Analysis: Jet fuel a winner as India’s love affair with flying intensifies

Jet fuel has been witnessing the sharpest growth among all oil products in India so far this year, with a double-digit growth in the January-July period, as the aviation sector expands capacity to keep up with the steep growth in demand for air travel in one of the world’s fastest-growing markets.

India’s oil products demand – January to July 2017A more affluent middle-class, intense competition among low-cost airlines, and robust economic growth — all these factors are contributing to an exponential growth in air travel in the country.

To sum up, air travel, which was a luxury in India a couple of decades ago, is not so anymore.

“The ramping up of capacities by airline players is expected to result in a 10%-11% growth in demand for aviation turbine fuel this year,” said Rahul Prithiani, director of research at CRISIL, an S&P Global company.

Jet fuel consumption in India grew more than 11% year on year to 4.31 million mt in the January-July period, compared with 3.88 million mt in the same period a year earlier, data from the Petroleum Planning and Analysis Cell showed. In July alone, demand for jet fuel grew 10.4% to 617,000 mt, from 559,000 mt in the year-ago period.

According to CRISIL estimate, Available Seat Km — the number of seats available multiplied by the number of miles or kilometers flown, which is used as a measure for growth in air travel — is expected to increase by 18% in fiscal 2017-2018 (April-March) in the country. This in turn will strongly support the growth in aviation fuel demand.

“Air tickets are getting increasingly affordable because of intensifying competition between budget airlines,” said Lim Jit Yang, director for oil market analysis for Asia-Pacific at PIRA Energy Group, a unit of S&P Global Platts. “Rising incomes and strong GDP growth are also helping the aviation sector to post robust growth.”

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According to CAPA – Centre for Aviation, an independent provider of market intelligence for the aviation sector, while India’s domestic traffic could grow by nearly 25% in fiscal 2017-2018 and approach 130 million passengers, international travel could growth by about 10%-12%.

Indian government officials believe that the country has the potential to become the biggest aviation market by 2030. Low-cost airlines hold the largest share of the aviation market in India.

LPG A CLOSE RUNNER-UP

India’s LPG demand also grew by a robust 9.2% year on year to 12.91 million mt in the January-July period, from 11.82 million mt in the same period a year earlier. In July alone, LPG consumption grew by 12.5% year on year to 1.92 million mt, from 1.71 million mt in the same year-ago period.

“With the government continuing to add new LPG connections, particularly in rural areas, apart from the regular additions in urban areas, growth in demand for LPG is expected to remain robust in the near term,” CRISIL’s Prithiani said, adding that LPG demand growth in the whole of fiscal 2017-2018 would be in the 9%-10% range.

India is expected to invest $3.9 million-$4.7 billion in developing infrastructure facilities for LPG to raise household connections to 95.5% by 2020, according to oil ministry officials. But despite the capacity build-out, India is expected to continue importing LPG, at least for the next 10-12 years.

The country consumed 21.5 million mt of LPG in fiscal 2016-2017, a 9.8% growth from the previous fiscal, according to the oil ministry updates. Half of the demand was met with imports, mainly from the Middle East.

“LPG demand in India has benefited from a deliberate government policy to encourage households to use more LPG for cooking. The on-going implementation of Prime Minister Narendra Modi’s Ujjwala scheme will continue to support LPG demand in the country for the rest of this year,” PIRA’s Yang said.

GST TO HELP GASOIL

In the January-July period, India’s gasoline demand grew by more than 7% year on year to 14.50 million mt, from 13.55 million mt, while diesel demand grew by a modest 2% year on year to 46.33 million mt, from 45.40 million mt.

“Industrial activity is expected to grow following the easing of the impact after demonetization and the smoothening of industry operations following the GST [goods and services tax] implementation. This will lead to higher offtake of diesel from the transportation segment,” CRISIL’s Prithiani added.

Kerosene posted the sharpest fall among all oil products, with consumption falling by more than 33% in the January-July period to 2.51 million mt, from 3.77 million mt in the year-ago period, as the government gradually removed subsidies in an effort to discourage its consumption.

Naphtha consumption fell by 5.5% in the seven-month period to 7.56 million mt, from around 8 million mt a year earlier, while fuel oil demand fell around 11% to 3.98 million mt, from 4.47 million mt a year earlier.

“The recent contraction of manufacturing activity is a concern, with India’s PMI dipping below the 50-level to 47.9 in July, down from 50.9 in June, although this may well be a temporary effect following the implementation of GST from July 1. Overall, India’s oil demand should remain relatively robust for the rest of 2017,” PIRA’s Yang added.
Source: Platts

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