An employee turns a control valve on pipework beside a storage tank at an oil delivery point. (Photographer: Andrey Rudakov/Bloomberg)

India To Surpass China To Become Second-Largest Oil Consumer This Year

India will surpass China to become the second-largest oil demand growth centre globally in 2019 on back of buoyant auto fuel and LPG consumption, Wood Mackenzie said on Tuesday.

The research and consultancy group, in a report, said India’s oil demand growth recovered strongly in 2018, overcoming the aftermath of the implementation of the goods and services tax and demonetisation, and contributed 14 percent of the global demand growth or 2.45 lakh barrels a day.

“We forecast oil demand to grow at the same level in 2019. This will result in India becoming the second-largest demand growth centre globally in 2019, behind the U.S. but ahead of China. Transport fuels gasoline and diesel and residential LPG will continue to be the two main drivers of oil demand growth,” it said.

According to the U.S. Energy Information Administration, India is currently ranked behind the U.S. and China as the world’s third-largest oil consumer. It consumed 206.2 million tonnes (over 4 million barrels per day) in the 2017-18 financial year.

During April-December, consumption of petroleum products has been 157.4 million tonnes, up 2.5 percent over year-ago period.

Last August, oil cartel OPEC projected India’s oil demand to rise by 5.8 million barrels a day by 2040, accounting for about 40 percent of the overall increase in global demand during the period.

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Mackenzie said diesel, the most consumed fuel in the country, is projected to grow 6.4 percent or 1.12 lakh barrels per day year-on-year in 2019 compared with 93,000 barrels per day in 2018.

This was because of “buoyant commercial vehicle sales facilitated by sustained infrastructure growth, and increasing demand from the construction, logistics, e-commerce and consumer goods sectors”, it said.

Also, the push will come from a demand-based approach instead of a tax-based approach in the logistics sector, following the implementation of the GST, which has led to the removal of inter-state taxes. “This is a structural shift, resulting in increased demand for heavy and medium-duty trucks to achieve economies of scale and operational efficiency”.

More importantly, general elections in May will lead to increased travel activity for campaigning and implementation of infrastructure projects, which will bolster demand in the first half of 2019, Mackenzie said.

“Key risks ensue as crude price volatility is expected to persist. Historically, short-term gasoline demand has been relatively inelastic to retail prices in developing economies such as India. Even though higher retail prices affect consumer sentiment for new vehicle purchases, we believe this trend will continue with income effects driving the demand, subduing the price effects,” it said.

LPG demand growth will remain robust in 2019 at 5 percent although it is lower than the 56,000 barrels per day growth achieved in 2018. “The number of new household LPG customers continued to surge, driven by the Ujjwala scheme to promote clean cooking fuel in rural areas. That said, there is a largely untapped market, as around 50 million households remain deprived of LPG,” it said.

On the use of electric vehicles, it said only 2.6 lakh electric vehicles have hit Indian roads, majority being two-wheelers.

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“Electric car sales, for instance, declined by 40 percent to a mere 1,200 units in the financial year 2018 over the financial year 2017, while electric two-wheeler sales rose 138 percent to 54,800 units during the same period. In contrast, China had a stock of 1.8 million electric vehicles and 258 million e-bikes at the end of 2018,” it said.

This year, it said, will be an important year as the final version of the National Auto Policy and the second phase of the FAME scheme will be released.

“The question is the timing will it be before or after the elections? Will the Modi government change track if it is not re-elected? Will this ambiguity continues to deter wider adoption? Auto makers seem to have realised that EV adoption is not a question of ‘if’. For instance, Maruti Suzuki, the largest auto maker in India, will launch an electric version of one of its best-selling entry-segment cars the Wagon R in the first quarter of 2019,” Mackenzie said.

Another key challenge will be stakeholder management and coordination across the different ministries, government bodies and industry participants while the policy is formalised.

Stating that two-wheelers will dominate the electric mobility landscape in the personal transport sector, it said India offers huge potential for auto makers as car ownership levels are very low (23 per 1,000 capita).

Rising income levels will increase car ownership and most global auto makers are closely watching this lucrative market. At the same time, two-wheelers should not be ignored with current ownership six times larger than four-wheelers.

“We believe that two-wheelers are the more effective option given their utility in intra-city travel, less need for public charging infrastructure and availability of battery technology. Two-wheelers will eventually leapfrog four-wheelers towards the goal of a greener and sustainable mobility future,” it said.

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