India Overtakes Japan in Demand for Oil

India overtook Japan in demand for oil among Asian nations in the second quarter of 2010, reflecting its rapid economic growth, according to Platts, a provider of information on energy and metals.
The country’s demand for oil in April-June stood at 3.1 million barrels per day (mbpd), marginally higher than Japan’s 3 mbpd. China, with a demand thrice the size of India’s, registered the highest demand for oil in Asia.
“The growth in India’s oil demand is an indication of an economy doing well,” said Vandana Hari, editorial director, Asia, Platts. “The Indian economy was not as badly hit by the slowdown in 2008 as it is not as dependent on exports as China or Japan, and staged a faster recovery than its Asian counterparts.”
Industry experts say India’s energy demand would only increase, but needs to be managed with efficient demand- and supply-side intervention for it to remain insulated from price shocks.
“The barrel per capita consumption of oil remains very low in India compared with China or other developed countries and the demand can only go up,” said Arvind Mahajan, executive director at audit and consulting firm KPMG. “However, since India is primarliy dependent on imported crude, the government needs to work out a pricing mechanism that would make domestic oil prices internationally linked to ensure energy-efficient demand.”
Deregulation of petrol prices in June was a step in that direction, and Hari said this is the right time for further freeing of petrol and diesel prices in India as crude prices are not too high at the moment.
“We believe that a further increase in the price of petrol by `3 per litre could lead to a stage where there is no under-recovery (selling fuel below cost) for oil marketing companies,” said Hari. “Latest predictions by the International Energy Agency suggest that crude prices are not likely to too volatile over the next two-three years and this could be the best time to complete the deregulation of fuel prices, including freeing up diesel prices.”
India’s oil and gas companies are also betting on growing energy demand. In a conference call after posting June quarter results on 19 August, Prashant Ruia, vice-chairman of London-listed Essar Energy Plc., had said that while his firm might look at buying raw material sources abroad, the company’s primary focus would be on India.
“We are focused on meeting the energy requirements of India. We are planning to invest $11 billion (`51,590 crore) for our oil and gas exploration and production and power generation activities, and 90% of this would be in India,” Ruia had said.
India is also largest net exporter of oil products among Asian countries. A Platts presentation made on Wednesday put India’s net exports at almost 1.20 mbpd per day.
Hari said with new refinery capacity of at least 15 million tonnes a year slated to become operational in the next nine to 12 months catering to domestic demand, exports from private sector refiners such as Reliance Industries Ltd and Essar are likely to increase.
“Refineries in Japan and Korea find themselves in a tight spot with China’s net imports of oil products declining,” Hari said. “Companies like RIL and Essar that have highly complex refineries that can meet international quality standards and have a freight advantage in catering to the developed countries are likely to witness a growth in exports.”