Oil and gas major BP is in the process of finalizing plans to establish a footprint in India’s retail fuel market, extending a partnership with Reliance Industries to a new segment a year after the two companies jointly pledged to invest $6 billion to boost domestic gas production. The move to venture into one of Asia’s fastest growing retail oil markets will pitch BP against other global oil majors like Shell, which already has a presence in India’s retail fuel market, as well as against private players like Nayara Energy, which is also aiming for a bigger slice of the market.
Although BP has made it clear that it is talking to Reliance to jointly invest in the retail fuel sector, it has not yet announced specific details about the plan, such as the timing of its entry and the number of outlets it plans to set up. Analysts said that if BP and Reliance indeed decide to invest jointly in India’s retail fuel sector, they would be in a stronger position to compete together in a market dominated by state-run refiners than they would be if they invested independently.
“For the future we have got our eyes on lots of things. You don’t just jump into retailing. You do a lot of planning. When it happens it will be something very special,” BP group chief executive Bob Dudley said recently in New Delhi. “We are in the middle of talking to Reliance. They have been great partners. We want to do it right rather than just do it,” he added.
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The Indian government in 2016 granted BP a license to set up 3,500 fuel stations in India, but the company has not moved ahead with the plans so far. Instead, in June 2017, Reliance and BP said they would jointly invest up to $6 billion to develop already-discovered deepwater gas fields off the east coast of India, which would help to boost gas output by 30 million-35 million cu m/d (1 Bcf/d) in phases over 2020-2022.
India has close to 60,000 retail fuel outlets spread across the country, out of which the three state-run firms — Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp — account for more than 90% of the market share. In 2002, India’s domestic private players Reliance and Nayara Energy, which was then called Essar Oil, ventured into the retail oil space, but were forced to close their fuel stations after the government decided to control prices post 2005.
But after the diesel price deregulation in October 2014, Nayara re-opened outlets. Its CEO B. Anand recently told S&P Global Platts that the company had plans to open about 7,500 retail oil outlets in the next 2-3 years. Reliance, on the other hand, operates more than 1,300 retail fuel outlets. “With more transparency brought in the system through daily revision of retail oil prices, Reliance sees some avenues to recuperate its domestic retail business,” said Senthil Kumaran, consultant, oil markets, at Facts Global Energy. “BP has announced interest in partnering with Reliance. It may target small towns, growing rural markets and new highways to put up their new stations.”
No U-Turn On Reforms
The twin blows from higher crude prices and a weakening domestic currency prompted India earlier this month to cut retail fuel prices for the first time since aligning them with the global market a year earlier. Although the decision to reduce prices might have raised questions on whether New Delhi would resort to similar cuts often as general elections draw near, analysts and industry officials are of the view that this does not dilute the direction of the country’s energy policy reforms.
“I think price controls will not be good for the sector in the longer term. And I have not heard any, even suggestions, that India will go back to price controls,” Dudley said. “There have been some reductions, on taxes. I understand that prices of fuel now are very painful in the country. So, finding a way through that, to make sure that the retail sector stays vibrant and the Indian oil companies stay vibrant, is very important,” he added.
On October 4, the Indian government reduced the excise tax on gasoline and diesel by Rupee 1.50/liter ($0.02/liter). New Delhi has also asked state-run oil retailers such as Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp to reduce gasoline and diesel prices by Rupee 1/liter across the country. But Dudley added that India needs to speed up its decision making. “We plan for the long term and we’re here in India for the long term,” he added.