India will consume more oil than China, imports will increase, a lot of oil will be needed to…

According to Moody's report, India will increase the demand for oil in the next decade. China's slow economy and increasing penetration of electric vehicles will reduce its demand.

While China has pushed the world’s oil demand in the last decade, India is going to shoulder this responsibility in the next ten years. The latest report of rating agency Moody’s shows that the demand for oil in China will decrease due to China’s slowing economy and the rapidly increasing penetration of electric vehicles. However, the same report also says that it will definitely accelerate in the next 3-5 years and the demand for crude oil will reach its peak in China. During this period, the demand for oil in India is expected to increase at the rate of 3 to 5 percent every year. This difference will have a direct impact not only on the oil trade, but also on the energy security and economic strategy of both the countries.

China and India are the second and third largest consumers of oil in the world, but a big difference is now clearly visible in the energy needs and policies of both. China’s oil demand is now slowly slowing down, while in India, the demand for petrol-diesel and gas is increasing rapidly due to industrialisation, urbanization and the government’s large investment in infrastructure. According to Moody’s, India’s oil consumption will not only grow faster than China, but its dependence on imports will also increase.

India already meets 90% of its crude oil needs through imports, and about 50% of its gas also comes from abroad. If the decline in domestic production is not arrested, this dependence will increase further. In contrast, China is gradually trying to reduce its dependence on imports – it is investing heavily in increasing domestic production, shale gas and offshore projects. Also, Chinese companies are more integrated in the value chain, which reduces the volatility in their earnings.

In India, state-owned companies such as IOC, HPCL and BPCL are now investing heavily in increasing refining capacity to meet domestic demand. India has a target to take its refining capacity to 309.5 million tonnes per annum by 2030, which is currently around 256.8 million tonnes. On the other hand, China’s refining has already reached the limit set by the government, so there is less scope for expansion.

Talking about gas, its demand in India can grow at the rate of 4-7% every year till 2030, especially due to the use of CNG and piped gas in cities and demand from industries like fertilizers and chemicals. However, the lack of gas infrastructure and cheaper alternatives like renewables can slow down its pace a bit. The report also shows that while China’s policy is more in line with the market, in India oil prices and company earnings are more affected by government policies. This is the reason why the role of taxes and dividends received from the petroleum sector is big in India’s government budget, while it is less in China.

Need to work on climate policy

India is currently lagging behind China in terms of climate policy. There is more pressure on Chinese companies to shift to green energy, while carbon regulation in India is still in its early stages. Overall, this Moody’s report indicates that India is on its way to becoming the next big hub of the global oil market. But balancing this growth with challenges like energy security, import dependence and green transition will be the real test for India.