Rising income levels will help India overtake China to become the world’s largest oil demand growth centre by 2024, global energy consultancy Wood Mackenzie said in a report.
“Amidst global attention on peak oil demand, India appears to be bucking the trend. The country's oil demand is expected to grow by 3.5 million barrels per day (b/d) from 2017 to 2035, accounting for one-third of global oil demand growth. India's demand is driven by rising income levels, an expanding middle class and a growing need for mobility,” the report said. The report adds that India’s refinery capacity will fail to keep up with the demand growth.
"From a balanced position today, Indian public sector undertakings (PSUs) or refineries owned by national oil companies will become short on transport fuels at least until the 1.2 million b/d mega refinery, a proposed joint venture among Indian PSUs, Saudi Aramco and ADNOC, comes online. So how much and how soon is the new refinery capacity needed in India? This depends on two main factors. First, the pace of oil demand growth and second whether private refiners would divert their large export volumes to the domestic market,” Sushant Gupta, research director, at Wood Mackenzie noted.
Gupta added that the country will need between 3.2 mbpd and 4.7 mbpd of new capacity through 2035 to remain self-sufficient in transportation fuel. The report notes that uncertainties around oil demand will be the biggest risk to new refinery projects in India and factors such as GDP growth, road infrastructure developments, electrification of the transport sector and fuel efficiency improvements, could have very different implications for oil demand.
“For instance, a high demand scenario paired with no increase in private refiners supply to India could lead to substantial under-capacity, whereas a low demand scenario coupled with high diversion of private refiners' exports to India would lead to over-capacity. The other challenge is around choosing the right refinery configuration. New capacity in India needs to focus on increasing gasoline yields as gasoline to diesel demand ratio is expected to rise. Current refinery yields are highly weighted towards diesel,” the report said.
The agency also said the world faces global surplus of gasoline in the longer term and Indian refiners will have to seriously consider their new capacity project strategies, as a high gasoline yield configuration may result in sub-standard returns for investors and could impact the pace of future refinery capacity additions. Source: Economic Times PWKD29082018
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