BP, Reliance to invest in Indian gas block, cooperate downstream

* BP, Reliance to invest $6 bln to raise gas output from D6

* BP wants to "reinvigorate" gas sales JV with Reliance

* Tie-up to evaluate fuels, carbon emissions trade (Recasts, adds quotes)

By Neha Dasgupta and Nidhi Verma

NEW DELHI, June 15 (Reuters) - BP and Reliance Industries said on Thursday they would invest $6 billion to boost India's gas output from an east coast block and expanded their tie-up to feed the South Asian nation's rising fuel and renewable energy demand.

India is replacing China as the driver of fuel demand growth globally. The International Energy Agency expects India to account for a quarter of global energy use by 2040.

BP wants to sell fuels in India in a tie up with Reliance, which operates the world's biggest refining complex and is chaired by billionaire Mukesh Ambani.

"We will not do it (setting up fuel stations) alone. It will be in tie-up with Reliance. Maybe we will expand this to jet fuel also," BP's Chairman Bob Dudley told Reuters on the sidelines of an event to announce the investment plan and partnership.

BP has a licence to sell jet fuel and build 3,500 fuel stations in India. India's pricing formula gives higher profits to retailers with refining plants or domestic supply sources.

Ambani said the partnership would also look at opportunities in trading that could include products such as oil, gas, fuels, liquefied natural gas (LNG), power, and carbon.

Dudley, who wants BP to catch up with production volumes of its biggest rivals Exxon Mobil (Swiss: XOM-USD.SW - news) and Royal Dutch Shell (LSE: 0LN9.L - news) , is banking on Indian policy moves and a favourable investment climate to unlock the resources.

After eight years, Reliance and BP have decided to invest in the D6 block on the east coast to raise gas output by 30-35 million cubic metres a day between 2020 and 2022. This will help in India's gradual migration to a gas-based economy.

"This is an important step forward for BP in India. Working closely together, Reliance and BP are now able to develop these major deep-water gas resources offshore India efficiently and economically," Dudley said.

BP in 2011 made a foray into India's exploration sector when it signed a $7.2 billion deal to buy a 30 percent stake in some oil and gas blocks operated by Reliance. It also formed gas sourcing and marketing tie-ups with the Indian conglomerate.

The gas joint venture is marketing some of the LNG sourced from BP's portfolio.

"I think that's what we are going to revive and reinvigorate," Dudley said, when asked if BP planned a long-term LNG supply deal with the Indian joint venture.

Dudley said the two companies were "not putting boundaries" on the expansion of the partnership, which will cover all forms of fuel marketing, retail distribution, and a combination of gas and renewables.

($1 = 64.5950 Indian rupees) (Editing by Mark Potter)