India to become one of top three global oil consumers

Jun 05, 2015 12:00 AM

India's growing middle class will soon make it the third-biggest oil consumer, reshaping the global energy map as China uses less and the US produces more.

India will overtake Japan this quarter, International Energy Agency (IEA) estimates show. The country's galloping demand growth may eventually surpass China's, a shift that was unforeseen just a few years ago.

As living standards improve, the number of Indians buying cars and trucks has risen, boosting gasoline use by 19 per cent in April alone from a year earlier. The International Monetary Fund (IMF) predicts the economy will swell by 7.5 per cent this year as Prime Minister Narendra Modi makes business reforms, beating Chinese growth for the first time in a quarter-century.

Growth is unbelievable
India "reminds me of China a decade ago," said Amrita Sen, chief oil analyst at London-based consultants Energy Aspects. "The demand growth is unbelievable."

The country's unbridled thirst for oil has helped bolster crude prices as they start to recover from a six-year low. It's a further jolt to the energy market after the US shale revolution pushed Russia out of the top spot for natural gas production and paved the way for the first American exports.

The IEA estimates India will consume about 4.1 million barrels of oil a day this quarter, compared with Japanese demand of 3.8 million barrels a day. The US and China are the world's top oil users.

"India will be a big centre of oil and gas demand growth in the next few years," IEA Executive Director Maria van der Hoeven said in Vienna, where she's attending an Organisation of Petroleum Exporting Countries (Opec) conference.

Price recovery
Oil has rebounded to about $60 a barrel from $45 a barrel in January. A price of $65 would be "equitable," Indian Oil Minister Dharmendra Pradhan said on Wednesday in Vienna, where the Opec is meeting to discuss production limits. India imports about 85 per cent of its oil, with the majority coming from Opec countries.

In April, the country's oil use rose by about 300,000 barrels a day, similar to the growth rate seen in January and February. If that pace is maintained for the rest of the year, India may overtake China, whose annual growth is estimated at 295,000 barrels a day by the IEA.

"India is growing: We have a new government, a new confidence in the economy, people are driving more," said Lalit Kumar Gupta, chief executive officer of Mumbai-based refiner Essar Oil Ltd. "Even with oil prices rising, demand is continuing to increase here and will keep growing."

Car sales
Passenger-vehicle sales rose about 16 per cent in April, according to the Society of Indian Automobile Manufacturers. It expects vehicle sales to grow as much as 8 percent this financial year.

"Cars are cheap and finance is available," said Anand Dorairajan, a 32-year-old human-resources executive at a shipping firm in Mumbai. He bought a Hyundai car eight months ago to add to the Suzuki his family already owned, paying about $11,300.

"When young people start working, they want to buy a vehicle with their first salaries. That's what I did." As part of his ambitions for economic growth, Prime Minister Modi has proposed an end to government controls on fuel pricing, putting more money in the hands of state-run refiners. He has called on them to expand to meet demand as he works to shift the economy more towards manufacturing.

New refinery
Indian Oil. started a 300,000-barrel-a-day refinery on India's east coast in April and plans to add capacity at a plant in Gujarat in western India. Bharat Petroleum Corp. intends to expand its refinery in central India and Chennai Petroleum Corp. will boost capacity in the south.

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