New Delhi: India will surpass China to become the second-largest oil demand growth centre globally in 2019 on the back of buoyant auto fuel and LPG consumption, research and consultancy group Wood Mackenzie said on Tuesday.
In a report, Wood Mackenzie said India's oil demand growth recovered strongly in 2018, overcoming the aftermath of the implementation of the Goods and Services Tax (GST) and demonetisation, and contributed 14% of the global demand growth, or 2,45,000 barrels per day.
"We forecast oil demand to grow at the same level in 2019. This will result in India becoming the second largest demand growth centre globally in 2019, behind the US, but ahead of China. Transport fuels — gasoline and diesel — and residential LPG will continue to be the two main drivers of oil demand growth," the report said.
According to the US Energy Information Administration (EIA), India is currently ranked behind the US and China as the world's third-largest oil consumer. It consumed 206.2 million tonnes (over 4 million bpd) in 2017-18.
During April-December, consumption of petroleum products stood at 157.4 million tonnes, up 2.5% over the year-ago period.
Last August, the Organisation of Petroleum Exporting Countries (OPEC) projected India's oil demand to rise by 5.8 million barrels per day (bpd) by 2040, accounting for about 40% of the overall increase in global demand during the period.
Mackenzie said diesel, the most consumed fuel in the country, is projected to grow by 6.4%, or 1,12,000 bpd year-on-year in 2019, compared with 93,000 bpd in 2018.
This was because of "buoyant commercial vehicle sales facilitated by sustained infrastructure growth, and increasing demand from the construction, logistics, e-commerce and consumer goods sectors," it said.
Also, the push will come from a demand-based approach instead of a tax-based approach in the logistics sector, following the implementation of the GST, which led to the removal of inter-state taxes. "This is a structural shift, resulting in increased demand for heavy and medium-duty trucks to achieve economies of scale and operational efficiency."
More importantly, general elections in May will lead to increased travel activity for campaigning and implementation of infrastructure projects, which will bolster demand in the first half of 2019, Mackenzie said.
"Key risks ensue as crude price volatility is expected to persist. Historically, short-term gasoline demand has been relatively inelastic to retail prices in developing economies such as India. Even though higher retail prices affect consumer sentiment for new vehicle purchases, we believe this trend will continue with income effects driving the demand, subduing the price effects."
LPG demand growth will remain robust in 2019 at 5% (40,000 bpd), lower than the 56,000 bpd growth achieved in 2018. "The number of new household LPG customers continued to surge, driven by the Ujjwala scheme to promote clean cooking fuel in rural areas. That said, there is a largely untapped market, as around 50 million households remain deprived of LPG."
On the use of electric vehicles, it said only 2,60,000 EVs had hit Indian roads, the majority being two-wheelers.
"Electric car sales, for instance, declined by 40% to a mere 1,200 units in 2017-18 over 2016-17, while electric two-wheeler sales rose 138% to 54,800 units during the same period. In contrast, China had a stock of 1.8 million EVs and 258 million e-bikes at the end of 2018," it said.
This year, Mackenzie said, will be an important year since the final version of the National Auto Policy and the second phase of the FAME scheme will be released.
"The question is the timing — will it be before or after the elections? Will the Modi government change tack if it is not re-elected? Will this ambiguity continue to deter wider adoption? Automakers seem to have realised that EV adoption is not a question of 'if'. Maruti Suzuki, for instance, will launch an electric version of one of its best-selling entry-segment cars — the Wagon R — in Q1 2019."
Another key challenge will be stakeholder management and coordination across different ministries, government bodies and industry participants, while the policy is formalised.
Stating that two-wheelers will dominate the electric mobility landscape in the personal transport sector, it said India offered huge potential for automakers since car ownership levels were very low (23 per 1,000 capita).
Rising income levels will increase car ownership and most global automakers are closely eyeing the Indian market. At the same time, two-wheelers should not be ignored — with current ownership six times larger than four-wheelers.
"We believe that two-wheelers are the more effective option, given their utility in intra-city travel, less need for public charging infrastructure and availability of battery technology. Two-wheelers will eventually leapfrog four-wheelers towards the goal of a greener and sustainable mobility future."
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