India's petroleum consumption to increase by 6% in 2017-18: Moody’s

27 Sep 2016 Evaluate

Global rating agency, Moody's Investors Service in its latest report stated that India's petroleum consumption will likely grow by 6 percent in 2017-18, double the rate at which fuel demand in China is projected to grow. Moody’s said that China's slowing economic growth will temper underlying product demand over the next 12-18 months. As per the estimations, China's demand for refined-oil products will grow around 3 percent annually in the next two years as compared with 4-5 percent on average over the past five years.

The rating agency said that slow but steady demand growth from China and India supports its stable outlook for the Asian refining and marketing (R&M) industry, despite a likely modest earnings contraction through 2017 and also anticipates EBITDA for the industry will decline by 1-3 percent through 2017. Further, the US Energy Information Administration (EIA) projects total liquid fuels consumption in the Asia Pacific to rise by 0.9 million barrels per day (bpd) in 2017 to 33.3 million bpd. China and India remain the fastest-growing product markets in Asia, collectively accounting for 80 percent of total demand growth in the region.

Moody’s said that Asian refiners have started to dial back their capacity additions and this trend is expected to continue in 2017-18, although the immediate impact on an oversupplied market will be somewhat limited. It further said that refiners have canceled, delayed or scaled back large- scale, greenfield refineries as well as capacity expansion projects that were originally planned to come on-stream over the next 18 months. It also believes that such project delays and cancellations are partly in response to the ongoing supply glut in Asia, following over 400,000 barrels per day (bpd) of new capacity from India over the past few months.

The report however stated that economic slowdown in China, industry cyclicality and capacity overhang continue to pressure Asian refiners, despite stable outlook. Moody’s may change their outlook to negative if net refining capacity additions and increasing refinery output in Asia materially outpace growth in demand, such that their projected EBITDA for the industry declines by more than 10 percent; or if demand from China and India contracts. On the other hand, it would consider a positive outlook if regional demand overwhelms capacity additions such that refining margins exceed $ 8 per barrel on a sustained basis and if it raises its EBITDA growth forecast to above 10 percent.

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