Abstract
The global oil and gas and petrochemical and chemical sectors today are facing a structural shift. On one side the traditional demand for fuels like gasoline and diesel, is stagnating and on the other demand for petrochemical derived products remain strong especially in emerging markets like India.
Introduction
Globally petrochemicals are the principal source of growth in oil and gas demand. They are the key component of oil demand growth over the last decade. Petrochemical derived products like plastics, synthetic materials, used in construction, packaging, automotive, etc have accelerated this growth in the past five years. The chemical industry is also showing signs of gradual recovery and global chemical production has grown by 3 1/2% this year.
However, the industry is challenged by several structural headwinds like oversupply, and demand weakness and the concerted shift towards sustainability and stricter regulations on carbon emissions. Global oversupply puts severe pressure on petrochemical margins, specifically due to overcapacity in China e.g. Exxon Mobil will permanently close one of the two steam crackers at its huge petrochemical complex in Jurong Singapore by June 26.
Geopolitical upheavals, and supply destruction due to the price volatility in crude oil, natural gas, naphtha, and other feed stocks greatly affect the demand for these products. So as traditional fuel demand plateaus, petrochemicals become the major drivers of oil demand growth. Beyond commodity plastics, growth is also expected in specialty chemicals advanced materials performance polymers bio-based chemicals et cetera.
Rising Demand and Feedstock Constraints
The petrochemical demand in India, continues to rise following the growth in its GDP, and the effect of continuous urbanisation. This has resulted in an increase in the per capita polymer consumption and the need for speciality chemicals. This together with the policy infrastructural expansion, forecasts a multi decade growth trajectory. It is projected that there will be strong expansion and growth through 2030 and beyond, as India continues to industrialise. This demand growth is creating a need for new capacities and higher integration between refining and chemical complexes.
Since India’s current per capita petrochemical consumption remains low and well below some of its peers globally, the country has a long way to grow, not only in specialties but also for commodity polymers and intermediates.
India is largely dependent on naphtha for its feedstock, in addition to imported LPG/propane for many of its downstream molecules. This exposes the country to global crude and naphtha price swings and to international LPG markets. However, by shifting naphtha away from fuel use and towards petrochemical feedstock, the country is improving its feedstock security and economics. India though will continue to suffer feed stock sensitivity, and this will continue to remain a competitive constraint compared to countries like the US where ethane rich shale gas provides a long-term cost advantage. Feedstocks will remain a competitive constraint until cheaper domestic gaseous hydrocarbons become available at scale.
Policy-Driven Investments
The year 2025 has been a defining year for the country where the tangible impact of strategic government policy has catalysed investment and shifted focus to high complexity strategic sectors. A large number of projects have been announced and are under construction which will change the Indian petrochemical map Integrated complexes like the PCPIR at Dahej, and other brownfield expansions by national oil companies, including chemical parks and clusters are in the offing, adding to capacity growth.
Companies like Reliance are making huge capital allocations to build integrated refining to petrochemical hubs, with the ambition to muster scale and reach export markets. As capacities mature, India will likely export more finished polymers and value-added chemicals, subject to global margin dynamics and logistic costs. Meanwhile the government is supporting this sector through favourable FDI rules and production linked PLIs or incentives whilst promoting PCPIR clusters, and schemes that support carbon capture, utilisation, and storage.
Green Hydrogen and Incentives
The production linked incentive scheme has moved from being a promising concept to a proven engine of growth; with a renewed commitment to a self-reliant India. The government is also on a path to decarbonise energy intensive sectors, through green hydrogen, and focus on renewables, forcing the adoption of alternative feedstocks and recycling. Decarbonisation however is no longer rhetoric, as the country plans green hydrogen projects, as in Panipat. There is a mission to facilitate India’s energy transition to long term clean energy solutions and more sustainable practices. The major impact of green hydrogen would be to decarbonise sectors that are hard to abate, for example in the steel sector replacing coking coal in Dri processes, or in the ammonia and fertiliser sectors, and the cement (high-temperature heat).
In these sectors which cannot be easily electrified, green hydrogen can eliminate large concentrated CO2 sources. If scaled successfully green hydrogen has the potential to remove 10 to 20% of global CO2 emissions, it can provide clean fuel for heavy transport and shipping as well as aviation. For countries like India that are import dependent, green hydrogen can reduce the energy security risk and enable domestic energy production. With policy support the current cost of 2.5 to 6 US dollars for green hydrogen (compared to one to two years’ dollars a KG for fossil fuel) could be reduced.
Green Hydrogen, Circularity, and Policy Trade-offs
By 2030 the economic viability of green hydrogen in select sectors is entirely possible. The impact on the oil and gas industry would be the displacement of grey hydrogen made from natural gas, and reducing fossil fuel demand in refining, fertiliser, and heavy industries. It has been suggested that and oil and gas companies and refineries can transition as hydrogen producers repurposing pipelines and infrastructure creating a transition pathway to become Energy companies. In India, the National Green Hydrogen Mission targets not only domestic decarbonisation but also positions the country as a potential exporter of green hydrogen. This could be a strategic move towards India’s long term energy transition.
Though green hydrogen would not replace fossil fuels everywhere, it would be necessary if the country has to achieve net zero. In renewable space the country has several options it follows, e.g. fuel switching to lower carbon fuels, using low carbon hydrogen as fuel and feedstock, or other CCUS to reduce emissions in refining linked petrochemicals. There is a double-edged policy for this sector: on one hand providing fiscal and strategic support for growth, but on the other hand imposing new compliance costs. The future however depends a lot on government policy and participation in these capital-intensive retrofit projects.
There is a growing need for international technology partnerships in order to scale. Then there is the country’s regulatory push on plastic waste, with corporate commitments to recycle, both mechanically and chemically, with the former being the real backbone. Chemical recycling [depolymerisation and pyrolysis] is still at its nascent stage with pilot plants looking at contaminated streams. However, circular feedstocks could never replace virgin hydrocarbons overnight, but pyrolysis if mandated, could result in sufficient demand to make recycling bankable.
India Emerges as the Key Driver
Overall, the oil and gas industry is still growing but the pace and drivers of growth are shifting significantly. India is a major growth centre, and its position in the global landscape is notable. On the other hand, India is projected to be the largest contributor to global oil demand in the next decade surpassing China and Southeast Asia.
India’s growing oil demand will increase import dependency, influence global flows and Geopolitics, and make India a critical market for refineries. Under present policies India’s oil use will rise from 5.5 mbpd in 2024 to 6.6 mbpd by 2030 an increase of one million barrels per day. By 2035 it could reach 7.4 to 8 mbpd making it the largest source of global oil demand growth. India has become one of the world’s largest refining hubs with over 23 refineries and with major expansion planned, the capacity will continue to grow.
Global oil demand continues to grow modestly and will likely peak by 2030. After this it is predicted the demand will level off, and even slowly decline as EVs and renewables gradually displace fossil fuels. Oil will continue to remain a major energy source through 2030-32.
As per the net zero emission pathways, global oil use declines significantly by 2035. In contrast India’s demand is set to grow strongly between 2030 and 2035, much faster than any other country. However, under an accelerated transition scenery, India will still grow energy consumption, but with cleaner fuels, higher number of EVs, and stronger fuel efficiency standards and renewables.
For example, with electric vehicle adoption and efficiency improvements the country could avoid using nearly half a million barrels per day of oil, as soon as 2030. Green Hydrogen could be a strategic game changer for India, if it’s ambitious mission and strong policy push, could overcome the funding gaps and high initial costs to scale. So, though India will remain the major driver and largest source of incremental barrels, this demand would be tempered by strong clean energy sources and impact of EVs and renewables, and green hydrogen.
Conclusion
Globally oil and gas is moving from a growing industry to an industry in transition in other words still essential but no longer expanding. In contrast India is at a development and consumption phase which makes it the largest contributor to global oil demand growth. This is why India is at the centre stage of global oil and gas strategy, whilst the rest of the world talks about moving beyond fossil fuels.
Oil and gas are seen as strategic sectors in India, where the public sector plays a dominant role and there is a strong investment pipeline in refining, petrochemicals, gas infrastructure, pipelines, and LNG terminals. Though energy transition is happening in India it is at a different pace. The focus continues to remain on energy security, economic growth, and affordable energy. Though renewables are expanding rapidly they do not yet displace oil at a level of scale. The transition to renewables is gradual and pragmatic in India. Green hydrogen could be a game changer, if India is able to achieve scale and overcome its present policy funding gap and high initial costs.
