India to Eclipse China in Driving Global Oil Demand Growth by 2027: IEA

India to be biggest driver of global oil demand

The International Energy Agency (IEA), an intergovernmental organization that works on energy security and sustainability, has made projections regarding future global oil demand growth. As per IEA’s latest report, India’s oil demand is expected to increase substantially between 2023-2030, driven by economic expansion and rising mobility.

Specifically, IEA forecasts India to surpass China and become the largest contributor to incremental global oil consumption by 2027. According to their projections, India is on track to post a significant rise of nearly 1.2 million barrels per day (BPD) in crude oil demand between 2023 and 2030. This accounts for over one-third of the estimated overall global demand growth of 3.2 million BPD during the said period. Robust consumption across sectors like manufacturing, transportation and agriculture is responsible for the sharp anticipated surge in India’s oil usage as per IEA.

What are the Key Growth Drivers of Oil demand in India?

The IEA report identifies several factors propelling the projected growth in India’s oil demand. Economic development resulting in industrial expansion and greater mobility of people is a major driver per the analysis. Diesel is pinpointed as the foremost source of increase, accounting for close to 50% of the total demand growth.

Rapid urbanization and infrastructure building activities are escalating diesel consumption for running heavy machinery and transportation vehicles. Additionally, the report predicts notable growth in jet fuel demand, stemming from rising air travel by an expanding middle class. However, greater adoption of electric vehicles (EVs) will contribute to more modest growth in gasoline/petrol demand compared to other products as per IEA. Around 0.2 million barrels per day of demand displacement is foreseen owing to EV penetration by 2030.

What is the Magnitude of Projected Increase?

The IEA analysis underscores the sheer scale of the expected increment in India’s oil demand over the coming years. As per their estimates, India alone will account for over one-third of the total global demand rise of around 3.2 million barrels per day (BPD) from 2023 to 2030. This dominance is by virtue of projected robust growth, averaging almost 1.2 million BPD through the period according to IEA’s calculations.

Furthermore, with domestic oil production continuing to decline, India is set to considerably ramp up import volumes to meet the elevated demand. Crude oil imports are pegged to jump by over a quarter to around 5.8 million BPD by the end of this decade as per IEA. The shrinking gap between domestic supply and consumption patterns is a key factor underlying the requirement for substantially greater volumes of imported oil.

What Impact Mitigation Strategies is India adopting?

The IEA report highlights certain measures that can dampen oil demand growth in India beyond the projections. It estimates that factors like rising electric vehicle (EV) usage, improving energy efficiency across sectors, and larger ethanol/biodiesel penetration in transport can displace around 0.5 million barrels per day (BPD) of oil consumption by 2030 relative to baseline estimates.

Additionally, enhancing strategic petroleum reserves (SPRs) is noted as a key mechanism for strengthening energy supply security amidst surging import reliance. SPRs are emergency stockpiles of crude oil which help tide over external supply disruptions and market volatility. As India’s dependence on imported oil continues to increase driven by muted domestic output, building adequate SPR capacity assumes critical importance per IEA. This shields the economy from potential global supply-demand imbalances or geopolitical crisis situations.