India's oil demand growth momentum to continue, exceeding China in 2019

India's oil demand growth recovered strongly in 2018, overcoming demonetisation, the aftermath of the implementation of the Goods and Services Tax (GST), and contributing to 14% (or 245,000 b/d) of the global demand growth. 

Market analyst Wood Mackenzie forecasts oil demand will grow at the same level in 2019. This will result in India becoming the second-largest demand growth centre globally in 2019, behind the US but ahead of China. Transport fuels – gasoline and diesel – and residential LPG will continue to be the two main drivers of oil demand growth.

The company projects diesel demand to grow by 6.4% (112,000 b/d) year-on-year in 2019 compared with 93,000 b/d in 2018. This growth will be aided by buoyant commercial vehicle sales facilitated by sustained infrastructure growth; the removal of interstate taxes as part of the implementation of the GST, resulting in increased demand for heavy and medium-duty trucks; and upcoming general elections in May, leading to increased campaign-related travel activity and the implementation of infrastructure projects ahead of the elections.
Key risks remain, however, as crude price volatility is expected to persist. Historically, short-term gasoline demand has been relatively inelastic to retail prices in developing economies such as India. Even though higher retail prices affect consumer sentiment for new vehicle purchases, Wood Mackenzie believes this trend will continue with income effects driving the demand, subduing the price effects.
LPG demand growth will remain robust in 2019 at 5% (40,000 b/d), a lower rate than the 56,000 b/d growth achieved in 2018. The number of new household LPG customers continued to surge last year, driven by the Ujjwala scheme to promote clean cooking fuel in rural areas. However, an untapped market of approximately 50mn households still remain without LPG.

Electric mobility landscape 

Alongside the growing demand for oil sits India’s electronic vehicle (EV) market. Although the actual sales figures to date are fairly low – only 260,000 EVs have hit Indian roads – the majority of these sales have been two-wheelers. Electric car sales, for instance, declined by 40% to a mere 1,200 units in financial year 2018 over financial year 2017, while electric two-wheeler sales rose 138% to 54,800 units during the same period. In contrast, China had a stock of 1.8mn EVs and 258mn e-bikes at the end of 2018.
This year will see several key changes, namely a final version of the National Auto Policy and the second phase of the Faster Adoption and Manufacture of (Hybrid and) Electric Vehicles (FAME) scheme. However, it is currently unclear whether these changes will be enacted before or after the upcoming elections, or whether the Modi government will change tack if it is not re-elected. 

Despite this ambiguity, automakers seem to have realised that EV adoption is not a question of 'if'. For example, Maruti Suzuki, the largest car manufacturer in India, will launch an electric version of one of its best-selling entry-segment cars – the Wagon R – in 1Q2019.
Another key challenge will be stakeholder management and co-ordination across the different ministries, government bodies and industry participants while the policy is formalised.
India offers huge potential for automakers as car ownership levels are very low (23 per 1,000 capita). Rising income levels will increase car ownership and most global vehicle manufacturers are closely watching this lucrative market. At the same time, two-wheelers should not be ignored – with current ownership in India six times larger than four-wheelers.
Wood Mackenzie believes that two-wheelers are the more effective option given their utility in intra-city travel, less need for a public charging infrastructure and availability of battery technology. It suggests two-wheelers will eventually leapfrog four-wheelers towards the goal of a greener and sustainable mobility future.

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