Fast and furious: India's diesel guzzling to cause shortage soon

Surge in diesel demand should act as a warning sign for the govt on the fallout of subsidising diesel prices. Petrol prices are already soaring, and soon, we might be faced with soaring diesel prices because of a supply shortage.

FP Editors April 05, 2012 15:57:15 IST
Fast and furious: India's diesel guzzling to cause shortage soon

Good lord, we're guzzling so much diesel that we might soon face a shortage in the stuff.

According to a report in The Economic Times, India could soon become a diesel-deficit nation if the government's pricing policy on diesel continues to fuel consumption. Currently, diesel prices are controlled by the government, while petrol prices can be freely priced by state-owned oil marketing companies (at least in theory).

That has kept diesel prices stagnant for more than 18 months at around Rs 45 per litre, while petrol prices have soared to Rs 70 per litre (that's constant chatter that prices will be hiked again soon).

Fast and furious Indias diesel guzzling to cause shortage soon

Diesel demand in the country is growing at an annual rate of 8 percent. Reuters

Not surprisingly, that has led everyone from industries to automobile users to choose diesel as the fuel of choice.

"Diesel demand in the country is growing at an annual rate of 8 percent, Naresh Nayyar, chief executive officer of Essar Energy, told the newspaper. "At this rate, India will need a brand new nine million tonnes capacity refinery every day, so in case demand continues to grow this rapidly, India will become diesel deficit by 2016."

Another report, also by The Economic Times, quoted a government official as saying that diesel consumption accounted for 68 percent of the growth in petroleum products in the first 10 months of the financial year ended March 2012.

This growth is diesel demand is occurring even as oil marketing companies lose Rs 14.36 on every litre they sell because of the government's policy of subsidising the fuel to users.

Industries are now using diesel instead of fuel oil in their operations, the report said. Even in the automobile industry, diesel-engine car sales now account for close to 50 percent of overall car sales, again because of the cheaper price of the fuel.

However, there is some controversy over how much diesel is actually being consumed by cars. A recent report by the Society of Indian Automobile Man ufactureres and the 12th Planning Working group on Petroleum Sector said that cars consumed only 5 percent of the total diesel consumed in the country. However, that claim has been challenged by the Centre for Science and Environment, according to this report in indiatransportportal.com.

At any rate, the surge in diesel demand should act as a warning sign for the government on the fallout of subsidising diesel prices. Petrol prices are already soaring, and soon, we might be faced with soaring diesel prices because of a shortage of supply.

Clearly, the government cannot continue to subsidise diesel for too long because it is justmaking things worse. If there was no subsidy, prices would, no doubt, soar but they would be more aligned with demand.

Unrealistic pricing is only fuelling extra demand for diesel - and vividly highlights the problems of the country's petroleum pricing policy.

There will be consequences.

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