Indian oil and gas market

Oil and gas contributes to approximately 41% of India’s primary energy consumption and has been instrumental in fuelling the rapid growth of the Indian economy. According to a recent CII-KPMG report, India’s energy sector will provide investment avenues worth US$ 120 - 150 billion over the next five years. India is emerging as the global hub for oil refining with lower capital costs.

Favourable climate

India offers a favourable investment climate across all subsegments of the oil and gas industry. The regulatory regime of India permits Foreign Direct Investment (FDI) into the petroleum sector without any constraints. New Exploration Licencing Policy (NELP) provides a regulatory framework and facilitates upstream sector investments.

FDI in India

100% FDI is allowed in petroleum products, exploration, gas pipelines and marketing/retail through the automatic route. India allows 100% FDI in private refineries through the automatic route and 26% in government owned refineries. According to the Investment Commission of India, the total opportunity in the oil and gas sector is expected to reach US$ 35 - 40 billion by 2012.

How to enter?

The choice of entry in this area is dependent upon the risk return profile and financial appetite of the player. An E&P player can enter the Indian market by participating in the bidding process of NELP. It is expected that the eighth NELP round will involve 190 blocks covering 400,000 km2. There is also substantial scope for oilfield service providers, given the large market of existing and proposed E&P activities. Opportunities shall also exist in providing technology services to existing players. The drilling companies in India are also good targets for an equity stake or acquisitions, given the shortage of rigs in the market and its strong expected demand in future.

Road ahead

India’s growing energy demand and the necessity to service this demand to ensure economic growth is not compromised, presents business opportunities in the complete value chain of the oil and gas sector. Exploration for domestic production growth, development of discovered fields, transportation of crude oil, gas and products, refining to service the petroleum product domestic demand and exports, and retailing infrastructure are prospective blocks to encourage all these sectors to provide business and investment opportunities.

Author: Prasenjit Dhar, UK Trade & Investment, India.

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