India's 2020 energy outlook

Cautious optimism for oil demand growth in 2020

Research director Sushant Gupta said: “We expect 2020 to be a better year with India’s oil products demand growing by about 220 kb/d. Almost 80% of this growth is expected to come from diesel, gasoline and LPG.

“Stabilising economic growth, the impact of the government’s recent stimulus package and assuming a normal monsoon season, we expect a turnaround in diesel demand growth by about 4% to 1,830 kb/d this year.

“Gasoline will maintain its positive growth, up 8% to 806 kb/d in 2020 as consumers continue to shift away from diesel passenger vehicles. However, a higher oil price and uncertainty in global economic growth remain key downside risks.”

IMO regulations to prove beneficial

 Gupta added: “The IMO 2020 regulation will generally be beneficial for Indian refining margins. We expect middle-distillate cracks (price versus crude) to increase, benefiting Indian refiners because of the high yields of middle-distillate production in their product slate. But refiners will have to face headwinds from weak high-sulphur fuel oil and gasoline cracks. Supported by growing domestic demand and relatively higher refining margins in 2020, we believe India will be able to maintain high utilisation rates averaging close to 103%.”

Focus on renewables remains high in the power sector

Solar analyst Rishab Shrestha said: “India continues to invest in renewable sources of power with a focus on affordability, security and environment. Despite the ‘must run’ status of renewable power, wind and solar projects still faced large-scale grid curtailment in 2019, owing to the ongoing financial distress of state distribution companies. This has affected the returns on renewable projects, especially in Andhra Pradesh and Telangana, leading to credit downgrades.

“Even against this backdrop, the competitive price of renewables (averaging less than US$42/MWh) has led to an addition of 11 GW of renewable capacity expected in 2019 with solar contributing approximately 9 GW.

“We expect Indian power generation to grow by 5% on the back of improved economic growth in 2020. With several plants under construction, we expect installed capacity to increase by over 15 GW, mostly coming from new renewable installations. The economics of solar projects are expected to improve as safeguard duties on modules come to an end in July 2020.”

Slowing economy provided relief to domestic coal production, keeping market in balance in 2019

Principal analyst Pralabh Bhargava said: “Higher rainfalls not only resulted in lower coal generation but also hindered domestic coal production. We expect domestic production to improve in 2020.

“In addition to a decline in coal-based power generation in H2 2019, cement and steel production were also down 1.8% and 0.3%, respectively. This resulted in a decline in coal demand. We expect coal consumption to grow only 0.5% in 2019 as compared to 8.5% in 2018 but expect consumption to improve in 2020 with a growth rate of 4.4%.

“With power generation and cement and steel production slowing, stocks of domestic coals have started to increase in India. If the economy doesn't pick up in early 2020, and power, cement and steel demand remain slow, we see a downside risk to our coal imports forecast. Currently, we are forecasting 181 Mt of thermal coal and 65 Mt of coking coal imports in 2020.”

Gas output to grow in 2020 after upstream sector disappoints in 2019

Principal analyst Alay Patel said: “2019 was a disappointing year as oil and gas production declined. Major reforms were introduced for licensing, but these failed to translate into successful bid rounds.

“Gas production is set to rise by 9%, underpinned by deepwater projects operated by Reliance (KG-D6) and ONGC (KG-DW-98/2). Both projects are on track for a 2020 start-up – although we expect only one well to be onstream in ONGC’s field.”

LNG demand growth to depend on pace of city gas and regas infrastructure buildout

Asia Pacific Head of Markets & Transitions, Prakash Sharma said: “LNG demand grew 2% year-on-year through 2019 largely due to a slowdown in Q1 2019. Overall, RLNG usage was driven by the fertiliser (+9%) and city gas (+7%) sectors, which offset decreased consumption in the industrial sector (-8%). Total gas demand growth should rebound in 2020, supported by the fertiliser and city gas sectors.

“In 2020, additional regas capacity is vital for India to fully benefit from the low spot LNG prices. The commissioning of two new terminals, Mundra and Jaigarh, slipped into 2020. The other main addition to capacity will be the expansion of Dahej by 2.5 mmtpa, which should be completed during 2020.”