China drove global oil demand growth over the last decade, but now India is poised to take the lead in demand growth over the next decade, according to a latest report by Moody’s Ratings, reported the Press Trust of India (PTI).
China and India are No. 2 and No.3 oil consumers in the world. But there are notable differences in demand growth in the two countries.
“Demand growth and import reliance will be higher in India,” Moody’s said. “Demand will grow faster in India than in China over the next decade, as China’s economic growth slows and penetration of new energy vehicles accelerates.” Consumption of crude oil -- the raw material for making fuels like petrol and diesel -- in China will peak in the next three to five years years, while in India Moody’s expect annual growth of 3 to 5 per cent in the same period.
Heavy reliance on imports
Stating that both countries rely heavily on oil and gas imports, the rating agency said it expects China’s reliance on oil imports to fall, reflecting slower demand growth and increased domestic production.
Moody’s said China’s larger oil and gas consumption underpins the scale of its national oil companies (NOCs), which will likely outpace their Indian peers in production growth over the next three to five years.
Investments in complex shale gas and offshore projects bolster Chinese NOCs’ reserves and production, while Indian NOCs face challenges from aging wells and slow investment. Additionally, Chinese NOCs’ greater value chain integration mitigates earnings volatility, and they have lower leverage and higher interest coverage. Moody’s saw investment focus vary, reflecting national objectives.
“Chinese NOCs continue to invest heavily in exploration and development to enhance self-sufficiency. Their investments in the downstream refining and petrochemical sectors will gradually decline over the next 3-5 years as most major projects have been completed. By contrast, NOCs in India will still invest heavily to expand refining and petrochemical facilities over the next five years to meet growing domestic demand,” it said.
“Indian NOCs plan to boost domestic oil and gas production but execution remains to be seen,” it added.
Government policies in China are more market-oriented, it said, adding that policies in both countries are aimed at maintaining price stability and adequate supply.
“The effect of policy is more pronounced on companies in India as pricing mechanisms have led to bigger swings in earnings and cash flows. India relies more on taxes and dividends from its petroleum sector to support its fiscal budget than China,” it said.
As carbon regulation in India is still developing, Indian NOCs face less immediate pressure to invest in green technologies compared to Chinese NOCs, which face stricter rules and the need to transition to green practices more quickly.
Both countries rely heavily on oil and gas imports. But Moody’s expected China’s reliance on oil imports will fall, driven by slower demand growth and its push for self-sufficiency amid geopolitical tensions.
China’s oil demand is expected to grow marginally to peak at around 800 million tonnes per annum (mmtpa) by 2030. Apart from slower economic growth, China’s oil demand growth is also constrained by the country’s shift toward cleaner energy.
Fast adoption of NEVs (New Energy Vehicles) and the expansion of renewable energy will reduce China’s need for oil products like diesel and gasoline. However, the country’s consumption of jet fuel and naphtha will likely rise because of increasing air travel and petrochemical production.
