BP-RIL deal may usher in fresh oil, gas investments

BP's $7.2-billion deal to jump into India's oil and gas sector with Reliance Industries is the first sign of new investment that could attract more players, helping to boost output and meet surging demand.

Asia's fourth-largest economy is expanding at more than 8 per cent a year. But it struggles to pump even a third of the oil it guzzles, while gas use - limited by poor infrastructure - is already 30 per cent more than production.

India has sought to attract the big international players since 1999 with its New Exploration Licensing Policy (NELP) but still only two foreign companies - BG and Cairn Energy - are producing any serious amounts in the country.

"This deal brings in one of the majors in a material way. Twenty-three blocks and an important gas play," said Richard Quin, lead analyst for Middle East, North Africa and India at energy research consultancy Wood Mackenzie. "I suspect the Indian government is very happy about it."

BP, which has only one block, picked up through Indian government auctions, is now paying privately-owned Reliance for a 30 per cent stake in 23 of its blocks, including the big gas producer D6 in the Krishna Godavari basin.

The blocks now produce about 1.8 billion cubic feet/day (bcf/d) - more than 40 per cent of India's total production and more than 30 per cent of total consumption.