could be $100–140+ billion depending on average crude prices (e.g., if prices spike to $115–120/barrel amid tensions, extra $60+ billion impact possible).

• Why it varies: India imports ~85–90% of crude needs (~4.5–5 million barrels/day). Lower Russian discounts or Middle East stability keep it down; spikes (like recent $120/barrel scenarios) add $7–8 billion/month extra outflow.

LPG Import Bill (For Your Kitchen Cylinders!)

• FY 2024-25: India imported ~20.7 million tonnes of LPG (about 40–60% of total consumption).

  • Import bill: Roughly $10–15 billion (estimated; part of broader petroleum products imports ~$23–48 billion in some breakdowns, but LPG is a big slice).

• Recent: Imports growing (e.g., new US deals for 2.2 MTPA in 2026, ~10% of needs). Bill tied to global LPG prices — often $500–700/tonne range.

• Total context: LPG is ~60% imported now (up from earlier), mostly from Gulf countries.

LNG Import Bill (For Power, Industry, CNG/PNG)

• FY 2024-25: ~$15.2 billion (up 13% from $13.4 billion in FY24; imports met ~50–55% of gas demand).

• Recent Trends (FY 2025-26 partial):

  • April–August 2025: ~$5.8 billion (down 11% due to lower volumes).

  • Full year likely $14–16 billion+ range, depending on demand growth.

• Why rising earlier: Higher consumption in power/fertilizer; now stabilizing with more US/Qatar deals.

Combined Energy Import Bill & Percentage of GDP

• Net Oil & Gas Import Bill (crude + products like LPG + LNG, minus some exports): Often ~$120–180 billion annually (e.g., ~$121.6 billion net in FY23-24; higher in volatile years).

  • Crude dominates (~70–80%), followed by LNG (~10–15%), LPG/products rest.

• India's Nominal GDP (for context):

  • FY 2024-25: ~$4.1–4.5 trillion (IMF estimates ~$4.125 trillion in 2025 projections).

• Percentage of GDP:

  • Crude oil import bill alone: ~3–3.5% of GDP (e.g., $137 billion / ~$4.1 trillion ≈ 3.3%).

  • Broader net energy imports (oil + gas): Typically 3–5% of GDP in recent years (higher in spike years like potential 2026 scenarios).

  • Impact note: Every $10/barrel crude rise adds ~$12–14 billion to the bill → widens current account deficit by ~0.3% of GDP.

Fun Takeaway for Students/Parents: This bill is like India's "monthly grocery" for energy — mostly paid in USD, so a strong dollar or high prices hits rupee value, inflation, and petrol/cylinder costs. India saves by refining domestically and exporting fuels, but global events (wars, OPEC moves) make it a rollercoaster!