Indian oil demand expected to rise by 4%

Oct 09, 2004 02:00 AM

Indian demand for petroleum products -- partly blamed for soaring world oil prices -- is expected to grow beyond the government's official forecasts for the five years up to 2007, the country's top energy official said.
Indian demand for petroleum products will probably increase by an average of between 4 and 4.5 % per year over the five years between 2002 and 2007, even though official estimates have pegged it an average increase of 3.7 %, S.C. Tripathi, secretary of Ministry of Petroleum and Natural Gas, said on the sidelines of a conference in New York.

Demand has already shot up about 6 % so far this year, he said. Soaring demand for oil from developing nations like India and China coupled with fears of supply disruption in countries like Russia and Nigeria have propelled oil prices to historic highs this year.
India is the sixth largest consumer of oil in the world. The country produces only a third of the oil it needs, and relies heavily on imports from the Middle East.

Over thelong term, Tripathi said he expected the use of natural gas to grow as major industries like the fertilizer, power and steel industries look to replace coal and other energy sources with natural gas.
"The consumption of natural gas is going to grow exponentially," said Tripathi. "Gas is the name of the game in the 21st century." India, as a result, is moving ahead to spur foreign investment in its oil and gas infrastructure at home and continues to scout for future sources of supply abroad. A proposed petroleum and natural gas regulatory board that will handle the granting of rights to develop fields and permission for establishing LNG terminals, among other things, is also expected to be up and running by mid-2005 once it is approved by Parliament, Tripathi said.

Meanwhile, the Reserve Bank of India governor said that a surge in oil prices to record peaks was a matter of concern, but the country had sufficient foreign exchange reserves to handle the situation.
"It is a matter of global concern as much as that of India," Yaga Venugopal Reddy told reporters after a board meeting in the north-western Indian city of Jaipur. "We have to work out a macroeconomic policy package as we have already indicated. But we have sufficient reserves, therefore we are better equipped than on earlier occasions."

India's foreign exchange reserves are at nearly $ 119 bn, enough to cover about 17 months of imports. The surge in prices of oil, India's biggest import, helped expand the country's trade deficit to nearly $ 10 bn in the April-August period from $ 6.62 bn a year earlier, putting pressure on the rupee. India imports 70 % of its crude oil requirements and a rise in prices could hurt industrial output and dent revenues.
Spurred by higher oil prices, India's annual inflation rate has hovered above 7.5 % for nine straight weeks and hit a three-and-a-half year peak of 8.33 % in late August, up from 4.32 % in late April. With inflation above 7.5 %, there is a growing expectation that the Reserve Bank of India (RBI) may be forced to raise interest rates from their three-decade lows to maintain price stability.

India's key bank rate is 6 % and there is growing speculation the central bank may raise it when it reviews monetary policy on October 26.
"I think globally it (the oil price) will have some impact on output and prices. On India, specifically, we have to keep on analysing and you will hear about it in the policy review," Reddy said.
India grew 8.2 % in the year to March, helped by the best monsoon in a decade. Most economists have already lowered India's growth projection to 6 % from an earlier forecast of 7 %. According to the International Energy Agency, a $ 10 rise in per-barrel crude oil prices will shave off 1 percentage point from India's gross domestic product and raise inflation by 2.6 percentage points.

Reddy's comments come a day after Finance Minister Palaniappan Chidambaram told in New York that India will take measured fiscal and monetary steps to combat high inflation.
So far, the government has cut excise and customs duties while the Reserve Bank of India has raised banks' cash reserve ratio to suck in excess liquidity in the banking system. A senior finance ministry official said it would be difficult for the government to meet its excise duty collection targets because of tax cuts made.

Source: The Peninsula
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