India saved over Rs 30 K-cr in 2020-21 over falling hydrocarbon prices

Analysts expect trend to continue in 2021-2022

India saved over Rs 30,000 crore on its fuel import bill in the first 11 months of fiscal 2020-21 (FY21) even as it bought more petroleum products than a year ago. This was largely because of a fall in international hydrocarbon prices.

According to official data, the country imported finished petroleum products worth Rs 1.50 trillion between April 2020 and February 2021, compared to Rs 1.81 trillion during the corresponding period of 2019-2020.

It is expected that savings will only grow as the data for March is yet to be released.

While India has a robust crude oil refining and natural gas processing capacity, it regularly imports finished products. These largely include Liquefied Petroleum Gas (LPG), Liquefied Natural Gas (LNG), petcoke, and fuel oil.

While LPG is used as cooking gas, others find use across industries — from meeting heating requirements to power generation to running ships. Such finished products require minimal further processing and are sought by end-use industries.

The country imported 62.48 million tonnes (mt) of petroleum products in FY20 and 62.88 mt in FY21. Of these, around 23 mt were LNG imports in both the years. In total, there was a 9 per cent fall in the consumption of petroleum products owing to the Covid-19 impact last year.

But LPG showed a demand growth of 5 per cent, while LNG consumption was flat. “The trend in the share of imports is increasing in both these products in the last few years,” said Debasish Mishra, leader - energy, resources and industrials at Deloitte in India.

The value of LNG imports was approximately Rs 57,661 crore during the April-February period, compared to Rs 65,264 crore a year ago.

However, this lower import value was despite LNG imports flatlining. This means industries involved in power generation and manufacture of fertilisers were able to get cheaper feedstock in FY21.

“LPG import has grown 11.6 per cent year-on-year (YoY) during the 11MFY21 in volume terms, owing to provision of free cylinders and greater coverage under the Pradhan Mantri Ujjwala Yojana (PMUY) scheme. However, the import bill on account of LPG has remained stable due to the lower average crude oil prices,” said Prashant Vasisht, vice president and co-head, Corporate Ratings at ICRA.

“Another reason for greater consumption is preference for at-home dining, but mostly it would be free cylinders and PMUY,” Vasisht added.

Pointing out that crude oil and prices linked to it will remain soft, Mishra said, “India’s LNG contracts are predominantly crude-linked. Even LPG is driven by the benchmark set by Saudi Arabia, which has a high degree of correlation with crude prices. As such, crude price seems to have stabilised with a downward bias given the increased supply from Opec and a resurgent Covid wave might moderate global consumption”

Brent, a benchmark for most crude oil traded in the world, was trading at $65.80 a barrel on Thursday, down from $67.05 a barrel earlier this week. A strong second wave of Covid-19 threatening further demand destruction or a more modest recovery in 2021-2022 has led to the softening of prices. While other products may face pressure, India’s LPG demand should remain buoyant, according to Vasisht.

This is because the Union Budget has envisaged PMUY to be extended to cover an additional 10 million beneficiaries. It is expected that the next phase would kick off from May as the Assembly elections in key states conclude.