India’s oil demand growth is set to overtake China by mid-2020s, priming the country for more refinery investment but making it more vulnerable to supply disruption in the Middle East, the International Energy Agency (IEA) said on Friday.
India’s oil demand is expected to reach 6 million barrels per day (bpd) by 2024 from 4.4 million bpd in 2017, but its domestic production is expected to rise only marginally, making the country more reliant on crude imports and more vulnerable to supply disruption in the Middle East, the agency said.
China’s demand is likely to be slightly lower than that of India by the mid-2020s, as per IEA’s China estimates given in November, but the gap would slowly become bigger thereafter.
“Indian economy is and will become even more exposed to risks of supply disruptions, geopolitical uncertainties and the volatility of oil prices,” the IEA said in a report on India’s energy policies.
Brent crude prices topped $70 a barrel on rising geopolitical tensions in the Middle East, putting pressure on emerging markets such as India. Like the rest of Asia, India is highly dependent on Middle East oil supplies with Iraq being its largest crude supplier.
India, which ranks No. 3 in terms of global oil consumption after China and the United States, ships in over 80% of its oil needs, of which 65% is from the Middle East through the Strait of Hormuz, the IEA said.
The IEA, which coordinates release of strategic petroleum reserves (SPR) among developed countries in times of emergency, said it is important for India to expand its reserves.
India is the world’s fourth-largest oil refiner and a net exporter of refined fuel, mainly gasoline and diesel.
India has drawn plans to lift its refining capacity to about 8 million bpd by 2025 from the current about 5 million bpd.
The IEA, however, forecasts India’s refining capacity to rise to 5.7 million bpd by 2024.
This would make “India a very attractive market for refinery investment,” IEA said.
Drawn to India’s higher fuel demand potential, global oil majors like Saudi Aramco, BP, Abu Dhabi National Oil Co and Total are looking at investing in India’s oil sector.
Saudi Aramco and ADNOC aim to own a 50% stake in a planned 1.2-million bpd refinery in western Maharashtra state, for which land is yet to be acquired.