(EnergyAsia, August 17 2016, Wednesday) — India has completely opened up its long-protected oil and gas sector to foreign investment, marking a major breakthrough in Prime Minister Narendra Modi’s campaign to reform the country’s under-performing economy.

Announcing the policy shift in Parliament last week, Minister of State for Petroleum and Natural Gas Dharmendra Pradhan removed remaining ownership restrictions to allow full foreign investment “across the hydrocarbon value chain covering the upstream, downstream and midstream sectors.”

Previously, foreign investors could only hold a 49% stake in the country’s oil refineries with Indian state firms as majority partners. Progressively over the past decade, they were allowed to have 100% stakes in the country’s risky exploration and production activities and products marketing as well as own oil and gas storage, pipeline and regasification infrastructure.

In March, Mr Pradhan announced the launch of a new system to standaridise the country’s chaotic licensing system for new exploration and production activities, as well as allow investors to have greater freedom to market and price their crude and gas production.

He said the changes were made following consultations with the industry to attract foreign and private investments to boost domestic exploration and production.

In his statement to Parliament, the minister said the government acknowledged that hydrocarbon exploration and production activities “are capital intensive and high risk activities requiring use of expensive state-of-the-art technologies and best management practices.”

According to the International Energy Agency (IEA), India has the potential to produce as much as 700,000 b/d of oil and 90 billion cubic metres (bcm) of gas in 2040 if the government implements a licensing and pricing system that encourages private and foreign investments.

India’s small and under-developed oil reserves estimated at around 5.7 billion barrels are located mostly in the western part of the country in Rajasthan state and in offshore areas near Gujarat and Maharashtra. The oil-producing Assam-Arakan basin in the northeast holds nearly a quarter of the country’s total oil reserves.

In contrast, India has “much healthier” natural gas reserves estimated at 7.9 trillion cubic metres (tcm), said the IEA. Half of this is conventional, mostly offshore, gas while the other half is unconventional, in the form of shale and coalbed methane.

India is barely replenishing its natural gas reserves, having produced a total of 280 billion cubic metres (bcm) and adding more than 330 bcm to proven reserves between 2008 and 2014.

The IEA said India has largely failed to attract investor interest despite efforts to open up the sector to international oil companies with the launch of the New Exploration Licensing Policy in 1999.

Reforms only began to pick up speed after the May 2014 election to power of the Modi government.

India’s oil resources by category, end-2014, billion barrels. Source: IEA

Ultimately recoverable resources Cumulative production Remaining recoverable resources Remaining % of URR Proven reserves
Conventional onshore 15.3 4.4 10.9 71% 3.6
Tight oil 3.8 0.0 3.8 100% 0.0
Shallow offshore 12.5 5.7 6.8 54% 1.2
Deep offshore 2.8 0.0 2.8 99% 1.0
Total India 34.4 10.2 24.3 71% 5.7