India’s Upside for Oil Demand Seems Unlimited

With almost 1.4 billion people, India remains the most energy-deprived nation on Earth. The upside for demand seems almost unlimited.

India has 635 million people under the age of 24. This is a burgeoning young population the size of the total populations of the US, Japan, Germany, France, and Canada.

Coal will remain the main source of energy, but the proven global reality that demand mounts as human development progresses makes India’s oil usage unidirectional: up.

Today, oil accounts for 25 percent of India’s total energy demand, rather high for a still developing country. The latent demand, however, is just staggering. Indians use less than 0.2 gallons of oil products per day, versus 2.6 gallons for the US.

Even though it has almost 11 times more people, India overtook Japan only in 2015 to become the world’s third largest oil consumer after the US and China.

Over the past decade, China (45 percent) and India (20 percent) have accounted for the bulk of new global oil demand. Driven by more diesel fuel, gasoline, and LPG, India could race past China to become the world’s primary new consumer within five or seven years.

For those claiming “the end of oil,” the truth is that the world’s most vital fuel has no material substitute whatsoever. Electric transport, for instance, is overly expensive in the rich US, let alone for a still developing country where 70 percent of the people subsist on biomass.

Dreaming of the same luxuries that Westerners enjoy, gas-guzzling SUVs now comprise 35 percent of all car sales in India.

An essential part of India’s growing oil usage has come from lower prices for petroleum and its products. After all, India has an annual GDP per capita of just US$2,300, versus a whopping US$55,300 for the US.

The government has typically regulated costs but the expensive habit has been phasing these subsidies out. At the end of January, for instance, GlobalPetrolPrices reported India’s gasoline price at US$1.07 per litre (interestingly, the exact price of China’s), well above the US$0.75 per litre for the US.

India has been steadily preparing for the oil demand boom. Refining capacity has been growing five to six percent per year over the past decade to above five million b/d.

Bolstered by major private sector investment, India now has several world-class refineries. For example, Reliance Industries’ Jamnagar complex in Gujarat might be the most advanced refinery in the world.

India though is a persistent low crude producer holding less than five billion barrels of proven reserves. With rising demand amid flat production, India has therefore continually turned to the global market to fill the gap.

Since 2010, import dependence has risen from 70 percent of total consumption to 85 percent. While India’s NOCs have sought to diversify with equity stakes overseas, most oil imports come from the Middle East, where there is little direct access to investment.

For the Indian government, the struggle of meeting the rapidly expanding needs of an immense, young, and long energy-deprived population might really be the world’s most momentous endeavour.

The environmental push for reducing greenhouse gas emissions is also greatly complicating matters for leadership. But, as we have seen over the past decade or so in the Middle East, de Tocqueville’s “Revolution of Rising Expectations” mandates that India’s energy-economy-environment challenge simply must be met.

For the global oil market, similar to what started in China 20 years ago, fulfilling the latent demand of a country as massive as India presents a historic test. India will soon be importing over five million b/d.

Just like with China, the strategies of stockpiling, paying more to secure imports, and a relentless quest to gain energy-supplying friends are critical global geopolitical factors.

The natural Iran-India energy relationship, for instance, could prove as far-reaching as that of Russia-China.

EIA is likely understating in its projection that India’s oil demand will jump 120 percent to 11.5 million b/d over the next 30 years.

Source: Rigzone