India's Downstream Oil and Gas Industry Set for Continued Expansion in FY24

India's downstream oil and gas industry is set to experience ongoing expansion in the fiscal year ending March 2024 (FY24), as the demand for petroleum products is anticipated to increase by a moderate single-digit percentage, as per Fitch Ratings.

This comes after a strong 5 per cent year-on-year growth in the initial nine months of FY24 and a significant 10 per cent rebound following the pandemic observed in FY23.

The increased need for petroleum products has been driven by various factors such as increased economic activities in agriculture and power sectors, a rise in holiday travel, and higher car sales.

Both petrol and diesel sales saw strong growth of 4 to 6 per cent in the initial nine months of FY24, indicating the revival of the country's economy.

In the future, Fitch anticipates that Indian refiners' gross refining margins (GRM) will decrease in FY25 from the high levels expected in FY24, but they will still be higher than the average levels.

By the fiscal year 2026, there is an expected gradual move towards mid-cycle levels, driven by increasing demand for finished goods. Even though the crude supply mix is expected to shift away from Russian imports, Fitch predicts that Gross Refining Margins (GRMs) will stay strong due to the growing demand for finished goods.

In the exploration and production sector, there has been a slight uptick in the production of domestic oil and gas, mainly due to a 5 percent increase in gas production in the first nine months of FY24.

Fitch expects production to keep increasing at a moderate pace, as investments in advanced oil recovery methods are projected to counteract natural decreases.

The oil and gas industry is anticipated to maintain a high level of capital expenditure (capex) focus in the near future, particularly as upstream companies prioritize efforts to boost production.

Hindustan Petroleum Corporation Limited (HPCL), which holds a BBB-/Stable credit rating, is projected to sustain increased capital expenditure as a result of planned investments from its subsidiary, HPCL Rajasthan Refinery Limited.

Other oil marketing firms, such as HPCL-Mittal Energy Limited (BB/Positive), are expected to have low capital expenditure needs after finishing their expansion initiatives.

In general, Fitch's forecast highlights the strength and expansion opportunities of India's downstream oil and gas industry, propelled by increasing demand and strategic investments throughout the supply chain.

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