India’s diesel exports to Europe, which almost tripled to about 160,000 barrels a day (BPD) in March 2023 compared to the period before the Russia-Ukraine war, are expected to plateau or even decline in FY24.

Analysts and market players attribute this to rising domestic consumption of diesel, which accounts for around 40 per cent of India’s refined petroleum product usage, as well as the government’s imposition of windfall tax, or Special Additional Excise Duty (SAED).

“Diesel exports from India to EU-27 plus UK have grown quite significantly since Russia’s invasion of Ukraine started, averaging around 150,000-160,000 BPD from last summer to this March, almost tripling vs pre-invasion levels,” Kpler’s Lead Analyst (Dirty Products and Refining) Andon Pavlov told businessline.

Over the months since September 2022, Indian diesel exports to EU-27 plus UK have been sitting at between 7-8 per cent over most months, as opposed to a normal rate of around 3-4 per cent prior to the invasion, save for a couple of outliers, he added.

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The US EIA in a March report said India’s diesel exports to North-western Europe — the UK, Ireland, Belgium, the Netherlands, Luxembourg, France, Germany, Denmark, Norway, Sweden and Iceland — rose by 110,000 BPD to 161,000 BPD in February 2023 compared to average exports from the world’s fourth largest refiner between October 2021 and September 2022.

Kpler said that most exports to Europe were by Reliance Industries. “Save for occasional cargo, the India-to-EU/UK gasoil exports stream has been an almost exclusive one for the Jamnagar refinery,” he added.

A March 2023 report by JP Morgan said “Reliance Industries’ refining strength comes from the diesel-heavy production slate, export-focussed refineries, and the ability to purchase and process arbitrage barrels, which have a discount vs benchmark oil.”

Domestic demand skews exports

Pavlov pointed out that so far the EU embargo has not proven to be a boon for Indian diesel exporters. A trade source said that main diesel suppliers to Europe will be Middle East, including Kuwait.

“In terms of exports after the EU ban on Russian material kicked in (February 5), however, we do not see yet an uptick in flows from India to Europe. One of the reasons is the particularly strong Indian demand, keeping barrels close to home, with export levies (windfall tax) also putting a lid on exports,” he added.

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A senior official with a refiner said that diesel consumption will surpass 90-91 million tonnes in FY24, which means that the government’s priority will be to ensure domestic requirement is met.

“Indian refiners are expanding capacity, which will happen over the next two fiscals and will then have more capacity for export of not just diesel but other refined products also,” he added.

Going ahead, trade dynamics will depend on how regional and global balances develop. For instance, diesel demand in Europe is far from encouraging, whereas a lot of new ultra low sulphur diesel (ULSD) capable capacity is hitting the market in Middle East and China, Pavlov said.

Key forces at play

When asked about India’s diesel exports to Europe, BP’s Chief Economist Spencer Dale explained that there are two big forces at play, which are “sort of” working in opposite directions. Since the EU ban on refined Russian products, the exports from Russia continue and go to some other parts of the world, while other supplies get diverted to Europe and the board reshuffles.

“I can quite understand the (Indian) government worrying about not having enough refined product domestically and wanting to incentivise domestic producers to ensure they supply the market, and it makes perfect sense to me. There are these two forces at play here simultaneously and which way it goes I don’t know,” he added.

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