India’s oil demand growth set to overtake China by mid-2020s, IEA says

India’s oil demand growth is set to overtake China by mid-2020s, priming the country for more refinery investment but making it more vulnerable to supply disruption in the Middle East, the International Energy Agency (IEA) said on Friday.

India’s oil demand is expected to reach 6 million barrels per day (bpd) by 2024 from 4.4 million bpd in 2017, but its domestic production is expected to rise only marginally, making it more reliant on crude imports and more vulnerable to supply disruption in the Middle East, the agency said.

“We see India definitely as a key driver for oil demand growth,” IEA Executive Director Fatih Birol told Reuters, but added that the country’s oil demand growth may slow down slightly, in line with slowing global economic growth.

China’s demand growth is likely to be slightly lower than that of India by the mid-2020s, as per IEA’s China estimates given in November, but the gap would slowly become bigger thereafter.

“Indian economy is and will become even more exposed to risks of supply disruptions, geopolitical uncertainties and the volatility of oil prices,” the IEA said in a report on India’s energy policies.

Brent crude prices topped $70 a barrel on rising geopolitical tensions in the Middle East, putting pressure on emerging markets such as India.

India is highly dependent on Middle East oil supplies, like its Asian peers, with Iraq being its largest crude supplier.

India, which ranks No. 3 in terms of global oil consumption after China and the United States, ships in over 80% of its oil needs, of which 65% is from the Middle East through the Strait of Hormuz, the IEA said.

The IEA, which coordinates release of strategic petroleum reserves (SPR) among developed countries in times of emergency, said it is important for India to expand its reserves.

India is the world’s fourth-largest oil refiner and a net exporter of refined fuel, mainly gasoline and diesel. It plans to lift its refining capacity to about 8 million bpd by 2025 from about 5 million bpd at present.

The IEA, however, forecasts India’s refining capacity to rise to 5.7 million bpd by 2024, making “India a very attractive market for refinery investment.”

Drawn to India’s higher fuel demand potential, global oil majors such as Saudi Aramco, BP, Abu Dhabi National Oil Co and Total are looking at investing in its oil sector.