India's Oil Industry Will Benefit from IMO 2020

The IMO 2020 sulfur-cap regulation will generally be beneficial for Indian refining margins, says Wood Mackenzie research director Sushant Gupta.

“We expect middle-distillate cracks (price versus crude) to increase, benefiting Indian refiners because of the high yields of middle-distillate production in their product slate. But refiners will have to face headwinds from weak high-sulfur fuel oil and gasoline cracks. Supported by growing domestic demand and relatively higher refining margins in 2020, we believe India will be able to maintain high utilization rates averaging close to 103 percent.”

Gupta expects demand for India’s oil products to grow by about 220 kb/d. Almost 80 percent of this growth is expected to come from diesel, gasoline and LPG.

“Stabilizing economic growth, the impact of the government’s recent stimulus package and assuming a normal monsoon season, we expect a turnaround in diesel demand growth by about four percent to 1,830 kb/d this year.

“Gasoline will maintain its positive growth, up eight percent to 806 kb/d in 2020 as consumers continue to shift away from diesel passenger vehicles. However, a higher oil price and uncertainty in global economic growth remain key downside risks.”

Coal Production

A slowing economy provided relief to domestic coal production, keeping market in balance in 2019. Principal analyst Pralabh Bhargava said: “Higher rainfalls not only resulted in lower coal generation but also hindered domestic coal production. We expect domestic production to improve in 2020.

“In addition to a decline in coal-based power generation in H2 2019, cement and steel production were also down 1.8 percent and 0.3 percent, respectively. This resulted in a decline in coal demand. We expect coal consumption to grow only 0.5 percent in 2019 as compared to 8.5 percent in 2018 but expect consumption to improve in 2020 with a growth rate of 4.4 percent.

“With power generation and cement and steel production slowing, stocks of domestic coals have started to increase in India. If the economy doesn't pick up in early 2020, and power, cement and steel demand remain slow, we see a downside risk to our coal imports forecast. Currently, we are forecasting 181 Mt of thermal coal and 65 Mt of coking coal imports in 2020.”

Gas Output

Gas output to is expected to grow in 2020 after a disappointing 2019. Principal analyst Alay Patel said: “2019 was a disappointing year as oil and gas production declined. Major reforms were introduced for licensing, but these failed to translate into successful bid rounds.

“Gas production is set to rise by nine percent, underpinned by deepwater projects operated by Reliance (KG-D6) and ONGC (KG-DW-98/2). Both projects are on track for a 2020 start-up – although we expect only one well to be onstream in ONGC’s field.”

LNG demand grew two percent year-on-year through 2019 largely due to a slowdown in Q1 2019. Overall, regasified liquid nitrogen gas (RLNG) usage was driven by the fertilizer (up nine percent) and city gas (up seven percent) sectors, which offset decreased consumption in the industrial sector (down eight percent). Total gas demand growth is expected to rebound in 2020.

In 2020, additional regasification capacity is vital for India to fully benefit from the low spot LNG prices, says Wood Mackenzie. The commissioning of two new terminals, Mundra and Jaigarh, slipped into 2020. The other main addition to capacity will be the expansion of Dahej by 2.5 mmtpa, which should be completed during 2020.

2050

In the U.S. Energy Information Administration’s (EIA) International Energy Outlook 2019, India has the fastest growing rate of energy consumption globally through 2050. By 2050, EIA projects in the IEO2019 Reference case that India will consume more energy than the United States by the mid-2040s, and its consumption will remain second only to China through 2050.