India is poised to double its oil product demand growth to 190 000 bpd in 2018 after a sluggish 2017 – when demand grew by only 93 000 bpd – according to research by Wood Mackenzie.
Last year, demand growth was at its slowest in the past three years. This was mainly due to lower economic activity following the enactment of demonetisation and delayed purchases due to the implementation of the Goods and Services Tax (GST). With these economic hurdles cleared, Wood Mackenzie has forecast that India is set to contribute 14% of the global demand growth in 2018; diesel and LPG will be the two main drivers of demand growth in 2018.
Diesel/gasoil demand is projected to grow by 3.5% (60 000 bpd) y/y in 2018 compared with 50 000 bpd in 2017, aided by the following factors:
- Higher commercial vehicle sales for the next six months as evidenced by 50% y/y growth in November 2017. Pent-up demand will emerge once GST rates for new purchases are clearer.
- A normal monsoon in 2017 is set to boost agricultural output leading to higher diesel demand and rural spending.
- Implementation of infrastructure projects ahead of the 2019 general election and the start of election campaigning at the end of 2018.
- GST implementation. With no interstate taxes, the logistics sector will be more inclined towards a demand-based approach than a tax-based approach. As a result, freight tonnage demand will stimulate long-haul truck movements.
LPG demand growth will remain robust in 2018 at 5.4% (40 000 bpd), although this will be lower than the 60 000 bpd growth achieved in 2017. The number of new household LPG customers continued to surge in 2017, driven by the Ujjwala scheme that promotes clean cooking fuel in rural areas. The government is on track to expand the network by 50 million users by 2019, after adding 32 million users since May 2016. Consequently, kerosene demand for cooking declined in 2017 as the government gradually started removing subsidies.
The phenomenal growth in LPG usage has reduced India's self-sufficiency of LPG to 50% from about 70% in 2013. Higher imports could also mean an opportunity for US LPG to gain market share in India, traditionally dominated by Middle Eastern suppliers.
Author: Aman Verma, Asia-Pacific research analyst, Wood Mackenzie
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