London, May 16

India is taking over from China as the main growth market for oil, the International Energy Agency (IEA) observed in its latest petroleum market update.

India’s oil consumption has grown at an average annual rate of five per cent over the last decade and climbed over four million barrels per day for the first time in the year ending in March 2016.

India is currently the world’s fourth-largest oil consumer after the United States, China and Japan, and set to overtake Japan for the third slot within the next 12 to 18 months.

Diesel remains the largest end market, accounting for more than 40 per cent of all petroleum consumed in the country, according to the Ministry of Petroleum and Natural Gas.

Liquid petroleum gas for cooking and petroleum coke for power generation are other major markets, each accounting for about 10 per cent of final demand.

Gasoline, by contrast, accounts for only 12 per cent of total consumption, but is the fastest-growing segment, with demand rising by 10 per cent a year for the last decade.

Gasoline demand has been accelerating, with consumption up 11 per cent in 2014-15 and more than 14 per cent in 2015-16.

Growing gasoline demand is directly linked to the explosion in vehicle ownership among the country’s rapidly expanding middle and lower-middle class.

Number of registered vehicles on India’s roads has been doubling every seven years and hit 182 million in 2013, as per Ministry of Road Transport and Highways. The majority of registered vehicles were motorcycles (133 million) with a much smaller number of cars, jeeps and taxis (25 million) and goods vehicles (nine million). The balance between two- and four-wheeled vehicles has remained fairly constant since the turn of the millennium.

India still has a relatively low vehicle penetration rate compared with other developing countries let alone richer economies. There were just 149 vehicles for every 1,000 people in 2013 compared with 273 in Brazil, 277 in Mexico, 593 in Japan and 781 in the US.

With so many registered two-wheel vehicles, the penetration of passenger cars is exceptionally low by international standards. India has just 17 passenger cars per 1,000 people compared with 215 in Brazil, 450 in UK and 540 in Germany.

There is enormous potential for a further increase in both vehicle ownership and gasoline consumption as more and more households are able to afford to drive.

The largest number of vehicles are registered in the major urban centres of Delhi, Bangalore, Chennai, Pune and Mumbai, and the large states of Maharashtra, Uttar Pradesh, Tamil Nadu and Gujarat, all of which have a large number of relatively wealthy households.

But the fastest growth rates in vehicle ownership over the last 10 years has been in relatively poor and peripheral states such as Tripura, Mizoram, Himachal Pradesh, Karnataka, Bihar, Uttarakhand and Chhattisgarh, which suggests vehicle ownership is rapidly spreading to a much wider cross-section of population.

Provided India’s economy continues to grow, and fuel prices remain moderate, India’s thirst for gasoline will be most important source of oil demand growth over the next few years.