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India as Largest Contributor to Global Oil Demand
Context:
Earlier this month, two of the top three global energy forecasters projected that India would become the largest contributor to global oil demand in 2024.
More on News:
- Although fuel consumption has been unstable this year due to a weak global economy, particularly in China, and the rise of electric vehicles, oil’s role as a driver of global economic growth seems to be diminishing.
- Fuels are becoming less significant in directly boosting GDP as clean energy alternatives emerge and energy efficiency improves.
India’s Status:
- In India, diesel, gasoline, and LPG continue to play a key role in national development, according to the data provided by International Energy Agency (IEA), US Energy Information Administration (EIA), Organisation of the Petroleum Exporting Countries (OPEC), the World Bank, and the International Monetary Fund (IMF).
- India is expected to contribute around 8% to global GDP growth in 2024 while accounting for over 22% of global oil demand growth.
- In contrast, China, while making up a fifth of global growth, may use only 20% of the additional oil consumed this year.
- China added over 200 GW in renewables last year, and its extensive high-speed rail networks encourage rail travel over road transport, reducing oil demand.
- India, on the other hand, is more poised for oil demand growth.
- Unlike China and other countries, India’s oil consumption is driven by fuels, primarily diesel.
- Only 18% of India’s demand growth will be for petrochemical feedstock, while globally, this figure exceeds 90%.
- India’s oil consumption is rising faster than other countries because it is still in the early stages of economic development.
- According to an IEA study, energy use increases significantly when developing countries achieve GDP per capita growth between $2,000 and $10,000.
- In 2022, India’s GDP per capita stood at $2,400—behind nations like the Democratic Republic of Congo, Bangladesh, and Angola, and far lower than China’s $12,700.
Top Five:
- Joining India in driving global oil demand growth this year are Brazil, the US, and South Korea.
- Brazil will account for 110,000 barrels per day (b/d), or 12% of the annual oil demand growth, despite contributing only 4% to global economic growth.
- Brazil’s oil consumption is largely driven by its booming agricultural exports, with biofuels accounting for 32% of its energy supply after oil.
- The US economy is more energy-efficient and diversified, contributing 8% to the increase in oil demand but making up a third of global GDP growth.
- Meanwhile, Germany and Japan are seeing declining demand for fuels, despite economic growth.
- In South Korea, a rebounding petrochemical sector has boosted oil demand, with naphtha and LPG serving as key feedstocks for its large petrochemicals industry.
- The role of oil in economic growth depends on energy efficiency and the availability of alternatives.
- In India, oil makes up a quarter of the overall energy supply, compared to 35% in the US and 18% in China, according to the IEA’s World Energy Balances report.
India’s Rise:
- Diesel will continue to dominate India’s fuel mix, as the country lacks alternatives to internal combustion engines (ICE) for large trucks, unlike China, where liquefied natural gas (LNG) is widely used in road transport.
- Electric vehicles (EVs) account for over half of new passenger car sales in China this year, compared to a penetration rate of just 2-3% in India.
- The US EIA was the first to highlight India’s rise as the fastest-growing oil consumer, noting that Chinese oil demand will grow by just 100,000 b/d this year and 300,000 b/d in 2025, while India’s oil consumption is expected to increase by 280,000 b/d this year.
- The EIA also downgraded its global liquid fuels demand growth forecast to 900,000 b/d this year and 1.5 million b/d in 2025, due to slower economic activity and reduced diesel and jet fuel demand in China.
- OPEC, however, was more optimistic, forecasting global oil demand growth of 2 million b/d this year, with China expected to grow by 650,000 b/d compared to India’s 270,000 b/d.