India to drive global oil demand growth as China nears peak: Moody’s

India is set to surpass China as the primary driver of global oil demand growth over the next decade, according to a new report by Moody’s Ratings. The shift comes as China approaches peak crude consumption, driven by slower economic growth and accelerated adoption of new energy vehicles (NEVs), while India continues to experience robust energy demand growth supported by economic expansion and infrastructure development.

Moody’s projects India’s crude oil consumption to grow annually at 3-5 per cent over the next 3-5 years, compared to China’s marginal growth during the same period. China’s oil demand is expected to peak at around 800 million tonnes per annum (mtpa) by 2030, while India’s demand trajectory remains upward, underscoring a significant transformation in global energy dynamics.

What is fuelling India’s demand?

India, currently the world’s third-largest oil consumer behind the United States and China, is planning a major expansion of its refining capacity to meet rising domestic fuel demand. Refining capacity is projected to increase by 20 per cent to 309.5 mtpa by 2030 from 256.8 mtpa as of April 2024, driven by investments from state-owned oil marketing companies such as Indian Oil Corporation Ltd, Bharat Petroleum Corporation Ltd, and Hindustan Petroleum Corporation Ltd.

Rising industrialisation, rapid urbanisation, and massive government-led infrastructure investments are expected to boost transportation fuel demand, particularly for petrol and diesel. At the same time, demand for petrochemical products will also rise in tandem with broader economic development.

In contrast, China’s refining capacity is nearing a state-imposed cap of 1 billion tonnes, curbing further growth potential. With the country’s pivot toward cleaner energy sources, including solar, wind, and electric vehicles, consumption of traditional fuels like gasoline and diesel is set to decline, although demand for jet fuel and naphtha may still grow due to rising air travel and chemical production.

India’s import dependence to rise

Despite its growing consumption, India’s domestic oil and gas production remains a weak link. Moody’s warns that if India cannot reverse its declining output from ageing oil fields and limited exploration investment, its reliance on imports will rise further. Currently, India imports nearly 90 per cent of its crude oil and around 50 per cent of its natural gas requirements, raising concerns about long-term energy security.

In contrast, China, which imports over 70 per cent of its crude and 35–40 per cent of its gas needs, is actively working to reduce import dependency through heavy investment in domestic shale gas and offshore exploration projects. As a result, Chinese national oil companies (NOCs) are expected to outperform their Indian peers in production growth over the next 3-5 years.

Chinese NOCs also benefit from greater vertical integration, which Moody’s says reduces earnings volatility, along with stronger financial metrics such as lower leverage and higher interest coverage. In India, weaker integration, ageing infrastructure, and policy-related earnings swings have made national firms more vulnerable.

Green energy transition

Moody’s report highlights a significant policy divergence between the two Asian giants. China’s energy policies are more market-oriented and focused on enhancing self-sufficiency, while India’s regulatory framework still heavily influences fuel prices, often leading to volatile earnings for Indian NOCs.

Additionally, India relies more on taxes and dividends from its petroleum sector to fund its fiscal deficit, increasing political sensitivity around fuel prices.

Environmental policies are also advancing at different speeds. Chinese NOCs are under greater regulatory pressure to transition to greener practices, while India’s carbon regulations are still evolving. This means Indian firms currently face less immediate pressure to invest in low-carbon technologies, though such pressures are likely to grow in the coming years as global climate commitments intensify.

Meanwhile, India is pushing to increase the share of natural gas in its energy mix from 6 to 15 per cent by 2030. Gas is seen as a critical transition fuel, particularly for sectors like fertilisers and petrochemicals, and for urban energy use via piped and compressed natural gas.

Gas demand in India is expected to grow by 4-7 per cent annually through the decade, outpacing China’s gas demand growth rate. However, challenges remain in improving domestic gas infrastructure and maintaining affordability, especially against the backdrop of rapidly falling renewable energy prices.

As China transitions toward a lower-carbon, more self-sufficient energy economy, India’s growing appetite for oil and gas places it at the centre of global energy markets. However, India’s growing dependence on imports and lag in domestic production pose risks to its energy security and economic stability.

While India is set to be the engine of global oil demand growth, its long-term sustainability will depend on policy reforms, infrastructure development, and investments in domestic exploration and green energy.

According to Moody’s, the ability of Indian NOCs to execute production plans and manage volatility will be crucial in determining the country’s success in navigating the next decade of energy transition.