The growth in India’s crude oil imports has declined considerably between FY14-FY23 under the watch of the Narendra Modi government, even as domestic production marginally declined, in what hints at demand peaking soon.

While the decline in import volume growth was significant, the fall in growth was much steeper in value terms. This was also due to the low crude prices that prevailed in the initial years of the Modi regime, amid abundant global supplies and the spike in shale oil production by the US.

India’s crude oil imports rose 97% from 95.9 million tonne (MT) in FY05 to 189.2 MT in FY14. Compared with this, the imports increased just 23% between FY14 and FY23 (232.7 MT), as per the Petroleum Planning and Analysis Cell of the ministry of petroleum and natural gas.
The oil import bill ballooned 450% from $26 billion in FY05 to $143 billion in FY14, while it went up just 10% to $158 billion between FY14 to FY23.

However, India’s import dependence for oil still rose from 76% in FY05 to 77.6% in FY14 and, further to 87.3% in FY23. This was because domestic production fell 23% between FY14 and FY23.

A host of factors have led to the deceleration in oil consumption – more fuel-efficient auto vehicles, shift to CNG, ethanol blending in petrol and proliferation of electric vehicles, especially two-wheelers. Besides, the near elimination of tax differential between petrol and diesel, made the latter costlier, further incentivising the shift to cleaner fuels.

Domestic crude production slowed during the Modi regime, even as the prime minister had set a target to reduce the country’s oil import dependence to 65% by 2022. While an 11% rise was reported in crude oil production in India from 34.1 MT in FY05 to 37.8 MT in FY14, it fell 22.8% to 29.18 MT in FY23.

Sector experts believe that larger increase in oil import during FY05-FY14 was due to higher capacity addition in Indian refineries during the period. Many also cite an ongoing energy transition.”Crude is imported not only to consume in India but also for export of (refinery) finished products. Refinery capacity got a boost in the decade to FY14 and as this was dependent on imported crude, the oil import shot up,” said former petroleum secretary RS Pandey.

The installed capacity of Indian refineries grew 62.4% from 132.47 million metric tonne per annum (MMTPA) as on February 1, 2006, to 215.1 MMTPA on April 1, 2014. In the last nine years, it rose just 16.8% to 251.2 MMTPA as on April 1, 2023.The increased refining capacity has led to higher petroleum products exports from India from 18.2 MT in FY05 to 67.9 MT in FY14, resulting in net product export rising from 9.4 MT in FY05 to 51.2 MT in FY14. In other words, roughly a quarter of imported oil was used for exports by FY14.

However, the increase in export-oriented import of crude oil hasn’t sustained in the latter period. Export of products fell to 61 MT in FY23, with a significant decline in net exports to 16.5 MT. Going by the consumption pattern of diesel, which is two-and-a-half times that of petrol in India, energy transition is clearly happening in transportation.

This is the largest oil consuming segment that fuels cars, buses, trucks, aircrafts and large ships.The domestic consumption of diesel, which grew 72.4% from 39.7 MT to 68.4 MT during FY05-FY14, increased at a slower rate of 25.6% thereafter to 85.9 MT in FY23. Petrol consumption grew at a similar rate of 107.6% and 104.2%, respectively.“There has been progressive improvement in the efficiency of car engines and there are other fuels that are now competing such as CNG and ethanol blending in petrol.

Overall our crude import would reduce to some extent due to lower consumption in the transport sector,” said Prashant Vasisht, vice president and co-head, corporate ratings, Icra. In Delhi and other big cities where city gas distribution (CGD) has been implemented, public transport like buses and autos were converted to CNG.

Besides, the differential between petrol and diesel prices reduced leading many to shift to lesser polluting fuel either to petrol or CNG, Vasisht said for the deceleration in diesel consumption.“While LCVs are being converted to CNG, a large proportion of two wheeler population has been electrified. With power situation improving, use of diesel gensets across urban and rural areas, including the farm sector, came down,” he added.With energy transition set to further reduce demand for oil products, the next big oil consuming segment is the petrochemicals industry, which the government is keen on encouraging as about 80% of India’s petrochemicals capacity is integrated with petroleum refineries.
Source: Financial Express