Wood Mackenzie analyst, Aman Verma, provides a commentary on India's oil products outlook.
India's demand growth recovered strongly in 2018, overcoming the aftermath of the GST and demonetisation, and contributing to 14% of the global demand growth or 245 000 bpd.
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.
We project diesel/gasoil demand to grow by 6.4% (112 000 bpd) year-on-year in 2019 compared with 93 000 bpd in 2018, aided by the following factors:
- Buoyant commercial vehicle sales facilitated by sustained infrastructure growth, and increasing demand from the construction, logistics, e-commerce and consumer goods sectors.
- A demand-based approach instead of a tax-based approach in the logistics sector. This is due to the implementation of the GST, which has led to removal of interstate taxes. This is a structural shift, resulting in increased demand for heavy and medium-duty trucks to achieve economies of scale and operational efficiency.
- General elections in May. Increased travel activity for campaigning and implementation of infrastructure projects ahead of the elections will bolster diesel demand in H1 2019.
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) although it is 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 large untapped market, as around 50 million households remain deprived of LPG.
Will the EV policy provide some clarity in 2019?
The actual sales figures to date reveal an unpleasant story - only 260 000 'xEVs' have hit Indian roads, the majority being two-wheelers. Electric car sales, for instance, declined by 40% to a mere 1,200 units in financial year 2018 over financial year 2017, 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.
2019 will be an important year - a 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'. For instance, Maruti Suzuki, the largest automaker in India, 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 co-ordination across the different ministries, government bodies and industry participants while the policy is formalised.
Two-wheelers will dominate the electric mobility landscape in the personal transport sector
India offers huge potential for automakers as car ownership levels are very low (23 per 1000 capita). Rising income levels will increase car ownership and most global automakers are closely watching this lucrative 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 a 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.
Read the article online at: https://www.oilfieldtechnology.com/special-reports/22012019/woodmac-indias-oil-demand-growth-momentum-to-continue-exceeding-china-in-2019/