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Singapore — Reviving domestic oil consumption, attracting investment into the upstream sector and crafting a crude buying strategy amid mounting geopolitical tensions are key challenges ahead for the new Indian government as it starts office for the second term, analysts told S&P Global Platts.

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While the National Democratic Alliance government will likely speed up oil and gas reforms initiated in their first term, it will also try to find ways to push alternative and cleaner forms of energy in an effort to cut dependence on imported oil and gas, analysts said.

In addition, speeding up infrastructure projects will be a key priority, which would help oil demand to recover, the analysts added.

"Now that the election is over, the government can focus on key domestic issues. The government is likely to embark on massive investment in infrastructure. That should give a boost to energy and oil demand," said Kang Wu, head of Asia analytics at S&P Global Platts Analytics.

Most analysts believe that sweeping energy reforms implemented by the NDA government during its first term in power are here to stay.

While New Delhi has removed subsidies on diesel prices and aligned retail fuel prices with international crude prices, it has pushed the use of LPG instead of kerosene as a cooking fuel. Even the pricing mechanism for the upstream sector has been overhauled to make it more attractive to private investors.

"In the new term, the government is likely to bring key products, such as gasoil and gasoline, under the goods and services tax to make it more competitive for the energy sector and attract increased inflows of investment," said Lim Jit Yang, adviser for oil markets at Platts Analytics.


Dharmendra Pradhan, who was appointed petroleum minister for the second time, has said that boosting oil and gas output, faster reforms, market-friendly infrastructure, setting up gas pipelines and adoption of biofuels would remain priority areas for the petroleum ministry in the second term.

"We will continue our efforts to boost domestic production of oil and gas and India's transformation into a gas-based economy," he added.

Lim noted: "India can do more to ensure energy security by boosting its domestic oil and gas production."

Kaushik Chatterjee, senior analyst at Wood Mackenzie, listed three priorities that the new government needs to address for the oil and gas sector -- developing an integrated energy policy, boosting domestic oil and gas supply and increasing gas consumption.

"Coordination between various energy ministries will allow for the formulation and implementation of a truly integrated energy policy. This will help clearly define the role of oil and gas in various end-use segments," he said.

"The government needs to continue the positive reforms in the upstream sector by improving the ease of doing business and finding ways to increase participation of international oil companies," he added.

Chatterjee added that to increase gas consumption, the key priority should be to fast-track commissioning of natural gas pipelines.

"Environmental policies like the National Clean Air Plan should be implemented in the true spirit for promoting cleaner fuels like natural gas. Finally, bringing gas under GST and establishing a gas trading hub should also provide the necessary impetus for improving the share of gas," he added.


Another big challenge for India is to find crude sources to replace Iranian oil to make up for any supply losses arising from Washington's decision to not extend waivers on buying from Tehran.

Platts Analytics expects Saudi Arabia, Russia and the UAE to raise their production to make up for most of the lost Iranian barrels.

"India is likely to import more crude from Saudi Arabia and the UAE given their proximity. Some Indian state-owned refiners have also indicated that they would aim to step up crude imports from countries such as Iraq, Kuwait, Mexico and the US to make up for their supply losses," Lim said.

Iranian crude exports to India had been robust before the current sanctions were implemented in November 2018. But imports fell to around 190,000 b/d in the first quarter, down sharply from 440,000 b/d in Q1 2018, according to Platts Analytics.

On the demand side, analysts said that India was facing headwinds, such as a slowing economy, weak vehicle sales and higher fuel prices.

"India's product demand is expected to grow by 200,000 b/d in 2019, adjusted down by 40,000 b/d since early this year, based on recent soft data," Platts Analytics said.

Oil demand in April posted a modest rise of 0.3% year on year to 17.83 million mt, or 4.67 million b/d, from 17.78 million mt a year earlier, data from the Petroleum Planning and Analysis Cell showed. Overall oil products demand in April was 5.5% lower month on month from 18.87 million mt recorded in March.

Analysts said that building additional strategic petroleum reserve facilities to ensure energy security is increasingly important to India to ensure supply certainty.

Any crisis in the Middle East, which accounts for over 60% of India's crude supplies, would have a major impact on India's crude imports and energy security.

India's first phase of SPR has a combined capacity of 5.33 million mt in three locations in the country's south. India's Cabinet has approved another 6.5 million mt of SPR under the second phase.

Click here to see full-size graphic

India energy reforms infographic

-- Sambit Mohanty,

-- Edited by Wendy Wells, newsdesk@spglobal.comert--