Demand growth in petrol and diesel combined will likely decline to 1.5% per annum this decade, compared with 4.9% in the last, because of increasing blending of ethanol with petrol, and rising use of vehicles powered by compressed natural gas (CNG) and electricity. The trend will also be persuaded by policy interventions as India targets net-zero emissions by 2070.
Taking a cue, oil refiners would be altering their production mix in favour of alternatives such as petrochemicals, which should also support their profitability.
Hetal Gandhi, director, Crisil Research said, “A more than three-fold increase in the number of CNG stations, advancing of the ethanol blending target, and a significant decline in EV battery prices are likely to slash demand growth in petrol to 1% this decade from 8.4% in the last. Demand for diesel will be relatively resilient (2% annual growth compared with 3.9% earlier) because of non-exposure to the two-wheeler segment, where the shift to EVs is sharper, and the presence of a significant proportion of freight vehicles where CNG and EV penetration would be limited. Consequently, the proportion of diesel and petrol in the consumption of petroleum products will reduce to 44% by 2030 from 50% now.”
Yet refiners are expected to add 37 million metric tonne per annum of capacity (15% over the existing base) by fiscal 2025, investing over ₹1500 billion. Almost all these facilities would be capable of producing both transportation fuel and petrochemicals.
Consumption of petrochemicals is expected to grow at a healthy 8-10% in India. Per-capita consumption of polymers is expected to double to 18-20 kg by fiscal 2030. That, and slowing demand for transportation fuel would result in the share of petrochemicals in petroleum products rising to 17% by fiscal 2030 from 7% in fiscal 2020. This healthy demand growth for petrochemicals will partly offset the decline in India’s crude oil demand growth to 3.5% this decade from 4.5% in the last.
This flexibility of diversification would lend stability to refiner margins. Their profitability, and those of oil marketing companies (OMCs) has been on the mend with margins gradually rebounding to pre-pandemic levels.
Despite the lower demand growth for petrol and diesel, the credit profiles of refiners and OMCs will remain stable over the near-to-medium term, indicates a CRISIL Ratings analysis of public sector refineries and OMCs, which have 65% share of refining capacity and 90% share of oil marketing in India.Share This