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Petroleum products: Overview and growth profile - Views on News from Equitymaster
 
 
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  • Sep 11, 2006

    Petroleum products: Overview and growth profile

    Crude and its derivatives are the propelling engines of any economy and sales of petroleum products are contingent upon the growth in economy. In the past, we have seen a fair degree of correlation between the growth in petroleum products and the growth in the overall economic activities. In this article, we provide an overview of major petroleum products in India and their growth trend. These products account for nearly 70% of the total petroleum products sold in the country in volume terms.

    Petroleum products classification:

    Petroleum products are classified into 3 categories:

    • Light distillates.
    • Middle distillates.
    • Heavy distillates.

    Petroleum products and their end uses...
    Products End-use
    Light distillates
    LPG Cooking gas, industrial application, permitted as auto fuel
    Naphtha Feestock for fertilizer unit, petrochemical units and power plants.
    Motor spirit/gasoline/petrol(MS) Automotive fuels
    Special boling point sprits( SBP) Tyres, paints and adhesive industry
    Middle distillates
    Aviation turbine fuel (ATF) Aircraft fuel
    Superior Kerosene oil (SKO) cooking and lighting fuel
    High speed diesel(HSD) Fuel for transport( railways and road),agricultural uses and capitve power generation
    Light diesel oil (LDO) fuel for agricultural pumpsets,small industrial use and start-up fuel for power generation
    Mineral turpentine fuel ( MTO) Paints, and dry cleaning industry
    Heavy distillates
    Low sulphur heavy stock(LSHS) Secondary fuel for thermal power plants, feedstock for industrial units and fertilizer plants.
    Bitumen Surfacing of roads
    Lubes and greese Lubricants for automotive and industrial applications.
    Linear alkyl benzene (LAB) Detergent industry
    Others
    Suplur Chemical industry
    Benzene Synthetic rubber, detergents and polyester units
    Toulene Pharmaceuticals, pesticides,etc

    Individual product profile of major products:

    LPG: LPG is largely used as a domestic cooking fuel with domestic segment accounting for more than 75% of the total demand of LPG. The penetration levels of LPG has improved significantly over the past 5-7 years on the back of improved availability of LPG in the country (due to increase in the domestic refining capacity, along with reduction of custom duties on LPG), also a steep fall in waiting period for allocation of LPG connection plus a quick periodic replacement has helped increase the consumption of LPG in the country. With penetration in urban areas fast approaching saturation, the government along with OMCs (oil marketing companies) is trying to improve penetration in rural areas. Efforts such as launch of a 5 kg cylinder along with common kitchen facilities are being undertaken to improve rural penetration.

    CAGR of sales of various distillates and petroleum products...
    Products 5th plan
    (74-79)
    6th plan
    (80-85)
    7th plan
    (85-90)
    8th plan
    (92-97)
    9th plan
    (97-02)
    10th plan
    (02-07E)
    Light distillates 5.6 7.2 8.3 7.5 15.3 N.A.
    Motor spirits (0.1) 6.9 10.9 6.8 7.2 7.3
    LPG 8.7 18.4 18.9 10.0 12.6 8.2
    Naphtha 10.4 5.3 1.4 6.4 20.1 (3.5)
    Middle distillates 6.7 6.6 7.7 7.4 1.0 N.A.
    ATF 8.2 3.2 5.8 6.7 0.9 3.2
    SKO 3.7 9.0 6.7 3.9 0.5 -
    HSD 9.8 6.9 8.6 9.1 0.9 5.6
    LDO (1.0) (1.1) 4.4 (3.5) 5.4 -
    Heavy distillates 1.5 2.0 4.0 4.6 4.4 N.A.
    Lubes (2.3) 3.2 6.9 1.7 2.3 4.7
    Bitumen (2.4) (2.6) 12.6 5.9 2.6 N.A.
    Total sales 4.8 5.4 6.9 6.8 4.9 3.7
    Source: Petroleum planning and analysis cell

    Motor spirit: Motors spirit or popularly known as petrol is fuel for passenger cars, two-wheelers, and 3 wheelers. Sale of petrol has hovered at around 8% of the total demand for petroleum products in the country. Sale of petrol has traced the growth in number of vehicles in the country. With rising disposable income and a projected increase in number of vehicle, the sales of petrol is expected to register a healthy CAGR of 7% to 8% over the medium to long term.

    Superior kerosene oil: SKO is largely used as a fuel for domestic purpose in the rural areas. SKO is also used for the production of LAB and n-paraffin. While per capita consumption of SKO is set to decline, the absolute consumption for the purpose of domestic use is expected to remain static for quite some time to come. However, the overall consumption trend is significantly affected by the illegal use of SKO for the purpose of adulteration.

    High-speed diesel: Diesel demand is directly related with the growth in the overall economic development of the country. Transport and agriculture sectors account for a bulk of the diesel consumption in the country. The demand is set to be robust going forward on the back of improved economic performance of the country.

    Conclusion: As seen from the growth pattern, all the petroleum products have registered robust growth rates in the recent past. However, these growth rates would not have been possible without government intervention from time to time. Recognizing the importance of these products to the overall economic development of the country, government has time and again stepped in to place the burden of higher prices upon the oil companies. While steep taxes are levied on these products, bringing the same down is not the option the government often considers as this would considerably reduce their tax mop-ups and place a burden on the national exchequer. Thus, while bringing sanity to high prices is beyond the government's reach, it has to ensure that it does not lead to derailment of the domestic economy. This will surely test its mettle in the near future if prices do not cool off from current levels.

     

     

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