A surge in diesel consumption is on the cards. Aberrant behaviour of the South-West monsoon so far, that has left large tracts of land across the country moisture-stressed, is set to boost diesel consumption. Even under normal rainfall conditions, farmers are used to drawing water from the wells.

And now with patchy rain, desperation is driving them to increasingly rely on diesel powered pump-sets to draw water to irrigate the land.

Pointing out that diesel demand is already up year-on-year by 9.4 per cent to 151,000 barrels a day, Barclays Capital in a recent report said the disappointing Indian monsoon has the capacity to buoy diesel demand further.

As a measure to ease the farmers’ burden, the Agriculture Ministry has announced that the cost of diesel would be halved in areas where rain has been 50 per cent below average up to July 15. This will likely result in diesel sales to likely rising further over the month, the report pointed out.

Additionally, the recent power blackout across northern India is expected to accelerate diesel demand to run generator sets. After grids went offline, back-up diesel generator-sets were extensively used.

This has ranged from residential and commercial users ramping up usage of small diesel generators (15-75 KVA) to ad hoc support for infrastructure providers (telecom, railways, etc) using medium diesel generators (75.1-375KVA).

Industrial usage

Additionally, large diesel generator (375.1-2,000 KVA) usage among industries has also ramped up in order to maintain activity, the report remarked adding there are also other wildcards at play supporting Indian diesel growth story. That diesel consumption in the Indian automobile sector and industrial sector is primarily driven by sale of the fuel at subsidised rates at the retail level is well recognised. Currently, diesel is more than a third cheaper than petrol.

No wonder, diesel is gradually taking market share from fuel oil and gasoline.

Upward revision in diesel prices has been discussed many times over; but there has been little political will to reduce the subsidy given the sensitivity of the subject especially among the vulnerable groups like farmers.

“We remain bullish on Indian diesel demand with July likely to see a growth of over 250,000 barrels a day”, Barclays has said adding Indian diesel demand has already outperformed, with July and August demand set to see a further substantial increase.

(This article was published on August 2, 2012)
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