Why Energy Demand Will Keep Spurring India's Growth - Even in the Face of A Recession

As the world economy is slowing down, India is among the few economies that will grow and handsomely at that. While the negative effects of a worldwide slowdown will certainly reach its shores, India’s growth story is driven by domestic consumption. And Indians have only recently begun consuming.

Turns out, energy is one of the several areas of domestic consumption that will continue to prosper. The Indian consumer is demanding more cars, more air travel, more power and more plastics. All of these require hydrocarbons.

Energy consumption of the average Indian is among the lowest in the world. Even the average Chinese, and China is a more populated country, consumes nearly 3 times more primary energy than an average Indian.

In the immediate future, India’s energy consumption will grow nearly 3 to 5 times as fast as that of the U.S. When compared to Europe, it is likely to grow six times as fast. In fact, no company present in the energy space in India really worries about sales volumes. Indeed, the state owned oil-marketing companies regularly complain about not being able to cope with the demand.

Of course, they suffer from the highly subsidized prices that the Indian government lets them charge, but that’s another matter.India is moving towards increasing its crude oil production with great urgency. It has recently held the 7th round of a series of auctions for oil exploration. The national oil exploration company, ONGC has begun pursuing oil blocks abroad with unusual vigor. The external ministry gladly lends a helping hand in negotiations, be it with Russia or countries in Central Asia and Latin America.

There has been a spate of discoveries in the natural gas front in India, especially in the eastern deep waters. As a result, the country is likely to clock one of the fastest growth rates in natural gas production in the world over the coming several years. Only Brazil’s gas production is likely to grow faster.

India has a geographical advantage in becoming the hub of refining in the world as it has proximity to crude oil sources and is located on the natural oil trade route. It has among the lowest capital cost per barrel for creating oil refineries and the lowest operating costs in the world. Indian refineries have already begun exploiting the advantage to their benefit. They exported more than 32 million tones (MT) of petroleum products in FY07 and the capacity utilization of Indian public sector refineries has been more than 100% as compared to the world average of 86%. Moreover, India is expected to add a capacity of 112 MT per annum by FY12 and leapfrog from its current 5th place in the world after the U.S., China, Russia and Japan. Exports are likely to reach 96 MT per annum by FY12.

Refining capacity addition by FY12

In an uncertain global environment, India’s hydrocarbon space promises to be an economic shelter - combining robust demand with a rapidly evolving supply scenario. Clearly, this is the dawning of the next hydrocarbon society.

Originally published October 29, 2008.

More Articles about Emerging Markets and India from Taipan Publishing Group

India’s Big Win

Financials, Oil and Asia ETFs

Building Up India’s Power Infrastructure

Useful Links about Emerging Markets and India Energy Opportunities

India is the Next Big Market for Retail Financial Services

Fueling Sustainable Development, The Energy Productivity Solution

$5 Billion is Just The Start

Comments (0)

Other Related Topics: Economic Growth , Energy Products , Global Markets , India Investments , Investment Opportunity