India is expected to rely more on oil and gas imports from the UAE and other Gulf hydrocarbon producers to meet its fast growing demand given the strong relations between the two sides, economists say.
India already gets more than half of its oil imports from the UAE and the other Gulf Cooperation Council (GCC) members and the level is set to rise in the long term because of India’s proximity to the region and the high trade exchange with the Gulf.
“India has become of the world’s largest oil and gas consumers…most of its oil needs are imported given its small domestic production and more than half of those imports come from the GCC,” an Abu Dhabi-based economist said.
“As demand is projected to growth by at least three per cent in India over the next 15 years, its oil imports from the GCC are expected to surge…this is because India and the GCC countries enjoy strong political links and the these countries have proven to be a reliable oil supplier to the subcontinent…India also takes its proximity to the Gulf into consideration… another factor that will contribute to boost oil supplies is the planned free trade agreement between the two sides.”
During a visit to the UAE in August 2015, Indian Prime Minister Narendra Modi was assured of continued oil supplies to his country.
"India is importing oil and the UAE is open to meet demand for any oil from India," UAE Minister of Economy Sultan bin Saeed Al Mansouri said in August, adding that the issue would be discussed further by representatives of the two sides.
Industry sources said the UAE currently provides about percent of the energy needs of India, now the world’s fourth largest oil consumer.
Mansouri said Modi presented proposals for investments in India worth $one trillion, adding that the UAE can focus on certain areas such as infrastructure, railways, medical, tourism, real estate.
The Abu Dhabi Investment Authority, one of the world's largest sovereign wealth funds, is already an investor in India and further investment will depend on what India provides, Mansouri added.
"There's a new momentum in the relationship between the two countries in different areas, mainly economic and investments," Mansouri said. "We are addressing some challenges of the past and creating a new vision for India-UAE in the future."
In a recent study published by the Emirates Centre for Strategic Studies and Research, former Indian ambassador to the UAE Talmiz Ahmed said oil is the second largest source of energy after coal in India, constituting about 36 percent of its national energy basket. However, he said, India is very import-dependent as it produces only 100,000 barrels per day compared with its oil requirements of more than 3.5 million bpd.
He said India imports more than 70 percent of its demand and that its oil demand is expected to steadily increase at about 3 percent per year up to 2030, when it will import about 90 percent of its requirements.
“India has been traditionally dependent on the Gulf for its energy resources. Over 50 percent of India’s oil imports come from the GCC countries,” he said.
He said the share of natural gas in India’s energy mix is 7 percent and that it is among the world’s 25 largest gas producers, though its reserves could increase with new discoveries off its eastern coast.
But he added that India is a major gas importer and will remain dependent on imported resources. He said Qatar is already a major supplier of gas as LNG, meeting 65 percent of India’s imports while India is also pursuing pipeline projects to import gas from its neighbors, though the process has been tardy and no transnational pipeline project involving India is being executed at present.
“Taking many factors into account, the present-day simple buyer-seller arrangement between India and the GCC – in terms of which India purchases oil and gas from GCC producers, usually on the basis of term contracts – would increasingly have to give way to more substantial relationships based on investments and joint ventures in each other’s energy, industry, infrastructure and services sectors,” he said.
“This would bind the two sides economically for mutual benefit and give them a direct vested interest in each other’s long-term wellbeing and prosperity.
Ahmed said India needs substantial investments in its energy and infrastructure sectors in order to modernize them so that they can facilitate economic activity at the desired level of efficiency. He added that investments on this scale can only come from the GCC countries which have the resources and are looking to diversify their economic partnerships eastwards.
“At the same time, India too should pursue opportunities to execute the various high-value projects that are being floated by GCC countries. So far, India has primarily depended on its migrant community for remittances, while the participation of Indian companies in GCC projects has been quite modest.”