India’s oil consumption is expected to 7-8 per cent this year, outpacing China’s demand growth for the third consecutive year, as impact of demonetisation is likely to be short-lived, according to Platts. LPG and transport fuels demand will rise, while new petrochemical projects would be a boon for naphtha demand.
“The dramatic rise in India’s oil demand shows no signs of faltering... the country will remain a driver of Asian growth in 2017,” Platts Analytics said in a note.
The cash crunch following move to demonetise 86 per cent of currency is expected to “temporarily dampen the country’s appetite for oil products in the first quarter, or maybe a little longer,” it said.
“But gains in oil demand that the country is set to achieve from the ‘Make in India’ initiative –which aims to raise the share of manufacturing in GDP over the next few years –will more than offset the negative effects of demonetisation,” Platts quoted analysts as saying.
The government’s clean fuel drive, sharp anticipated growth in transport demand and air travel, and the country's insatiable growth for petrochemicals will act as a boon for petrol, jet fuel, LPG and naphtha, helping oil products to post close to double-digit growth in 2017 –similar to that seen last year –if not higher.
“For the third year in a row, India’s oil demand growth will outpace China’s demand growth,” Platts Analytics said, adding that it was expected to grow at about 7 per cent to 4.13 million barrels per day in 2017, compared with 3 per cent in Chinese oil demand to 11.5 million bpd. “While growth fundamentals for oil in India remain high, slower growth in the initial months of 2017 because of demonetisation might pull down the overall oil demand growth in 2017 to a shade below 2016 levels of 9 per cent,” it said.
H2 2017 oil demand will see limited impact from demonetisation as the initial economic impact peters out and government spending, particularly on infrastructure, rises from increased tax collection.
If implemented correctly, demonetisation will lead to a jump in private investment and more public spending on welfare measures, Platts said.
Since coming to power in 2014, the BJP-led government has undertaken a series of initiatives to help boost LPG penetration across the country.
It has aggressively pushed to expand the LPG dealership network in the country, while it has urged the more affluent class to give up LPG subsidies and pass those savings to the economically poorer sections of society. LPG demand was expected to grow by about 10.5 per cent year on year in 2017, compared with an estimated 11 per cent in 2016.
Diesel demand is expected to grow by about 4.5-5 per cent in 2017, slightly lower than 2016 levels, as demonetisation had affected rural incomes. But naphtha demand is expected to show double-digit growth.