Petroleum product sales growth flat in 2005-06

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Raghuvir Srinivasan

Chennai, April 26

It is a curious phenomenon. The economy may be galloping away at over 8 per cent but petroleum product consumption growth is flat as a highway.

Sales of petroleum products, at 94.57 million tonnes, fell by 0.8 per cent during 2005-06 compared to the previous year. In 2004-05, 95.37 million tonnes of petroleum products were sold.

Diesel, by far the largest consumed product, saw a growth of 1.4 per cent only in sales at 40.12 million tonnes. The almost flat growth in diesel consumption has foxed Government and oil company officials who are trying to identify possible causes for the trend.

Main factors

A study of the issue by one of the oil companies identifies several factors for the negative growth in petroleum product consumption, especially diesel. Diversion of PDS kerosene as a substitute for diesel because of the large price differential, and higher than normal consumption of diesel in 2004-05 because of the general elections leading to a distortion of the base for comparison are two main factors for the flat diesel consumption growth in 2005-06 as per the study.

Increased operating efficiencies in the transportation sector due to improved roads and a gradual shift of long-distance goods movement to rail are also being quoted as reasons for the fall in diesel consumption. The study also mentions other factors such as smuggling of cheaper products in districts near the Bangladesh and Nepal borders and a copious monsoon last year resulting in lower agricultural consumption, and lower thermal power generation using petroleum fuel as factors for the flat or negative growth in sales of petroleum products.

Aviation turbine fuel (ATF) had the distinction of seeing the largest sales growth of 17 per cent during 2005-06. Interestingly, ATF prices are marked to the market and oil companies seem to have capitalised on the high prices by pushing volumes. The rapid growth in air traffic and refuelling by foreign carriers in the country appear to have driven ATF sales growth.

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(This article was published in the Business Line print edition dated April 27, 2006)
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