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New Delhi — Indian Prime Minister Narendra Modi Monday pledged to continue working on oil and gas policies to make them more attractive to foreign and private investors and step up efforts to boost domestic production in an effort to meet the country's growing demand for energy resources.

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With the Indian economy expected to grow five-fold by 2040, India will account for one-fourth of the incremental global energy demand until that period, Modi told the opening session of the three-day Petrotech conference in New Delhi.

"India is expected to consume more oil in 2040 than the whole of Europe. We expect manufacturing to account for 25% of the GDP by 2022 against 16% now," he said.

India has made good policy progress since October 2014, when it deregulated diesel prices. The government then moved to boosting LPG penetration to reduce reliance on subsidized kerosene, while at the same time revamping the LPG subsidy system. This was followed by the announcement in March this year of a new upstream policy to attract much-needed investment in exploration and production.



Modi added that current commercial vehicle population of 13 million would multiply to reach 56 million by 2040. And in the global civil aviation market, India, which is currently the eighth-largest market in the world, would become the third-largest by 2034.

"Growth in the aviation sector is expected to raise demand for aviation fuel four times by 2040," he said.

India's oil products demand grew 8.5% year on year in 2015 to 177 million mt, or 3.81 million b/d, as gasoline, LPG and naphtha saw double-digit growth in consumption, according to India's Petroleum Planning and Analysis Cell. The International Energy Agency expects Indian oil demand to average at 4.3 million b/d in 2016.


ENERGY DIPLOMACY


The government's clear policies for the oil sector, strong and sustained GDP growth, and a huge push towards making India a manufacturing hub were playing crucial roles in not only accelerating oil consumption but also whetting appetite of leading multinationals to set up shop in the nation.

Russia's Rosneft and a consortium led by global trading house Trafigura earlier this year took a controlling stake in Essar Oil's Vadinar refinery and the company's retail outlets.

At the same time, a group of Indian companies have taken a 49.9% stake in one of Rosneft's key East Siberian assets Vankorneft.

"Our proactive foreign policy and energy diplomacy is helping us to strengthen our ties with our neighboring countries. I hope that our oil and gas sector companies will take the opportunity to tie up with their foreign counterparts to explore for more equity oil."

Indian energy companies must become multinational and work towards India-Middle East, India-Central Asia, and India-South Asia energy corridors," he added.

Modi said that there was an urgency for India, which currently imports about 80% of its crude oil needs, to increase its domestic oil and gas production and reduce import dependence.

"I have set a target to reduce import dependence by 10% by 2022. This will have to be achieved during a period of increasing oil consumption."

He said as the government was keen to move towards a "gas based economy", there was work to be done to increase natural gas production and at the same time create import infrastructure to meet the growing domestic demand for energy.

"Natural gas will also have an important balancing role to play as India's renewable energy production rises," Modi said.


RISK FROM HIGHER CRUDE PRICES


Petroleum Minister Dharmendra Pradhan said that there was speculation that crude oil prices could rise even further after last week's pledge at the OPEC meeting to reduce production. This could dent India's oil demand growth.

"I want to submit before this august gathering that for the sustainability of the oil markets, we must strike a balance of interest between producers and consumers" Pradhan said.

"At 4.3 million b/d, although we have a less than 5% share in the world consumption, our annual consumption growth is far more significant. At 300,000 b/d growth, our contribution was about 30% of global growth in demand last year. But higher oil prices will risk this growth trajectory and deprive the underprivileged sections of society from access to energy," Pradhan added.

Pradhan added that while hydrocarbons would remain as an important source of energy, the share of renewables is expected to rise. "We are also moving ahead on cleaner coal technologies and nuclear energy areas."

The oil minister added that in the recently concluded bidding round for discovered small fields, the result had been encouraging as a total of 134 bids had been received for 34 contract areas from 42 companies, including five foreign companies.

"We are stepping up efforts towards increasing the share of gas in the energy mix from 6% to 15% and also building gas pipeline and LNG re-gasification infrastructure," Pradhan added.

--Sambit Mohanty, sambit.mohanty@spglobal.com
--Ratnajyoti Dutta, newsdesk@spglobal.com
--Eklavya Gupte, eklavya.gupte@spglobal.com
--Edited by Mriganka Jaipuriyar, mriganka.jaipuriyar@spglobal.com