5 Reasons why

5 Reasons why FDI are increasing in Indian Oil and Gas Sector

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A newly formed joint venture of French ‘supermajor’ Total and Adani Group have recently announced to apply to the government of India for permission to open petrol pumps in India. Total-Adani fuels marketing Ltd. will apply for licenses to offer a full bouquet of auto fuels at retail outlets. The joint venture will offer natural gas, petrol, diesel, and electric vehicle charging facilities and will seek the license under the liberalized fuel retailing regime announced by the government. Prior to this announcement, Total had bought a 37.4 percent stake in Adani Gas to enter the Indian fuel market last year.

However, this is not the first time that foreign companies are inclining towards investing in the Indian oil and gas sector. As India is the third-largest energy consumer in the world and the world’s fastest-growing energy market, several companies have opted to invest in India over the past few years. There are several reasons behind India emerging as a refinery hub. They are as follows.

  1. Relaxation of Norms

Last year, the government of India relaxed norms for setting up petrol pumps, allowing non-oil companies to venture into the business. This move has helped foreign firms to enter the Indian market.

  1. Increase in Production and Consumption

Over the years, India has witnessed a steady increase in production as well as consumption of petroleum products. The production of petroleum products increased from 243.5 MMT during 2016-17 to 262.3 MMT in 2018-19.

  1. Availability of Raw Materials

India has ample reserves of raw materials. The oil reserves in India are equal to 604 MMT and the natural gas reserves are equal to 1.2 TCM.

  1. Supportive FDI Policies

The government of India has allowed 100% FDI in upstream and private sector refining projects. Moreover, the FDI limit for the public sector refining projects has been increased to 49 percent without any disinvestment or dilution of domestic equity in the existing PSUs.

  1. Ease of Setting up LNG Stations

Any entity can set up LNG stations anywhere in India even if they do not have a City Gas Distribution license.

Here are some of the recent investments in the Indian oil & gas sector.

  • ExxonMobil signed an MOU with Indian Oil Corporation in October 2019 to expand LNG initiatives in India
  • In August 2019, Saudi Aramco bought a 20% stake in Reliance’s flagship chemical, and refining business in a deal valued $15 billion.
  • British Petroleum and Reliance Industries Ltd. agreed to invest $5 billion in 3 gas development projects in the Krishna-Godavari basin block in the Bay of Bengal by 2022.
  • UAE’s ADNOC and Indian Oil Corporation signed a long term sales agreement for ADNOC’s high-quality base oil ADbase which will be used for the manufacturing of engine oils for the automotive sector in August 2019.
  • RIKA Biofuels invested $100-150 million to build Bio CNG plants in Punjab in May 2018.

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West has been driving the business world owing to its developed economies. The leading part of the world is straining to sustain its dominance. However, the other parts of the world, especially Asia Pacific region have been displaying escalating growth in terms of business and technological advancements.

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