India, the third largest energy consumer in the world, is expected to grapple with even higher demand levels going forward. 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. Focus on ramping up domestic production, for both oil and gas, as well as forging strategic long-term ties with key petroleum exporting nations seems to be the most plausible way for India to enhance energy security.
Indian Infrastructure takes a look at the demand trends for petroleum and natural gas since 2011-12 as well as the performance of various segments…
Petroleum products
The demand for petroleum products has been increasing over the years. In 2016-17, India registered a 5 per cent growth in demand for petroleum products. The growth rate, however, was less than the 11 per cent recorded in the preceding fiscal year (2015-16), which was the highest during the period 2012-13 to 2016-17. As of 2016-17, demand for petroleum products stood at 194.2 million tonnes (mt), as against 184.7 mt in 2015-16. In the first two months of 2017-18, the consumption of oil products stood at 34.54 mt, an increase of 4.25 per cent over the corresponding period of the previous year. Diesel consumption expanded by 5 per cent during the period April-May 2017 (over the corresponding period of the previous year) and was recorded at 14.47 mt. The country’s dependence on crude oil imports has also jumped to over 80 per cent to meet the growing demand.
Traditionally, high speed diesel (HSD) has constituted the highest share among petroleum products, followed by motor spirit (MS) and liquefied petroleum gas (LPG). However, the share of HSD decreased from 44 per cent in June 2011 to 42 per cent in May 2017 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 shares 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. A regional analysis shows that while 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 March 2012.
Natural gas
Natural gas continues to be a small part of India’s energy mix, accounting for only 5-6 per cent. The consumption of natural gas, however, has been rising consistently since 2014-15. In 2016-17, India’s natural gas consumption was 55,534 million metric standard cubic metres (mmscm), in comparison to 52,448 mmscm in the corresponding period of 2015-16. This is primarily due to the higher consumption of liquefied natural gas (LNG) that is available at prices less than those of domestically produced gas. According to the Ministry of Petroleum and Natural Gas (MoPNG), the demand for natural gas is expected to increase from 494 mmscm per day (mmscmd) in 2017-18 to 552 mmscmd by 2019-20.
In terms of sectors, power and fertiliser are expected to remain the largest consumers of the fuel. According to MoPNG estimates, the demand for gas from the power sector is forecasted to increase from the current 207 mmscmd to 261 mmscmd by 2019-20, while that from the fertiliser sector is expected to remain the same at 113 mmscmd. Apart from power and fertiliser, the other gas consuming sectors are automotives (which consume compressed natural gas), households (which consume piped natural gas), steel and cement, 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 is estimated to increase from the current 46 mmscmd to 53 mmscmd by 2019-20.
Meanwhile, the share of regasified-LNG (R-LNG) in total natural gas consumption, despite it being costlier than domestic supplies, has been rising steadily since 2011. The proportion of LNG in total gas consumption increased from 22 per cent in 2011 to about 50 per cent in 2016-17. Factors such as lower spot LNG prices (over the past two years) and renegotiated long-term prices (through the RasGas contract) continue to boost the prospects of R-LNG consumption in the times ahead.
Outlook
In terms of the energy mix, India, like many other countries, 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 is expected to be 606 mmscmd.
For gas, the prospects for LNG demand in India remain good over the medium to long term, despite the limited domestic supply. Although domestic production could increase over the next five to ten years, it is expected to remain significantly lower than the demand potential, which in turn would prompt consumers to increase the consumption of R-LNG although it is costlier than domestic gas.
On the domestic front, incremental supplies are in the offing from Oil and Natural Gas Corporation blocks in the Krishna-Godavari basin (KG-DWN-98/2), B and C clusters, Daman offshore blocks, North and South Redevelopment Phase 3 of Bombay High; Cairn’s blocks in Rajasthan; Oil India Limited’s blocks in the Northeast; and Gujarat State Petroleum Corporation’s Deen Dayal block, among others. Besides, policy changes ensuring higher prices for gas output from challenging fields and reforms in the exploration and production segment are likely to ramp up the domestic output.
For oil, the growing focus on exploration bodes well. Supply-side issues need to be addressed, as demand is only going to increase in the coming years, and that too, at an increasing rate. 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.
