​Refining won’t keep up as India overtakes China as driver of global oil demand growth: WoodMac

Amidst global attention on peak oil demand, India appears to be bucking the trend, analysts with Wood Mackenzie said on Monday. However, expectations are that domestic refining capacity won't keep up.

Driven by rising income levels and a growing need for mobility, the country's oil demand is expected to grow by 3.5 million bbls/d from 2017 to 2035, accounting for one-third of global oil demand growth.

But India is only expected to add 400,000 bbls/d of firm refinery capacity addition to 2023.

"From a balanced position today, Indian public sector undertakings (PSUs) or refineries owned by national oil companies will become short on transport fuels at least until the 1.2 million bbl/d mega refinery, a proposed joint venture among Indian PSUs, Saudi Aramco and ADNOC, comes online,” Wood Mackenzie researcher Sushant Gupta said in a statement.

"So how much and how soon is the new refinery capacity needed in India? This depends on two main factors. First, the pace of oil demand growth and second whether private refiners would divert their large export volumes to the domestic market.

"We think the most likely situation is that India would need between 3.2 million and 4.7 million bbls/d of new capacity out to 2035 to remain self-sufficient in transport fuels. So we are talking about a future capacity which is 1.7 to 2.0 times the current. This is clearly an uphill task, unless domestic refiners can commit to their planned capacity additions."

Wood Mackenzie views uncertainties around oil demand as the biggest risk to new refinery projects. Factors such as GDP growth, road infrastructure developments, electrification of the transport sector and fuel efficiency improvements, could have very different implications for oil demand.

For instance, a high demand scenario paired with no increase in private refiners supply to India could lead to substantial under-capacity, whereas a low demand scenario coupled with high diversion of private refiners' exports to India would lead to over-capacity.

An alternative is to import products, particularly gasoline. Wood Mackenzie expects the US and Europe to have a surplus of gasoline due to domestic demand declines. This could create a match between US/Europe and India for a long-term gasoline trade. However, a long-haul trade will take time to establish credibility, with concerns around security of supply.

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