India sucks in diesel as poor monsoon triggers massive power shortage
2
August, 2012
A
day after two massive power blackouts crippled northern India,
state-owned refiner and largest marketer Indian Oil Corp. sought its
fourth parcel of gasoil for this summer -- it needs 60,000 mt
(507,000 barrels) of gasoil for August 19-21 delivery (see story at
0411 GMT).
And
market players expect there could be more such purchases, as India
faces the threat of drought after a strikingly poor monsoon.
During
the widespread power blackouts on Monday and Tuesday this week, which
affected more than 600 million people, a substantial amount of
back-up electricity was produced using diesel-powered generators,
Barclays said in a market report Wednesday.
"This
has ranged from residential and commercial users ramping up usage of
small diesel generators to ad hoc support for infrastructure
providers using medium diesel generators," the report said.
"Large
diesel generator usage among industries has also ramped up in order
to maintain activity."
Inadequate
monsoon rainfall has dealt a double whammy to the country's power
supply and demand balance: hydroelectric generation has dropped,
while power demand for irrigation from farmers trying to save their
drying crops by using underground water has spiked.
Barclays
expects India's gasoil demand to rise by more than 250,000 b/d in
July -- after already having registered a year-on-year increase of
151,000 b/d or 9.4% this season.
Before
the latest tender, IOC had already bought 180,000 mt of 320 ppm
sulfur gasoil for June and July delivery, as the seasonal spike in
demand coincided with maintenance shutdowns at some of its
refineries.
IOC
is not considered a regular buyer of gasoil, only sporadically
picking up cargoes from the spot market to balance its inventory
levels, according to sources.
JUNE
GASOIL SALES RISE 13.8% ON YEAR
Though
official data showed a slight month-on-month dip in June gasoil sales
in India, which came in at 6.08 million mt (1.51 million b/d) versus
6.38 million mt in May according to the Petroleum Planning and
Analysis Cell under the oil ministry, the figure was still 13.8%
higher than a year ago.
Average
rainfall across the country between June 1 and July 31 was 19% below
the long-term average, according to the latest report by the India
Meteorological Department Wednesday.
"A
drier monsoon shower has meant farmers have had to rely on
diesel-powered pumps to draw water from wells," Barclays said in
its report.
"As
a measure to ease the farmers' burden, the agriculture minister has
announced that the cost of diesel would be halved in areas where
rains have been 50% below average up to 15 July, allowing diesel
sales to likely rise even further over July," it added.
Meanwhile,
Indian refiners ratcheted up gasoil production in June in a bid to
close the gap with rising demand for the fuel, PPAC data showed.
Total
gasoil production by the country's refiners in June, at 7.67 million
mt (1.91 mil b/d), was the highest ever on record, and surpassed the
previous peak of around 7.5 million mt in March this year, according
to preliminary data from PPAC.
The
gap between gasoil production and domestic sales is explained by
exports, the majority of which are from the country's two private
refiners, Reliance Industries Limited and Essar Oil.
Gasoil
exports by RIL and Essar dropped to around 1.73 million mt in June
from around 2.28 million mt in May, according to data compiled by
Platts from shipping fixtures -- a drop of 24%. India's state-owned
marketers probably sourced more gasoil from the private refiners,
reducing availability for export, market sources noted.
AUTOMOTIVE
SECTOR ALSO VIES FOR DIESEL
The
Barclays report also highlighted rising diesel demand from the
automotive sector owing to the heavy subsidies the fuel enjoys
compared with gasoline, which is sold at international market prices.
"While
the subsidies are targeted to the more vulnerable parts of the
agricultural sector, the price differentials mean that diesel has
been the favored fuel for both automobile and industrial sector use,
with diesel gradually taking market share from fuel oil and
gasoline," the report said.
Diesel
currently retails at Rupees 41.29/liter ($0.74/liter) in the capital
New Delhi, substantially lower than gasoline, which sells for Rupees
68.46/liter.
"While
a cut in diesel subsidies has been discussed given the impact on the
public purse, the government has put it on hold for now, given the
current electricity situation," Barclays said.
"Also,
it is likely that given the sensitivity of diesel prices to the most
vulnerable sections of India's population [agriculture], even if an
adjustment of the diesel price upwards is considered, it could
potentially be passed through using a one-off charge on buying diesel
cars rather than an outright increase in diesel prices," it
added.
Goods
transport by trucks accounts for the single biggest use of diesel in
India, with a 37% share, followed by passenger cars (15%), buses
(12%), agriculture (12%), industry (10%), power generators (8%) and
railways (6%), according to the last available PPAC breakdown, which
dates back to fiscal 2008-09. The exact current share of passenger
cars in the diesel demand pool remains contentious and confusing,
with a much smaller number -- 0.6% -- mentioned in a report by the
Planning Commission earlier this year vigorously challenged and
debated.
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