India motor fuel demand growth to halve by 2030: Crisil

India's motor fuel demand growth is likely to halve in the next 10 years because of electric vehicles (EVs), bio-fuels and increased use of compressed natural gas (CNG) as an alternate motor fuel, according to Mumbai-based Crisil Research.

India aims to reduce carbon emissions by 1bn t and reduce the carbon intensity of its economy by 45pc by 2030, and achieve net-zero emissions by 2070. On these lines, state-run refiners are planning to set up 22,000 EV charging stations in the coming years, of which 4,000 are due to be installed over the next year.

"Demand growth in petrol (gasoline) and diesel combined will likely decline to 1.5pc per annum this decade, compared with 4.9pc in the last," said Crisil in a report released on 22 November.

The Indian government targets to have an EV sales penetration of 30pc for private cars, 70pc for commercial cars, 40pc for buses and 80pc for two- and three-wheelers by 2030. The country is also targeting 10pc ethanol blending in gasoline (E10) by 2022 and 20pc blending (E20) by 2025.

Growth in gasoline use is likely to fall to about 1pc this decade from 8.4pc in the last 10 years, but diesel demand growth is expected to be relatively resilient at 2pc per annum compared to an earlier rate of 3.9pc per annum, also because the penetration of CNG and EVs in the freight vehicle sector would be limited, said Crisil Research director Hetal Gandhi.

The share of gasoline and diesel in overall oil product consumption is likely to drop to about 44pc by 2030 from about 50pc currently, Gandhi added.

Gasoline and diesel accounts for the majority of total oil products produced by Indian refiners. Demand for the two motor fuels in October rose by 8pc and 2pc, respectively, compared to pre-pandemic 2019.

But diesel use dropped by 19pc in the first half of this month compared to the first half of November 2019, while gasoline demand was up by 1pc compared to 2019 levels, according to data from state-controlled refiners that account for around 90pc of India's fuel sales.

"It could be read as demand for goods was predominantly centred around the festive period and is yet to see a durable recovery," Kavita Chacko, senior economist at Mumbai-based ratings agency Care Ratings told Argus, adding, "It is probable that consumption of motor fuels could increase on account of the higher festival-related travels around the year-end holidays."

Trucks and heavy motor vehicles are usually used to ferry goods and they predominantly use gasoil as fuel. Also, gasoline demand has been consistently above pre-pandemic levels because of increasing preference for personal transport after recent lockdowns were eased in the country.

A focus on petrochemicals

Indian refiners are looking to increase production of petrochemicals. Consumption of petrochemicals is expected to grow at a rate of 8-10pc in India, while its share in the oil product basket may increase to 17pc by March 2030, Crisil said.

"This healthy demand growth for petrochemicals will partly offset the decline in India's crude oil demand growth to 3.5pc this decade from 4.5pc in the last," it added.

Additionally, upcoming integrated facilities, or crude-to-chemicals complexes, could produce relatively more petrochemicals, said Nitesh Jain, director of Crisil Ratings.

Indian private sector RIL is spinning off its oil and petrochemical operations into a separate oil-to-chemicals (O2C) business, while it is also shifting its focus to renewables and has committed to becoming a net-zero carbon emissions firm by 2035. More than 60pc of its refinery's output is earmarked as feedstock for petrochemicals.

By Sathya Narayanan