Shift To Two-Wheeler EVs To Reduce India’s Petrol Consumption: CRISIL

In a recent report, CRISIL Research highlights a projected rise in the market share of electric two-wheelers, expected to reach 12-15% by fiscal 2030 from current levels of under 5%. Additionally, the report highlights the emergence of compressed natural gas (CNG) passenger vehicle sales are expected to grow to 17-19% by the same period.

This increasing share of electric and CNG vehicles could help curb petrol consumption. Furthermore, India’s aim to achieve a 20% ethanol blending target by 2026 will also contribute to reducing petrol demand.

Currently, internal combustion engine (ICE)–based two-wheelers account for approximately 75% of petrol consumption in India, with the remaining share coming from passenger vehicles. In recent years, states like Jharkhand, Manipur, Uttar Pradesh, Tamil Nadu, and Himachal Pradesh have integrated electric vehicle policies into their state frameworks.

A Shift Toward EVs Can Lower Natural Gas Usage

CRISIL Research projects that India’s oil marketing companies (OMCs) will add 35-40 million tonnes (MT) of crude oil refining capacity, bringing the total installed capacity to about 295 MT by the end of fiscal 2030. This expansion is necessary to meet the expected growth in consumption, as current refining capacities are already being optimally utilized.

This capacity expansion will require a capital expenditure (capex) of approximately Rs. 1.9-2.2 lakh crore, with most of the additions coming from brownfield expansions. The project risk for these investments is expected to be low, and combined with steady expected returns, this will support the credit risk profiles of OMCs. Between fiscal 2014 and 2024, India’s refining capacity increased by 42 MT to reach 257 MT, primarily to meet growing domestic consumption, while exports remained stable at 60-65 MT during this period.

The domestic consumption of petroleum products saw a compound annual growth rate (CAGR) of 4% over the past decade. Transport fuels, which account for around 56% of total consumption, grew by 4%, while naphtha (7% of consumption) grew by 2%. The remainder, consisting of products like liquefied petroleum gas (LPG) and bitumen, grew collectively by around 4%.

Anuj Sethi, Senior Director at CRISIL Ratings, says, “We expect overall petroleum product consumption to moderate slightly, registering a CAGR of around 3% over the next six years. This will primarily be due to slower growth of 2-3% in transport fuel consumption, driven by improving fuel economy, an increasing share of alternative cleaner fuels, and the Government of India’s target of 20% ethanol blending.”

The report highlighted, that approximately 75% of diesel sales in India are linked to commercial vehicle usage. A shift toward electric vehicles or the use of natural gas in buses is expected to lower diesel demand, moderating its growth to around 2-2.5% CAGR over the next six years.

EV Two-Wheelers And CNG Passenger Vehicles To Rein In Petrol Consumption

Even as petrol consumption is hit by rising share of EV two wheelers, naphtha demand is expected to grow at a healthy CAGR of 6-7%, supported by increased demand from planned petrochemical capacity expansions in India.

This overall growth in consumption will necessitate a 35-40 MT increase in refining capacity, as current capacities are already operating at near-optimal utilization levels of around 100-103%.

Joanne Gonsalves, Associate Director at CRISIL Ratings, adds, “Most of the capacity additions will be brownfield expansions aimed at meeting the demand for end products, thereby reducing project risks. We have also seen oil refiners maintaining balanced operating profits amid the volatility in oil prices, earning $9-11 per barrel in rolling average returns between fiscals 2016-2024, resulting in a return on investments of 12-14%. Moreover, the sector benefits from its strategic importance to the government.”

OMCs may also consider adding more refining capacities as part of their petrochemical expansion plans to diversify their businesses. The execution of this capex and the returns it generates will be critical areas to monitor.