India’s Automobiles Set to Enter Fast Lane in Time for Global Carbon Standards

By Thangapandian Srinivasalu, Executive Director, Gulf Petrochem Group

After decades of austerity and pent-up consumer demand, India's automotive market is finally entering the fast lane just as the world prepares to meet in Paris later this year to consider global limitations on carbon emissions.

Rising incomes in one of the world's fastest-growing economies are driving purchases of cars and motorcycles in cities and rural areas alike. At the same time, improvements in engine technology and environmental regulations are transforming the needs of consumers.

In April 2015, passenger car sales in the country jumped almost 20 percent compared to the corresponding period last year - the sixth straight month of growth, and the highest in 30 months - triggering great expectations for the world’s sixth largest automobile industry.

Engine technology has evolved rapidly in recent years, and pressure has mounted on engine manufacturers to do more to control harmful emissions amid growing global concern for the environment. This transformation in technology is creating a market for hybrid and electric cars in developed countries, and many Indians will probably develop a similar taste for greener vehicles.

Indian domestic automotive standards traditionally follow European norms, and lubricant manufacturers are now catching up with technology and specifications to match the new European requirements for engines. Meanwhile, infrastructure improvements in India are narrowing the gap between prices for petrol and diesel and contributing to growth in demand for both types of engines and cars.

Unprecedented economic and demographic changes are also shaping the automotive market. Indians are among the world's biggest buyers of motorcycles, and increasing prosperity will accelerate this trend, just as it's already doing for sales of smartphones.

This is especially true for many millions of young people who value convenience and aspire to a more affluent lifestyle than that of their parents; and half of the Indian population is under 25. In the countryside, higher incomes are spurring demand for motorcycles and farm vehicles. In cities, India's expanding middle-class is hungry to own cars.

Each new vehicle that hits the road this year is more technologically advanced than those that preceded it last year, and motorists need sophisticated lubricants that can protect their engines and enhance their driving experience. Motorists are looking for lubricants that not only protect, clean and extend engine life but also optimise consumption and performance.

However, this rising demand risks aggravating India's reliance on imported fuels and oil products. India imported 38 percent of its fossil fuels in 2012, up from 15 percent in 1990, according to the US Energy Information Administration. In 2013, the country was the world's fourth-biggest consumer and net importer of crude oil and petroleum products, after the United States, China and Japan.

India consumed an average of 3.7 million barrels a day of petroleum products that year, almost four times its total liquids production.

Consumers in India receive large subsidies for retail prices of diesel, LPG and kerosene, and this puts more upward pressure on overall demand. Consumption of fuel products grew by 2.9 percent in May from the same month a year ago, while petrol sales increased by 8.9 percent over the same period.

On the supply side, insufficient investment in producing more crude oil and liquids has resulted in output growing more slowly than demand. All of this creates a policy conundrum for the Bharatiya Janat Party-led government as it seeks to meet rising demand, secure affordable energy supplies, and attract investment in hydrocarbon production and infrastructure.

There is a bright spot: Despite India's status as a net importer of crude oil, investment in new refining capacity has made it a net exporter of petroleum products. Its total oil-refining capacity amounts to almost 250 million tonnes a year compared with an annual consumption of less than 175 million tonnes. Most of the nation's refineries have been modernised or are being upgraded.

New partnership with global market leaders in refined products may offer a model for how India can leverage the best-in-class technologies for local deployment to satisfy this anticipated surge in consumer demand without accelerating the nation's dependence on imported petroleum products or adding to its carbon footprint.

A case in point is the announcement in June that Repsol SA, Spain's largest oil company, plans to license its technology through a joint-venture partnership. The Spanish giant has one of Europe's biggest commercial technology centres, where some 400 scientists and researchers are working to create more efficient and environmentally sustainable products. The Company's development of clean-burning LPG for use in cars is one example of new technologies that will be offered in India for the growing green-conscious consumers seeking solutions to their motoring needs.

In June Repsol joined its European peers, including Shell and Total, in calling for governments to agree on carbon pricing at the United Nations climate summit in Paris later this year. The stakes are high for the world’s policy makers to show leadership and get the negotiating parties at the 21st Conference of the Parties (COP21) on Climate Change in December to agree on an effective global approach to address carbon emissions after the Kyoto Protocol expires in 2020, and the stakes are also high for industry to be ready to meet that challenge.         

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