Demand Surge

Import dependence continues

India, one of the highest energy consuming countries in the world, is expected to grapple with even higher demand levels going forward. Currently ranked fourth in terms of oil consumption, the country is expected to surpass Japan by 2017, to be ranked third after the US and China. According to estimates by Paris-based International Energy Agency, India will be the fastest growing crude consumer in the world by 2040, adding 6 million barrels per day (bpd) in demand, compared to 4.8 million bpd for China. Current trends already demonstrate this – the first quarter of 2016-17 showcased the highest growth in consumption of petroleum and natural gas in a decade.

Indian Infrastructure takes a look at demand trends for petroleum and natural gas from 2011-12 onwards as well as the performance of various segments…

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Petroleum products

The demand for petroleum products has been increasing over the years. In 2015-16, India registered the highest demand growth of 11 per cent for petroleum products over the five-year period 2011-12 to 2015-16. As of 2015-16, demand for petroleum products stood at 183.5 million tonnes (mt), as against 165.52 mt in 2014-15. In the first quarter of 2016-17, the consumption of oil products stood at 48.5 mt, an increase of 7.7 per cent over the corresponding period of the previous year. Diesel consumption expanded 4.7 per cent to 20.1 mt during the same quarter of 2016-17. The country’s dependence on crude oil imports has also jumped to over 80 per cent to meet the growing demand.

Among petroleum products, high speed diesel (HSD) has traditionally constituted the highest share, followed by motor spirit (MS) and liquefied petroleum gas (LPG). However, the share of HSD decreased from 44 per cent in June 2011 to 41 per cent in June 2016 while the share of MS increased, and that of LPG remained the same. Overall, there has been little change in the relative share of product categories over the years, though a declining trend in consumption share may be observed in select categories. For instance, public distribution system kerosene has exhibited a fall in consumption, both in absolute and relative terms. A similar trend has been observed in aviation turbine fuel, furnace oil and low sulphur heavy stock.

Regional analysis shows that the consumption of petroleum products is the maximum in the north, followed by the west. All the regions have registered an increase in absolute terms since 2011-12. The northern region has outstripped the rest by exhibiting an increase of 9.21 percentage points over the five-year period under consideration.

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Natural gas

Natural gas continues to be a small part of India’s energy mix, accounting for around 5 per cent. The consumption of natural gas showed a declining trend from 2011-12 till 2014-15, after which demand increased slightly by 3 per cent to 46.62 billion cubic metres (bcm) in 2015-16. Total natural gas consumption was higher by 13.08 per cent at 8,222 million metric standard cubic metres per day (mmscmd) for April-May 2016, in comparison to the corresponding period of 2015-16. According to the 2015-16 annual report of the Ministry of Petroleum and Natural Gas (MoPNG), demand for natural gas for various sectors is about 446 mmscmd. The demand is estimated to in-

crease to 473 mmscmd in 2016-17, and further to 523 mmscmd by 2018-19. The gross domestic production of natural gas in 2015-16 was 32.25 bcm, resulting in a demand-supply gap of 14.37 bcm. Further, domestic gas production has been falling since 2010-11, leading to an increasing demand-supply gap.

This demand-supply gap is being bridged by liquefied natural gas (LNG) supplies, which are increasingly gaining share in the gas consumption basket. The resource has also gained offtake owing to its lower prices, following renegotiation between India’s Petronet LNG Limited and Qatar’s RasGas (which halved the price of the resource).

The power and fertiliser sectors are the greatest consumers of gas. According to MoPNG estimates, the demand for gas from the power sector is forecasted to increase from the current 189 mmscmd to 243 mmscmd by 2018-19, while that from fertilisers is expected to remain the same at 113 mmscmd. Apart from power and fertilisers, other gas consuming sectors are automotives (which consume compressed natural gas), households (which consume piped natural gas), steel and cement industries, as well as petroleum refineries. The city gas distribution (CGD) segment is one of the fastest growing end-user segments of natural gas and is becoming integral to the country’s economic development. The CGD segment’s demand for natural gas has been estimated to increase from the current 39 mmscmd to 50 mmscmd by 2018-19.

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Outlook

In terms of the energy mix, India remains a coal-dominated country. In a bid to achieve sustainable growth, taking into account environmental considerations, cleaner fuels such as gas can prove to be promising. As per the report of the Working Group on the Petroleum and Natural Gas Sector, the demand for natural gas during 2021-22 will be 606 mmscmd.

The prospects for LNG demand in India remain good over the medium to long term, despite the limited domestic supply of natural gas. Although domestic production could increase over the next 5-10 years, it is expected to remain significantly lower than the demand potential, which in turn would prompt consumers to increase consumption of regasified LNG although it is costlier than domestic gas.

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Meanwhile, the oil market is witnessing a recovery in prices and India is a net importer of crude oil. Taking cognisance of this fact, the country needs to focus on building strategic oil reserves and investing in equity crude oil to tide over times when oil prices bounce back to levels that had prevailed earlier. Moreover, China has consciously moved away from energy-intensive economic growth to being a service-dominated economy in the past year. Due to this fundamental shift, the country’s energy consumption has come down significantly, and this has been further fuelled by the economy’s slowdown. This has placed India in a competitive position, and the country has emerged as a strong contender to bridge the gap created by China’s slowing demand for oil, a mantle that it will likely hold on to for years, or even decades.

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