India Seeks Global Petrodollars To Cope With Burgeoning Energy Demand Through 2035

Of late, few countries are being as proactive as India when it comes to courting foreign investment in the oil and gas sector. It isn’t hard to guess why, as the Indian economy is largely driven by imported oil to the tune of over 80% of its headline requirements.

Last year, it became the world’s third-largest crude importer after the U.S. and China. With the consumption of petroleum products expected to grow at a compounded annual growth rate of ~5% to 2035, and Prime Minister Narendra Modi’s commitment to reduce energy import requirements below 70% of headline demand, the strategy appears to be one of being loud and proud in courting petrodollars.

At the recently concluded Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) 2019, one of the industry’s biggest annual jamborees held in the United Arab Emirates, the Indians were out in fine voice.

Nine of the country’s oil and gas companies from the upstream, midstream, downstream and engineering segments, along with Federation of Indian Petroleum Industry (FIPI), India Directorate General of Hydrocarbons (DGH) and Confederation of Indian Industry (CII) put up a huge pavilion, all fronted by none other than Oil Minister Dharmendra Pradhan.

Speaking to the media, whilst scrambling between dialogues with the bosses of several international oil companies, Pradhan said: “India will be a driver of global energy demand in coming decades. There is no better place to invest if you are in the business of energy. More so, as we are working to make India a more natural gas-based economy.”

In a later keynote speech at ADIPEC, Pradhan put the required investment figure in the region of $100 billion by 2024 in refining, pipelines and gas terminals, whetting investor’s appetite.

“We have recently liberalized the entry norms for fuel retailing which has paved the way for the entry of new players in the fuel retailing space and enhancing competition. Political stability, predictable policies and a hugely diverse market make India an attractive investment destination for global investors.”

India has also constructed over 16,000 km of gas pipelines and an additional 11,000 km is under construction. And the minister, who often tells OPEC to leave the crude oil business and price direction to market forces since India doesn’t hedge crude, also said the country offered “incredible opportunities” to invest in oil and gas exploration licensing rounds, farm-in to existing blocks, or invest in oilfield equipment and services sector.

Overall, India’s total global primary energy demand is set to double to 11% by 2040 going by both global and domestic projections. One big investment driver has been has been, the government’s commitment to low sulfur in fuels aimed at controlling pollution and lowering India’s carbon footprint, according to Sanjiv Singh, Chairman of IndianOil Corporation (BSE: 530965, NSE:IOC); the largest commercial oil company in India and its most profitable majority state-owned entity.

Singh told Forbes the country is gearing up to change its headline fuel standard from Euro IV to Euro VI equivalent from April 1, 2020 needing downstream operators like IndianOil to reduce maximum sulfur content from 50 parts per million (ppm) to 10 ppm. The general idea is to help reduce emissions intensity down by 35% by 2030 from 2005 levels.

With 11 refineries on its books, including the Mathura refinery which is already supplying Euro IV fuels to the capital city of Delhi, Singh put IndianOil’s investment at around ~$3.5 billion per year.

“We are in the final stage, or merely three months away, from the upgradation of all our refineries to Euro VI. Alongside this, we are planning capacity expansions without shutdowns and operating plants at over 100% capacity largely underpinned by technology and continuous investment in infrastructure which in some cases is quite old. That highlights a pretty respectable industry potential.”

Singh added that IndianOil’s internal assessments point to a fairly robust petroleum product demand growth for the country, something the global investment community should take note of.

“Demand for different products has been growing at different rates. We see 8-9% year-on-year growth for gasoline continuing. Liquefied Petroleum Gas (LPG) growth is running at around 4-5%. While its growth is down from 9% level of past years, with 98% of Indian households now having LPG access – in volume terms that dwarfs previous consumption considerably.”

“Of course, the Indian downstream sector is predominantly diesel driven and 40-45% of each crude barrel cracked gets converted to diesel. Given temporary factors, such as a heavy monsoon, diesel growth has been perhaps disappointing at 1.3% in recent quarters, as has been the demand for aviation fuel given the shutdown of a major Indian airline [Jet Airways].”

Singh said the investor community recognizes that India cannot remain isolated from the rest of the world. “But with headline economic growth of around ~6% (vs 7% in 2018), oil and gas sector fundamentals remain strong.”

Should that turn out to be the case, wooing downstream investors would be get even easier still as the Modi administration rolls out the red carpet for major oil and gas players.

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