India's Future: Investing In Petro?

India is the third-largest energy and oil consumer in the world and the fourth-largest importer of liquefied natural gas. The country's oil and gas sector is expected to attract investments of up to $206 billion over the next eight to ten years. India's journey towards energy self-sufficiency by 2047 has started well, with the nation boasting an intricate network of pipelines for natural gas and petroleum. The government has set a target of raising the share of natural gas in the energy mix to 15% by 2030 and is incentivising the development of City Gas Distribution networks.

India's fuel consumption is on a consistent rise, with an increasing number of individuals opting for petrol vehicles. The country's fuel demand is projected to grow at about 3% per annum up to 2040, compared to the global rate of 1%. This demand is largely met through imports, with India importing close to 82.8% of its crude oil requirements.

Opening a petrol pump in India can be a lucrative business opportunity, but it requires a significant financial investment and regulatory compliance. The cost of setting up a petrol pump varies depending on factors such as land cost, construction, equipment, and licensing fees. The land requirement depends on the location, with urban areas needing 500 square meters for a single dispensing unit and rural areas needing 800 square meters. The investment includes land, construction, equipment, and licensing fees, ranging from Rs 2 lakh to Rs 5 lakh.

India's energy self-sufficiency by 2047

India is the third-largest energy and oil consumer in the world, and its energy demand is expected to quadruple in the coming decades. Currently, the country imports 90% of the oil, 80% of the industrial coal, and 40% of the natural gas it consumes.

In a bid to reduce this dependence on imported fossil fuels, India has set a target of achieving energy self-sufficiency by 2047. This goal was announced by Prime Minister Narendra Modi, who stated that the government is working to meet 50% of the country's electrical capacity from non-fossil sources by 2030.

To achieve this, India is focusing on the development of a robust Electric Vehicle (EV) ecosystem, with the government providing easier loan facilities and tax relaxations on EVs to promote their adoption. Additionally, India is investing in renewable energy sources such as wind, solar, biomass, and hydroelectric power.

According to a study by the U.S. Department of Energy's Lawrence Berkeley National Laboratory, India can achieve energy independence by 2047. The study, titled "Pathways to Atmanirbhar Bharat" (translating to "self-reliant India"), examined the country's three most energy-intensive sectors: power, transport, and industry. It found that achieving energy independence would generate significant economic, environmental, and energy benefits, including $2.5 trillion in consumer savings and a reduction in fossil fuel import expenditure by 90% by 2047.

The study also outlined India's energy independence pathway, which includes installing more than 500 GW of non-fossil electricity generation capacity by 2030, followed by an 80% clean grid by 2040 and 90% by 2047. It also predicted that nearly 100% of new vehicle sales could be electric by 2035, and that heavy industrial production could shift primarily to green hydrogen and electrification.

To realize this vision, India's energy infrastructure requires a $3 trillion investment in the coming decades. The country's growing energy demand offers a 15-year runway for the transition from fossil fuels to clean energy, which will need to be done in collaboration with the communities and workforce most affected by these changes.

In conclusion, India's journey towards energy self-sufficiency by 2047 is well underway, with the country taking significant steps to reduce its reliance on imported fossil fuels and investing in renewable energy sources and clean technologies.

Oil and gas investment opportunities

India is the world's third-largest energy and oil consumer and the fourth-largest importer of liquefied natural gas (LNG). It is also Asia's second-largest refiner and the fourth-largest globally.

The country's oil and natural gas sector is expected to attract investments of up to $206 billion over the next eight to ten years. India's oil marketing companies are set to invest over ₹1.9 lakh crore in exploration and production, which is projected to offer investment opportunities worth $100 billion by 2030.

India's crude oil production during April-May 2024 was 4.89 million metric tonnes (MMT), with a refining capacity of 256.8 million metric tonnes per annum (MMTPA) as of April 2024. The country aims to increase its refining capacity to 450 MMTPA by 2030.

The country's natural gas infrastructure includes a network of 23,391 kilometres of pipelines, with around 4,125 kilometres under construction as of December 2023. India has set a target to increase the share of natural gas in its energy mix to 15% by 2030.

To promote investment in the oil and gas sector, the Indian government has implemented several initiatives:

• Unified tariff for natural gas pipelines to benefit consumers and facilitate gas market development.
• Reduction of the 'No Go' area, making approximately one million square kilometres of India's Exclusive Economic Zone (EEZ) available for exploration.
• Early production royalty concessions of 10-30% for different categories of basins.
• Simplification of procedures for setting up LNG stations.
• Relaxation of environmental clearance requirements for seismic surveys.

India's oil and gas sector offers a range of investment opportunities, particularly in exploration and production. The sector's dynamic nature and significant influence on the economy make it an attractive prospect for investors seeking to capitalise on the country's journey towards energy self-sufficiency by 2047.

Factors influencing petrol prices in India

India's petrol prices are influenced by a combination of factors, including international crude oil prices, refining costs, government regulations, taxes, and exchange rates. Here are some key factors that impact petrol prices in India:

• Cost of Crude Oil: The price of crude oil in the international market significantly affects the price of petrol in India. Changes in global supply and demand, geopolitical tensions, and production decisions by major oil-producing countries can lead to fluctuations in crude oil prices, which directly impact the cost of importing and refining petroleum products in India.
• Refining Costs: After extraction, crude oil undergoes refining to produce petrol. Refining costs include expenses related to technology, efficiency, and maintenance. As these costs vary, they directly impact the final price of petrol.
• Government Regulations and Taxes: The Indian government has strong intervention power over fuel prices due to the essential nature of the product. The central and state governments impose various taxes, such as excise duty and value-added tax (VAT), which contribute to revenue collection and influence petrol prices. Changes in tax rates can lead to immediate price adjustments.
• Exchange Rates: As India imports a significant portion of its oil, fluctuations in the rupee-dollar exchange rate impact petrol prices. A weaker rupee can make imports more expensive, while a stronger rupee can offset rising international oil prices.
• Demand and Supply Dynamics: The total consumption of petrol in India increases annually with rising vehicle sales. Disruptions in supply or an increase in internal production can affect petrol prices. The COVID-19 lockdowns, for example, decreased demand, while the easing of restrictions led to a surge.
• Transportation and Dealer Costs: Transportation costs depend on the distance between refineries and distribution points. Dealer commissions are set margins earned by fuel retailers, which also contribute to the final retail price of petrol.

Petrol pump requirements

Opening a petrol pump in India requires compliance with various eligibility criteria and regulations, along with a significant financial investment. Here are the key requirements for establishing a petrol pump in India:

Age and Education:

• The applicant should be at least 21 years old and not older than 55 years.
• For the general category, a 12th-grade pass certificate is mandatory, while a 10th-grade pass certificate is required for SC/ST/OBC applicants.
• Applicants must have a minimum educational qualification from recognised institutions or universities.
• For urban areas, a Graduation/Chartered Accountant/Company Secretary/Cost Accountant/Diploma in Engineering qualification is preferred.

Work Experience:

The applicant should have a minimum of three years of experience in running a retail outlet, business, or any other related field.

Financial Requirements:

• The applicant should have a minimum net worth of Rs. 25 lakhs, and their family net worth should not be less than Rs. 50 lakhs.
• The investment required depends on factors such as land cost, construction cost, equipment cost, and licensing fees.
• Land Cost: Depending on the location and size, land cost can range from Rs. 20 lakhs to Rs. 1 crore.
• Construction Cost: Construction expenses depend on the design, materials used, and the size of the petrol pump, ranging from Rs. 30 lakhs to Rs. 1 crore.
• Equipment Cost: This includes fuel dispensing units, storage tanks, and other equipment, costing between Rs. 20 lakhs and Rs. 50 lakhs.
• Licensing Fees: Obtaining permits, licenses, and approvals from government authorities can cost between Rs. 2 lakhs and Rs. 5 lakhs.
• Application Fees: The cost of the application form is Rs. 100 for rural areas and Rs. 1000 for metropolitan areas, with a 50% reduction for SC/ST/OBC categories.
• Operational Costs: Applicants need to spend around Rs. 12 lakhs for rural retail outlets and Rs. 25 lakhs for urban retail outlets.

Land Requirements:

The land requirement depends on the location and the number of dispensing units:

• Rural Areas: 800 square meters for a single dispensing unit and 1200 square meters for two units.
• Urban Areas: 500 square meters for a single dispensing unit and 800 square meters for two units.
• National Highways: 1200 square meters for a single dispensing unit and 2000 square meters for two units.

The land should be owned by the applicant, free from any legal disputes, and easily accessible.

Other Requirements and Permissions:

• No criminal record and no default on any business loans.
• No Objection Certificate (NOC) from the Licensing Authority.
• Permission from the Municipal Corporation Department.
• Fire Safety Office Certification and No Objection Certificate from the relevant bodies.

India's oil and gas sector

Exploration and Production:

India has 26 sedimentary basins covering a vast area of 3.4 million square kilometres. The country aims to increase its exploration acreage by 0.5 million square kilometres by 2025 and 1 million square kilometres by 2030. India's crude oil production has faced a decline since 2011-12, with a 5.2% drop in output in 2020-21. However, natural gas production saw a 20.23% increase in August 2021.

Refining Capacity:

As of April 2024, India's refining capacity stood at 256.8 million metric tonnes per annum (MMTPA), with 23 refineries in operation. The Indian Oil Corporation (IOC) is the largest domestic refiner, with a capacity of 70.1 MMTPA. Refinery capacity utilisation was about 96% for 2021-22.

Natural Gas Infrastructure:

India has an extensive natural gas pipeline network, with 23,391 kilometres operational and 4,125 kilometres under construction as of December 2023. The country aims to increase pipeline coverage by 54% to 34,500 kilometres by 2024-25. Additionally, there are plans to connect all states to the trunk natural gas pipeline network by 2027.

Petroleum Products Consumption:

India's consumption of petroleum products has been increasing, with a 4.6% growth in overall consumption from April-March 2023 to April-March 2024, reaching 233.3 million metric tonnes. Liquified Petroleum Gas (LPG) consumption increased by 4% during this period. Motor Spirit and High-Speed Diesel (HSD) consumption also saw notable increases.

Government Initiatives and Investments:

The Indian government has set ambitious targets for the energy sector, aiming to double energy demand and increase natural gas demand five-fold by 2050. To achieve these goals, the government has allocated significant funds in the Union Budget 2023, including INR 35,000 crore for priority capital investments in energy transition and INR 10,000 crore for compressed biogas plants.

International Trade:

India is heavily dependent on crude oil imports, with an import dependence of 82.8%. In April-July 2024, India imported 81.6 million metric tonnes of crude oil worth $49 billion. However, the country is a net exporter of petroleum products, with exports of $14.7 billion during the same period.

Pricing and Taxation:

Fuel pricing in India varies by state, with central and state taxes accounting for a significant portion of the pump price. Central taxes amount to 24-26% of the final cost, while state taxes vary but typically contribute 20-25%. Royalty and oil development taxes are also collected on locally produced oil and natural gas.

Frequently asked questions