India eyes oil demand growth top spot

India eyes oil demand growth top spot©Bloomberg

India’s oil minister has spent the last week in the US courting the world’s biggest energy companies for investment, touting the country’s expanding economy and future resource needs.

For Dharmendra Pradhan, it has been an easy sell. “India is on a high growth trajectory,” he told the FT in Houston, where he was on an investor roadshow.

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“But not only are we seeking partnerships with these foreign companies, they want to come to India,” Mr Pradhan adds.

India’s fast-expanding economy is expected to grow by 7.5 per cent this year and it is forecast to overtake Japan as the world’s third-largest oil consumer, behind the US and China.

Its demand growth — key for companies looking to invest — will this year outstrip China’s for the first time since Beijing embarked on more than a decade of resource-devouring expansion.

Prime Minister Narendra Modi’s industrialisation programme has piqued the interest of international energy companies which are keen to invest in refineries, petrol stations and even exploration and production, says Mr Pradhan, despite the oil price languishing below $50 a barrel.

India’s 1.3bn population still lags behind other emerging market powerhouses in oil consumption per capita, giving it room for rapid growth.

There are only 25 cars for every 1000 people, data from energy consultancy FGE shows, compared with 110 in China. Plastic consumption is only 12kg per capita a year, compared to more than 10 times that amount in Europe.

“India is coming from a very low base,” says Cuneyt Kazokoglu at FGE. “It is getting richer and it has a growing middle class which is spending more on things such as cars to airline tickets — this is pushing up oil demand.”

There are, however, doubts among analysts that India will follow the same growth and energy demand trajectory as China, with a less heavy-handed state guiding the economy.

Two-thirds of the population live in rural areas and some question whether the country is truly on the cusp of a car buying binge that has driven consumption in major developing countries.

Car purchases have increased by 12 per cent since 2011, Society of Indian Automobile Manufacturers data shows, but that is dwarfed by the growth of two-wheelers such as scooters which are far less thirsty and cheaper to run.

Sales of scooters, mopeds and motorbikes have jumped by 40 per cent in the past five years and comprise four out of every five vehicle purchases. The most popular brand of scooter sells for less than £600 (Rs50,000) compared with more than £4,300 for the most frequently bought car.

Nevertheless consumption is on the rise and has been propelled by lower oil prices, although New Delhi has cut fuel subsidies. India spent $60bn less on crude oil imports last year than 2014, even as it bought more foreign barrels. Demand for 2016 is expected to reach almost 4.3m barrels a day, up 300,000 b/d from the prior year, according to the IEA. By 2040 it is seen at 10m b/d.

“Lower oil prices have acted as a giant subsidy for the domestic market,” says Saad Rahim, chief economist at Swiss oil trader Trafigura. “There has been a huge boost for consumer countries.”

India’s emergence as the centre of oil demand growth is bolstered by a drive to raise manufacturing’s share of the economy to 25 per cent from 18 in 2014.

At the same time, China is shifting towards a more services-led economy that is less energy intensive after a period of rapid industrialisation. Just like China a decade ago, India is now trying to secure its future demand for crude oil and refined products such as gasoline, diesel and jet fuel.

Mr Pradhan says India is seeking stronger relationships with global oil exporters, such as Saudi Arabia, Iran, Venezuela and Nigeria, and producer companies to guarantee crude supplies.

India is offering both national oil companies and energy majors greater access to its domestic market, while also pushing to develop its own oilfields. Saudi Aramco, Shell and Total are among companies looking to start or expand petrol station networks, says Mr Pradhan.

Other companies are also looking at India’s refineries, which processed a record 5m b/d of crude earlier this year. Russia’s Rosneft and independent oil traders have been eyeing stakes in Essar Oil, which supplies 12 per cent of India’s petroleum products.

“Access to the Indian market is an attraction,” says Prashant Ruia, chief executive of Essar Group. “From our refineries to retail outlets.”

Seth Kleinman, oil analyst at Citigroup says India will need to work hard to meet its ambitious targets, but the country is still a bright spot for the oil industry.

“It’s the best looking emerging market out there.”

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India eyes oil demand growth top spot
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