Petrol, diesel demand growth to halve due to CNG, ethanol, EV push: Crisil

Refiners may need to trim capacity expansion plans

The demand growth for petrol and diesel is going to be severely impacted due to the push towards Compressed Natural Gas (CNG), ethanol blending, and electric vehicles.

According to Crisil Ratings, the demand growth in petrol and diesel combined will likely decline to 1.5 per cent annually this decade, compared with 4.9 per cent in the last.

“The trend will also be persuaded by policy interventions as India targets net zero emissions by 2070. Taking cue, oil refiners would be altering their production mix in favour of alternatives such as petrochemicals, which should also support their profitability,” the ratings agency said in a statement.

Crisil said that its analysis shows government initiatives to control emissions will impact the transportation sector on three major counts this decade.

“Through fiscal 2025, aggressive adoption of CNG and ethanol blending will help slow down growth in demand for petrol. Beyond that year, there will be further flattening as electric vehicles (EV) hit the road rapidly.” Crisil said.

These initiatives will displace a significant portion of diesel and petrol sales in coming years.

“Diesel consumption will log a compound annual growth rate (CAGR) of around 4 per cent between fiscals 2022 and 2025, but slow to approximately 2.5 per cent between fiscals 2025 and 2030, given continuous penetration of CNG vehicles. The brakes will slam harder on petrol sales, slowing it from an already low CAGR of about 2 per cent between fiscals 2022 and 2025 to a mere 1 per cent CAGR between fiscals 2025 and 2030,” Crisil said.

Commenting on the prospects for oil refining companies, CRISIL said, “The 40-60 million tonne per annum (MTPA) of capacity addition lined up by refiners—over and above approximately 110 MT that will come on-stream by fiscal 2030 — may need to be trimmed as these may not be needed,”

“Even excluding these 40-60 MTPA capacities, we see utilisation of refiners remaining below 100 per cent through most of this decade for the first time in years,” the CRISIL report added.

The Domestic demand for petrol (excluding ethanol) is expected to grow a mere 2 per cent between financial year 2021-22 and 2024-25. Between fiscals 2020 and 2025, it is expected to be flattish at 28.8-29 MTPA. Over the next three years, 28-30 MT of domestic sales is expected to be displaced.

“Of this, 16-18 MT will be because of ethanol blending, 9-11 MT due to CNG and 1-2 MT by EVs,” CRISIL said.

“As EV penetration gains momentum post fiscal 2025, largely led by the two-wheeler segment, the fuel displacement is likely to get sharper. We expect a total loss of 70-72 MTPA between fiscals 2026 and 2030 — 46 per cent attributable to ethanol blending, 34 per cent to CNG, and 20 per cent to EVs,” the Crisil report added.