MUMBAI: The combined demand for petrol and diesel is likely to decline by 1.5% per annum in this decade as compared to 4.9% in the previous decade, due to increasing blending of ethanol with petrol and increased use of vehicles powered by compressed natural gas (CNG). Will be and electricity. This trend will also be persuaded by policy interventions as India targets net-zero emissions by 2070.
Taking a cue, oil refiners will shift their production mix in favor of alternatives like petrochemicals, which should also support their profitability.
Hetal Gandhi, Director, CRISIL Research, said, “More than three-fold increase in the number of CNG stations, advance ethanol blending target, and a significant drop in EV battery prices are expected to reduce the demand growth in petrol by 1%. Expected to last 8.4% this decade. Diesel demand will be relatively resilient (2% annual growth as compared to 3.9% earlier) because of non-exposure to the two-wheeler segment, where the shift to EVs is fast, and a slew of freight vehicles. Presence of a significant proportion where there is CNG. And EV penetration will be limited. As a result, the proportion of diesel and petrol in the consumption of petroleum products will come down to 44% by 2030 from 50% now.”
Nevertheless the refiner is expected to add 37 million MT per annum capacity (15% on current basis) by FY2025, with more investment 1.5 lakh crore. Almost all of these facilities will be capable of producing both transportation fuels and petrochemicals.
The consumption of petrochemicals in India is expected to grow at a healthy rate of 8-10%. Per capita consumption of polymers is expected to double to 18-20 kg by FY2030. The share of petrochemicals in petroleum products will increase to 17% by FY 2030 as a result of slowing demand for transportation fuels, from 7% in FY20. This healthy demand growth for petrochemicals will partly offset the decline in India’s crude oil demand to 3.5% this decade, from 4.5% in the previous.
This flexibility of diversification will provide stability to refiner margins. Their profitability, and Oil Marketing Companies (OMCs) have improved and margins have gradually reached pre-pandemic levels.
Despite lower demand growth for petrol and diesel, credit profiles of refiners and OMCs will remain stable in the near-to-medium term, indicates a CRISIL rating analysis of public sector refineries and OMCs, which account for 65% of refining capacity and 90% of oil marketing in India.
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