India's diesel production will not be able to keep pace with the rapidly growing demand as the government's pricing policy makes diesel cheaper than petrol and even industrial fuels. It has triggered a tectonic shift in the automobile market with diesel cars selling more than petrol cars.
Essar Oil, the second-largest private refiner in the country, believes that India will become a diesel-deficit nation by 2016, as demand will far outstrip supply. "Diesel demand in the country is growing at an annual rate of 8 %. At this rate, India will need a brand new 9-million-tonne refinery every year, so, incase demand continues to grow this rapidly, India will become diesel-deficit by 2016," said, Naresh Nayyar, CEO of Essar Energy. "This will create a big opportunity for private refiners and we at Essar plan to utilise the opportunity by supplying diesel to oil PSUs," he added.
Currently, Essar sells 50-60% of its total output of 14 million tonnes per annum (MTPA) to oil PSUs and exports the rest. "Diesel forms a bulk of our sales to PSUs," added Nayyar.
Diesel would be in deficit despite the construction of new refineries such as Bharat Petroleum's 6 MTPA Bina refiniery and Hindustan Petroleum's 9 MTPA Bathinda refinery, said Nayyar. "In the near-term, these new refineries could lead to a surplus in diesel production but in case the demand continues to surge, all the incremental production added by these new refineries could be absorbed and the nation could become diesel-deficit by 2016," he added.
The automobiles industry has estimated that the share of diesel in overall passenger vehicle sales crossed the 50% mark for the first time last December largely because petrol prices have risen to Rs65-70 per litre while diesel has remained at 74345 per litre.
For vehicles that have both petrol and diesel variants, diesel has grabbed as much as 80% of the model's sales in many cases.
While sales of petrol cars and other vehicles have declined 15% in April-February 2011-12, demand for diesel vehicles has surged 35% in the same period. Oil PSUs tacitly agreed with this eventuality and painted an even grimmer picture. "Diesel is a swing fuel and it could become deficit or surplus at anytime, depending on the government's pricing policy and ability to deregulate it completely," said a senior official at an oil marketing company.
"The pricing anomaly in diesel is so skewed that we are getting badly impacted on all ends, such as the auto retail and industrial. And the unorganised sectors such as subsidised diesel are being used to drive up car sales. It's being used in large volumes by power, fertiliser, cement and metallurgical companies as there is an acute power shortage, and lastly, it is being used in large quantities in the unorganised sector by small and medium enterprises. So, we are being hit badly from all quarters," he added, on condition of anonymity.
State-run fuel retailers are currently losing revenue of Rs13.10 per litre on sale of diesel. "Given that summer is around the corner and power needs are going to peak, we expect the demand to shoot up even further where country-wide demand could shoot up to more than 66 million tonnes this fiscal as opposed to 59.9 MTPA last fiscal," said the official.
The Petroleum Planning and Analysis Cell (PPAC) said diesel accounted for 68% of the overall growth in fuel consumption in the country between April 2011 and January 2012.
"This is a clear sign, indicating the complete dieselisation of the Indian economy," said a senior oil and gas analyst at a Mumbai-based brokerage firm. According to an agency report, IOC — the largest fuel retailer in the country — has recently put out a tender seeking 60,000 tonnes of diesel.