For decades, diesel has underpinned India’s economic growth and the fortunes of its refiners, but the pandemic has caused the nation’s most consumed fuel to lose some of its luster. Since Covid-19-lockdowns have eased across India, diesel consumption has trailed the rebound in gasoline with trucks remaining idle amid a softer economy. Motor fuel use, however, has benefited from people choosing their own cars and scooters over public transport to avoid the risk of infection.

While diesel is still king in India — fuel sales are double that of gasoline — the uneven demand recovery has created a unique challenge for India’s refiners, just as more headwinds emerge from the use of hydrogen and natural gas in major guzzlers such as trucks and buses.

Speed Breakers Ahead

India’s diesel demand is plateauing and alternative fuels are catching up

Source: India’s oil ministry

* FY21 data is for first five months

Refiners are expected to focus on making less diesel and more gasoline and petrochemicals to respond to changing demand. Reliance Industries Ltd. has flagged a shift away from transport fuels, while Indian Oil Corp. has signaled greater diversification to reduce its dependence on its fuels business. The country’s biggest processor also plans to roll out a fleet of buses powered by a blend of hydrogen and compressed natural gas.

More than half the output from Indian refineries is middle distillates, which includes kerosene — usually processed into jet fuel — and diesel, according to FGE’s Kumaran. Over the next few years, refiners may trim production of middle distillates by 2-3% and boost supply of gasoline, he added.