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Energy: Slowdown takes grip

Oct 9, 2001

The petroleum sector is having a run of bad fortune. Over the past eighteen months oil prices have exhibited increased volatility, which has marred refining margins. Adding to the volatility is the uncertainty in the external environment. Coupled with higher prices has been the slowdown in the domestic economy. After having grown by above 7% in the past two years, petroleum consumption registered a sharp decline in growth to 1.4% in FY01. This slowdown in growth has continued into the current fiscal. The consumption pattern of petroleum products is weighted towards middle distillates constituting 54% of total consumption. Followed by light (20%) and heavy (16%) distillates respectively.

Consumption pattern
Light Middle Heavy
LPG 6.0 HSD 39.3 Furnace Oil 6.8
Petrol 5.9 Kerosene 10.7 LSHS 4.8
Naphtha 8.0 ATF 2.2 Bitumen 2.9
Others 0.6 Others 2.0 Others 1.5
Total 20.5   54.3   15.9
* numbers in MMT ** For FY00

For the first five months of the current fiscal petroleum consumption (6 key products) is estimated to have fallen by 2.6% YoY. This is largely due to a drop in consumption of diesel, which constitutes 39% of overall petroleum consumption. Estimated diesel consumption declined by 4.3% in the first five months of FY02. This does indicate the dieselisation of the economy. However, with dismantling of the APM and use of gas, as an alternative source of energy, this trend is likely to change in the future. Kerosene and naphtha also registered de-growth over the concerned period by an estimated 6.4% and 7.7% YoY.

On the other hand, light distillates have done much better compared to other products. LPG and petrol consumption is estimated to have increased by 11.8% and 5.5% over the concerned period. These two products constitute 58% of light distillate consumption. Reduced consumption, fresh capacity and high operating rates have led to oversupply of petroleum products. Consequently, companies have resorted to exports. With refineries being compensated at landed cost for petroleum products, export markets are suspected of not being as remunerative.

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