Rapid Demand Growth For Electric Vehicles In India Initiates Long-Term Strategy Rethinking Of Fuel Demand

The rapid adoption of electric vehicles in India’s emerging market has prompted a major rethinking of the country’s long-term fuel requirements, as refiners in Asia’s third-largest economy accelerate their shift away from oil production. India, one of the world’s fastest growing oil markets, has lagged behind major economic peers in Europe and Asia in terms of EV adoption, but sales are now picking up, and investment in new autos and energy infrastructure is increasing.

According to some analysts and industry participants, India’s gasoline consumption will peak sooner than previously thought, forcing top oil firms to accelerate transition plans to alternative business lines, particularly increased petrochemical manufacturing.

“We were anticipating that peak gasoline demand will be around 2040-2045 earlier, but going by the trend and the speed with which we are developing the ecosystem around EVs, the peak demand would be mid-2030s,” Debasish Mishra, Partner, energy, resources and industrials, Deloitte India told Reuters. He expects diesel demand to peak around the same time as petrol.

Slowing fuel demand will be visible by 2030 as EV technologies stabilize, compared to an earlier projection of the 2040s, an industry source at an India-based refinery told Reuters, adding that changes in the heavy trucking sector will come later.

“Refiners are already investing in petrochemical integration to cope with the potential loss in fuel demand,” said the source who declined to be named because he is not authorised to speak to the media.

According to him, China currently meets roughly 90% of Indian petrochemical demand, so a shift by Indian refiners toward domestic chemical needs could dramatically alter supply dynamics.

Indian refiners are investing billions of dollars in petrochemical capacity expansion. The country’s largest refiner, Indian Oil Corp, is increasing petrochemical capacity at its Panipat refinery by 13% and building new plants linked to its Paradip and Gujarat refineries.

Reliance Industries Ltd, the world’s largest refining complex operator, intends to invest 750 billion rupees ($9.38 billion) in expanding its chemical business, while Essar Group intends to build a 400 billion rupee petrochemical complex in east India.

Nayara Energy anticipates that 15-20 new integrated petrochemical plants will be built over the next decade.

China currently leads the world in EV production, and domestic adoption of new energy vehicles is well underway. According to the China Passenger Car Association, sales of new energy vehicles, primarily EVs, are expected to reach 8.5 million units this year, accounting for 36% of all new vehicle sales.

Despite new momentum in India, the question is whether it will be sufficient to eventually break the country’s reliance on fossil fuels.

“Limited charging infrastructure, low domestic EV production and high EV battery costs remain some of the key hurdles in maintaining strong EV uptake in the long run,” said Dylan Sim, oil market analyst at FGE.

India’s progress is modest in global terms, but last year registered EVs tripled to 1.01 million by 2021, with the majority being two- and three-wheelers.

While EVs account for only 1% of the 3 million cars sold each year, New Delhi hopes to increase this to 30% by 2030 and has implemented a variety of policies to that end, including consumer tax breaks.

State refiners in India, which dominate fuel retailers, intend to install EV charging stations at over 22,000 fuel stations and highways by 2024.

The private sector is also giving EV investors hope.

Blusmart, a ride-hailing service based in Gurugram with a fleet of 3,000 electric vehicles, has experienced rapid growth.

Punit Goyal, the company’s co-founder, told Reuters that it now provides 500,000 monthly trips, up from around 35,000 when it first launched in 2019.

Tata Motors and Mahindra & Mahindra have made significant investments, while foreign players such as Kia and BYD have announced premium models for the Indian market.

Diesel accounts for roughly 40% of India’s fuel demand, and is primarily used by trucks.

Chetan Maini, chairman of Sun Mobility, a provider of electric mobility solutions, believes that India’s smaller trucks, including three-wheelers, will be early adopters in the transition due to the cost advantage for e-commerce and delivery firms.

His company currently operates 80 battery swapping stations for two- and three-wheelers in Delhi, with plans to expand to 200 by March.

“A large opportunity by 2030 is going to be on the trucking side because the cost economics will work out really well,” Maini said.

(Adapted from Reuters.com)

Categories: Economy & Finance, Entrepreneurship, Regulations & Legal, Strategy, Sustainability

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