Why India’s diesel demand is contracting, and what it means

India’s demand for diesel is slowing as the country’s car fleet shifts predominantly to gasoline, trucks get more efficient and solar pumps displace diesel-fed units across the countryside.

The combination of these changes has led analysts, academics and company officials to speculate that diesel demand growth in the world’s third-largest crude oil consumer may have peaked, with significant repercussions for the firms that produce and sell the fuel.

In addition to the longer term trends mentioned above, 2019 diesel demand was also curtailed by a prolonged monsoon which brought rural demand to a near standstill this autumn.

Widespread flooding hampered mining, construction and freight movement across parts of the country.

Slowing factory output also stymied diesel demand.

India’s industrial output fell at the fastest pace in more than six years in September, while power demand in October posted its steepest decline in over 12 years.

New legislation that has allowed truckers to carry 10-15 percent higher loads has also reduced the number of trips they need to make.

India consumed 83.5 million tonnes of diesel in the 2018/19 fiscal year, according to Ministry of Petroleum and Natural Gas data.

Most of it was produced and sold by Indian state refiners - Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, Hindustan Petroleum Corp Ltd and Mangalore Refinery and Petrochemicals Ltd.

Private refiners Reliance Industries Ltd and Nayara Energy Ltd also produce diesel, but most of that is exported.

India’s diesel demand growth taps the brakes here

A breakdown of diesel fuel usage by industry for 2018/19 is not available. But a government website showed that transportation accounted for about 86 percent of total use in 2017/18.

Fuel retailers also sell around about 7 percent to state road transport companies, shipping lines and railways.

The remainder is divided among the mining and quarrying, manufacturing, power generation and agriculture sectors.

Diesel accounts for 40 percent of total refined fuel production in India, so refiners are taking steps to counter the impact of stagnating demand for their highest-volume product.