The old adverts for Exxon fuel used to say, “Put a tiger in your tank”. Indian motorists are doing just that. And soaring energy needs make this nation of almost 1.3 billion people the bright spot for global demand. Growth in global oil consumption is set to slow down this year: from a gain of 1.8 million barrels per day last year, to 1.2 million bpd this year, according to the International Energy Agency. This is driven by lower industrial use and mild winters in China, the US and Europe.
Over the past decade, Indian oil demand growth, though significant, was far behind China’s. Slower expansion of manufacturing and creaking infrastructure, as well as lower income per person, held it back. But now a number of factors are driving a surge in Indian oil use. Its economy and population are growing faster than China’s, and it is pushing for more manufacturing under the “Make in India” initiative, and greater coal production (requiring diesel for haulage).
In welcome news to those who have bumped along stretches of gravel masquerading as highways in Rajasthan or Uttar Pradesh, Narendra Modi’s government is building 30 kilometres of road per day. Only 20 Indians in a thousand have a four-wheeled vehicle, compared to 90 Chinese and 800 Americans. But now lower oil prices and rising incomes are making motoring more affordable: Maruti Suzuki and Hyundai had their best ever sales in India in the fiscal year to March. Air travel is booming, with passengers up 23 per cent on this time last year.
Special factors include low rainfall, requiring more diesel to drive pumps for groundwater, although a strong monsoon is forecast for this year. Liquefied petroleum gas (LPG) demand is rising as the government encourages its use in rural households for cooking and lighting. Naphtha, a light oil, is going into new petrochemical plants. India is likely soon to overtake Japan as Asia’s second-largest oil consumer, and the world’s third largest (after the US and China). Demand growth of 0.3 million barrels per day this year would be a quarter of the global total, and about the same as the gain in China.
Not surprisingly, at a time of low oil prices, the Indian market looks increasingly important to exporters. Given its geographic proximity, more than half of India’s 4 million barrels per day of oil imports come from the big Middle Eastern producers: Saudi Arabia, Iraq, the UAE, Kuwait and Iran. Saudi Aramco is opening an office in New Delhi to help with crude sales, and Adnoc has agreed to keep oil in the strategic storage facility at Mangalore. After talks with Saudi Aramco, Mumbai-based Essar Group now seems set to sell a $5.5 billion stake in its refining business to Russia’s Rosneft. Indian oil imports from Iran have tripled since January.
Meanwhile, after a long period of stasis, Indian oil companies appear to be looking abroad again, with ONGC, Indian Oil, Oil India and Bharat Petroleum paying some $4.2 billion in total for stakes in Rosneft’s East Siberian fields. An Indian consortium is now bidding for some of the remaining 22 per cent available in the Adco onshore concession in Abu Dhabi, potentially joining Total, Japanese and South Korean partners in a major realignment of the emirate’s energy relations.
As anyone driving through Delhi or Bangalore at rush hour, or braving the capital’s murky skies, can attest, to continue its rapid growth, India will have to continue the current breakneck pace of road-building and introduce cleaner fuels. And India has been through several phases of reform and hiatus since 1990. Another slowdown may yet reduce demand growth, unlike China’s remorseless rise from the early 1990s. But the Mumbai motorist is emerging as one of the key factors of the global oil market, and a rare source of optimism for producers. William Carrier JerseyShare This