High Indian oil demand growth cannot last-IndianOil
New Delhi   21-Apr-2008
Indian oil demand is expected to grow by 8-10 percent this year, a rate which is unsustainable, said Sarthak Behuria, Chairman of state-run IndianOil, on Monday. Strong demand growth from emerging economies such as China and India has helped push oil prices to a record high. U.S. crude hit a fresh peak of $117.40 a barrel on Monday. Indian oil demand growth has not slowed as subsidised fuel prices insulate consumers from record crude prices, Behuria said. "I expect oil demand growth of around 8-10 percent this year," Behuria told Reuters in an interview. "Demand is still growing very quickly because retail prices are so low -- so consumption doesn't reflect the true price of the product. This growth rate is unsustainable." Indian oil demand growth is outpacing growth in refining capacity to meet domestic demand, Behuria said. India is building a string of new refineries but much of the new supply has been earmarked for exports, he said. India's top oil retailer was looking for more help from the government to ease losses it makes on selling refined products at subsidised prices, Behuria said. Retail price rises would help, although this would be politically difficult for the government, already struggling with inflation near three-year highs amid rising international food prices. "The government is walking a tightrope," he said. "Inflation is up because of food prices and any increase in oil product prices would have a further impact." Selling at a subsidised rate means India's top oil retailer makes losses on paper of around $55 million a day on sales of gasoline, diesel, kerosene and cooking gas, Behuria said. The government compensates IndianOil with bonds that cover about 80-85 percent of the losses. The rest is absorbed by IndianOil. Cutting oil taxes might be another way for the government to help state-run refiners absorb the losses, Behuria said. While the government has helped keep the company afloat, the issuing of bonds has caused problems with cash flow and working capital, Behuria said. <b>Angolan Crude</b> IndianOil is about to sign a term contract to buy around 30,000 barrels per day (bpd) of sour crude from Angola, said IndianOil General Manager Ajit Ujwal. The company is looking for more supplies of cheaper, heavier high-sulphur crude as it upgrades refineries to process the oil, Ujwal said. It wants to increase heavy crude intake to around 70-75 percent of crude processed, from around 60 percent now. It may look at taking more heavy crude from Iran and Venezuela, Ujwal said. IndianOil remains committed to expanding in the international oil and gas exploration and production sector despite limited success in its forays to date, Behuria said. "That remains our focus for international expansion," he said. IndianOil has 10 refineries spread across India with capacity to process around 1.2 million barrels per day of crude. <b>LNG Project on Hold</b> A project to build an import terminal for liquefied natural gas (LNG) at Ennore was on hold until IndianOil could secure long term supplies of the gas, Behuria said. Rising international prices for LNG, which is gas chilled to liquid for easier shipping, have made securing the supplies difficult, he said. "We can't move ahead with an investment like that until we secure the supplies," he said. "But the end users of the gas -- the power and fertiliser sector -- can't afford the current international gas prices."