Oil demand to rebound, but lags GDP growth

New Delhi, March 23 | Updated: Mar 24 2006, 05:30am hrs
Indias thirst for oil should pick up in the coming months after unexpectedly weak growth last year, but the dominance of the low-energy services sector will keep it out of Chinas league among the worlds biggest guzzlers.

Oil demand in India edged up 1.1% last year, despite an 8% increase in the gross domestic product (GDP), far different from most developed nations where energy use grows in lock-step with the economy. Some analysts see a recovery this year, in part thanks to a flurry of activity surrounding regional elections this spring and the expansion of the economy.

I dont see this as anything more than a temporary blip. Oil demand will rise again. The sheer momentum of economic growth would raise oil demand, said RK Pachauri, head of Delhi-based think-tank The Energy and Resources Institute (TERI).

But others say rising rail traffic, the supply of nearly free electricity to farmers, and a trend toward more fuel-efficient cars could disappoint dealers who had hoped for a bigger boom from the Asias third-largest consumer.

The fact that the services sector makes up 54% of the economy will also restrain growth. The share of services has grown. Except for transportation, the service sectors energy consumption is not so high, said TK Bhaumik, chief economist at Reliance Industries.

A Temporary Blip

The sheer momentum of economic growth will raise oil demand
Rising rail traffic, supply of free electricity to farmers, could disappoint dealers who hoped for a bigger boom from India

For oil markets, tepid growth means India will remain in the shadow of industrialised China until new refinery projects turn it into a major exporter by the end of this decade.

One near-term bright spot for gasoline and diesel demand may be the upcoming Assembly elections in five states. Transport fuel use soared during 2004 general elections, as politicians and election officials raced around the country. Two of the states are large, but the rise in demand will not be as sharp as in 2004, an official at a state-run refiner said.

Oil demand leapt nearly 6% in 2004, putting India in the spotlight with China as surging. But it has been disappointment since then as demand rose just 1.1% or 40,000 barrels per day (bpd) last year. The International Energy Agency expects demand to rise by only 0.4% or around 10,000 bpd this year.