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Investment Opportunities in Oil & Gas Sector In India for a Foreigner

Investment Opportunities in Oil & Gas Sector In India for a Foreigner

The Oil & Gas sector in India plays an important role in influencing the decision-making for all the sectors of the economy as it is among the 8th core industries in India. Due to the rise in the industries in India, the need for oil & gas is also increasing; subsequently, the oil & gas sector will likely grow in the near future, making this sector more appropriate to invest in. The Indian government has also made numerous efforts to encourage investment in this sector by privatising the oil & gas sector in order to increase investment and provide better consumer services. Moreover, the government is making efforts to encourage foreign investments in the sector by reducing trade barriers and providing concessions to the companies through tax deductions. The Indian government has also introduced many schemes to allow foreign investments in this sector. The present article will discuss the investment opportunities that foreigners can avail by investing in the oil & gas sector.

Oil & Gas Industry Types

Petroleum is generally classified as fossil fuel and can be extracted in 2 forms, i.e. liquid and vapour. The liquid is crude oil, whereas the vapour is gas. The 3 stages of harvesting which is generally involved in this sector are:

1. Upstream

The upstream sector involves the companies looking to extract raw materials resources form. The companies generally invest capital, have high risks, and longer duration. The companies extensively explore subterranean and undersea deposits of crude oil and natural gas. Henceforth, the companies that find and extract raw materials are upstream companies involved in oil & gas production. Reliance Industries Limited, Oil India Limited, and Larsen & Toubro Limited are among the leading participants in India’s Oil and Gas Sector. Henceforth, the foreign entity can invest in the upstream sector by way of investing in the exploration sector and provide the raw materials to the Indian companies or the private players.

2. Midstream

The mid-stream sector generally involves everything from transportation to storing natural gas and oil. The companies offer tank trucks, transcontinental tankers, pumping stations and retail tank cars. Midstream operations treat the commodity by removing waste products or water, compressing it and preparing it for downstream markets. IOCL, Petrol LNG Limited, Adani Enterprises Ltd. and GAIL Limited are some of the prominent companies in this sector. The foreign entity can invest in the midstream sector by way of opening a Transportation Company and offering logistics support to Indian companies and private companies. 

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3. Downstream

The downstream sector is the last step in the process of production. In this sector, flammable gas and unrefined petroleum are refined and offered to the end consumers. The natural gas and crude oil products a generally distributed and marketed by the companies operating in these industries. The end products such as diesel, natural gas, gasoline, lubricants, heating oil, propane, insecticides and medicines are the products that are derived directly from the downstream production. Reliance industries limited and Adani gas Limited are some of the prominent players in this sector. The foreigner can invest in this sector and offer the end products and services to the consumers by opening stations at various locations.

Advantages of Investing in India

The proposed opportunities for a foreigner to invest in India can be summarised by way of advantages in the manner:

1. Increasing Demand: The oil demand in India is expected to grow2 times the projected 11 million barrels per day by 2045. The diesel demand in India is expected to rise to 163 MT by 2029-2030; it is expected that both diesel and gasoline will cover almost 28% of India’s demand by 2045. On the other hand India there are chances that the consumption of natural gas in India is expected to grow by 25 billion cubic metres (BCM). Henceforth, there is a great opportunity that these numbers may rise in the near future as the demand and the number of industries are also increasing.

2. Rapid Expansion: The Indian government aims to commercialise 50% of its Strategic Petroleum reserves to outraise finds and build additional storage tanks to balance the high oil prices. Further, the ONGC or Oil and Natural gas Corporation has announced plans to invest in India by US 4 billion dollars from 2022-2025 to raise its exploration efforts in India. The foreigner investing in India can find this as an opportunity to invest in the oil & gas sector.

3. Favourable Foreign Direct Investment: India has recently, in the year 2021, approved an order allowing 100% foreign Direct Investment under automatic route for oil & gas sector PSUs. Further, the Indian government, in order to meet the demand, has allowed 100% FDI in upstream and private sector refining projects. Therefore, the foreigner can also invest in the upstream sector without approval from the government except for regulatory clearances.

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4. Supportive Policies: The Indian government, in their budget 2022-2023, has reduced the customs duty on the petroleum refinings products such as methanol, acetic acid and heavy feedstocks. Furthermore, the Indian government has signed a deal with the US wherein they agreed to expand their energy collaboration by focusing on prospective fuels. Henceforth, the world is showing interest in the Indian oil & gas sector as the investment hub. Therefore, foreigners investing in such a sector could benefit a lot.

5. Environmental clearances: The Ministry of Environment, Forest and Climate Change, through a notification, has stated that seismic surveys now do not require environmental clearances provided that the concession areas have got previous clearance of physical survey. Further, offshore and onshore Oil & Gas exploration are categorised as “B2Projects” and are not required to carry any Environmental Impact Assessment Report. Henceforth, the foreign entity can easily invest in exploration activities without taking any environmental clearances.

Opportunities in the Oil & Gas Sector

The opportunities offered by the Indian market for a foreigner in the oil & gas Sector in India are:

  • The growth in the urban sector is quick in regard to industrial enterprise and urbanisation.
  • There are more opportunities available in the market as the growth in the other market has the potential to directly or indirectly impact this industry.
  • There are numerous natural oil reserves which remain unexplored or yet to be discovered.
  • The need for energy is high due to the huge population.
  • The oil & gas sector in India offers better transportation and infrastructure facilities.
  • There are investors from private and international markets investing in the Oil & gas sector in India.
  • Any entity can set up LNG station in India even if they do not possess City Gas Distribution License.

Scenarios of FDI in the Oil & Gas Sector in India

The Indian government has made all efforts to encourage foreign investments in India by allowing 100% Foreign Direct Investment under the automatic route in the following:

  • Exploration activities of oil & natural gas fields.
  • Infrastructure related to marketing of petroleum products and natural gas.
  • Marketing of petroleum products and natural gas, petroleum products pipelines and natural gas pipelines.
  • LNG regasification infrastructure, formulation and petroleum refining in the private sector.
  • Private participation in the exploration of oil.
  • Private participation in the field of discovered fields of natural oil companies.
  • Petroleum Refiners
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Further, to promote the usage and raise the distribution of LNG[1] (Liquefied Natural Gas), the Indian government has put the imports of LNG under the Open General licensing category. Moreover, the establishment of LNG, including the LNG terminal, is put under automatic route.

Oil & Gas Sector Policies in India

The policies introduced in the Oil & Gas sector in India in order to increase investment sector is:

1. Pradhan Mantri JI-VAN Yojana

The Indian government has introduced this scheme in order to provide financial support to bio-ethanol projects. The government is offering financial support of Rs 150 crore for a commercial project and Rs 15 crore for demonstration projects to improve commercial feasibility and promote R & D in developing technologies in the production of 2g ethanol.

2. Open Acreage Licensing Policy (OALP)

The Government of India notifies the OALP as part of the Hydrocarbon Exploration and Licensing policy. Under this policy, potential investors can view the geological, geophysical and other technical data on National Data Repository (NDR) and submit their interest around the year. The NDR provides the entire exploration and production (E & P) data available to the investor for commercial exploration, Research and Development purposes.

3. National Policy in Biofuels 2018

The national biofuel policy has been introduced with a target of blending 20% ethanol in petrol by 2030. This policy is expected to boost the biofuel programme of the country and has also widened the scope of raw materials for ethanol procurement. The policy aims to reduce Import dependency and promote the production of biofuels in the country under the Make in India program by units located in SEZ and grant permission for the export of biofuels in certain cases.

Conclusion

 The Oil & gas sector in India is growing at a very fast pace. The investment in 58 billion dollars will be invested in the petroleum sector by 2023, and 60 billion dollars will be invested in the natural gas infrastructure by 2024. Moreover, India holds natural gas reserves at 1.37 TCM. The rapid growth of the Indian sector is leading to a rise in output, raising the demand for oil for transportation and production. At the same time, natural gas consumption is forecasted to increase at a rate of 12%, estimating up to 550 MCMPD by 2030. Hence these factors are good signs that India’s oil & gas sector is flourishing, and the foreign entity can think about investing in this sector. Although the investment required in this sector is huge, but there are certain sectors in which the by-products of oil & gas could be offered to consumers at a reasonable price.

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