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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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India Will Lead Global Oil Demand By 2035

Offshore rig

Oil market participants and analysts have been closely watching the record level of supply coming out of the United States that is threatening to undo OPEC’s production cuts. But in the latter part of 2017 and early in 2018, robust oil demand growth — both in emerging markets and OECD economies — has supported oil prices as much as the cartel’s production restraint and the weakening U.S. dollar.

Traditionally, all eyes have been fixated on China and the pace of its oil demand and imports growth, but lately India has grabbed global attention after its oil imports rose to record highs amid strong economic growth and fuel demand. Projections of India’s long-term energy and oil consumption are also optimistic, and India is already a major oil demand growth driver.

In China, January crude oil imports jumped to a new record of 9.57 million bpd, but forecasts of slower GDP growth are making analysts wary of overly optimistic projections. China’s crude oil demand growth could slow down this year to 4.2 percent from 5.5 percent last year, according to S&P Platts analysts.

In India, high refinery runs and expanding refining capacity amid a strong recovery in demand pushed crude oil imports to a record 4.93 million bpd in January 2018, up by double digits compared to both December 2017 and January 2017, according to data compiled by Thomson Reuters Oil Research & Forecasts. Related: Clean Energy Stocks Outperform Oil And Gas

Although the January imports figure may have a seasonal explanation, with spring refinery maintenance approaching, longer-term projections and Indian refinery expansion plans support the view that oil demand growth will be strong. India plans to boost its crude oil refining capacity by 77 percent by 2030 to meet its growing fuel demand.

India’s energy consumption is expected to grow the fastest among all major economies by 2035, according to the BP Energy Outlook from 2017. Energy consumption in transportation is seen rising by 5.8 percent per year and oil will still be the dominant fuel source with a 93-percent market share in 2035, BP said. By 2030, India will overtake China as the largest growth market for energy in volume terms, according to the UK oil supermajor.

Economic growth in India is also expected to be strong over the next few years, supporting fuel consumption as a growing number of the huge population enter a higher-income slot and buy their first cars.

According to Fitch Ratings, demographic factors and investment rates will place India’s GDP growth over the next five years at the top among the ten largest emerging markets covered in the rating agency’s forecasts. India’s projected potential economic growth is 6.7 percent annually, with China and Indonesia following with projected potential growth of 5.5 percent per year each. Related: Russia May Feel Pinch From Oil Cut Deal This Year

India is expected to post continued robust growth in the working-age population in the next five years, bolstering GDP growth potential, Fitch said.

The International Monetary Fund (IMF) expects India’s real GDP growth to reach 7.4 percent in 2018, 7.8 percent in 2019, 7.9 percent in 2020, 8.1 percent in 2021, and 8.2 percent in 2022.

Economic growth will further fuel oil consumption in India, which is expanding its refining capacity to meet the increasing demand. Oil imports are set to continue to grow at a strong pace and increasingly influence global oil flows and oil markets. India’s oil demand may not be the nearest-term oil market driver, but it will be the key growth factor in the coming years.

By Tsvetana Paraskova for Oilprice.com

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  • Gaurav Sharma on February 20 2018 said:
    Well, a thoughtful analysis. Considering the current pace of dependence upon the petro product, India may well play as per the BP Energy Outlook, but one should not forget the disruption, which might come through extensive uses of solar, wind as well as hydro powers in the energy mix. India still doesn't work through an exclusive EV policy but the government's focus on EV as well as on Solar is commendable. This might lead to reduction in the uses of traditional oil as THE energy source.
  • Jhm on February 20 2018 said:
    Hmm, transport fuels as a 93% share of oil consumption in India by 2035, what could go wrong with that? Sounds precarious to me. The argument here is based on GDP growth being supportive of growth in private passenger vehicles. OK, but there is no certainty that all these cars will powered by gasoline and diesel.

    By 2025 EVs may well be cheaper to produce than comparably powered gasoline vehicles.

    India is cintemplating banning new gas- and diesel-powered vehicles by 2030.

    And India has huge potential to avoid massive infrastructure spending to support gasoline vehicles and may well focus those infrastructure funds on the electric grid and charging.

    In short, India would have pay a massive premium to push transport fuels to 93% market share of oil as late as 2035. This is simply a fantasy scenario for BP. Enjoy the fantasy while you can, because year after year, they will have to scale this back as EV realism creeps in.

    Whatever happened to that fantasy that China would be the pearl of long-term demand growth? EVs, especially commercial EVs, already account for about an 80 kb/d decline in oil demand growth. And EVs are growing around 60%/year. So in about 4 or 5 years, there is no more oil demand growth in China. So what was a fantasy of long-term demand growth could turn into the biggest nightmare the oil industry has ever faced, and it's coming fast. By all means BP economists what to avert our eyes from China. Oh look, India!

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