May 22, 2025

China has been a key driver of global oil demand growth over the past decade, but a recent report by Moody's Ratings suggests that India is positioned to overtake China in this aspect in the coming years. The two nations, ranking as the second and third largest oil consumers globally, show significant disparities in their demand growth patterns. Moody's foresees that India will experience higher demand growth and import reliance compared to China in the next decade. The expected faster growth in oil demand in India is attributed to various factors, including China's slowing economic growth and the swift adoption of new energy vehicles. While China is anticipated to reach a peak in crude oil consumption within the next 3-5 years, India is expected to maintain an annual growth rate of 3-5% during the same period. The report also highlights the heavy reliance of both countries on oil and gas imports. As China focuses on reducing its import reliance due to slower demand growth and increased local production, India's dependency on imports may escalate if production decline issues are not addressed. The analysis underscores the substantial scale of China's national oil companies (NOCs) in comparison to their Indian counterparts, with Chinese NOCs likely outperforming Indian NOCs in production growth over the next few years. Investments in advanced shale gas and offshore projects have significantly enhanced Chinese NOCs' reserves and production capabilities, whereas Indian NOCs are encountering challenges related to aging wells and sluggish investment. China's NOCs exhibit greater value chain integration, offering them a degree of resilience against earnings volatility and higher financial stability compared to Indian NOCs. The disparity extends to the investment strategies pursued by the two nations' oil companies. While Chinese NOCs are funneling resources into exploration and development to bolster self-sufficiency, Indian NOCs are focusing on expanding their refining and petrochemical facilities to meet escalating domestic demand. The contrasting governmental policies in China and India have also been highlighted, with China adopting more market-oriented approaches towards the oil sector. In China, the impact of policies on companies is less pronounced compared to India, where pricing mechanisms lead to notable fluctuations in earnings and cash flows. India relies heavily on revenues from the petroleum sector to support its fiscal budget, reflecting a different financial approach when compared to China. As India's carbon regulations continue to evolve, Indian NOCs face less immediate pressure to invest in green technologies compared to their Chinese counterparts. The need for Chinese NOCs to adhere to stringent environmental regulations and transition towards sustainable practices is anticipated to prove challenging. Both countries plan to reduce their reliance on imports, with China aiming to enhance self-sufficiency amidst geopolitical risks, while India strives to bolster its refining capacity to meet the growing demand for transportation fuels. India's ambitious goal of increasing the share of natural gas in its energy mix highlights the nation's transition towards cleaner energy sources. The expansion of industrial sectors reliant on gas usage, coupled with increased consumption in urban areas, is projected to drive robust demand growth for natural gas in India through 2030. The report also touches upon the challenges hindering further growth in gas consumption in India, such as infrastructural limitations and cost considerations. Despite the differences in their approaches, both China and India face significant concerns regarding energy security due to their heavy reliance on oil and gas imports. Moody's emphasizes the need for both nations to address these concerns amid escalating geopolitical risks. Overall, the report provides valuable insights into the evolving dynamics of the oil and gas sectors in China and India, highlighting the contrasting growth trajectories and investment strategies pursued by the two economic powerhouses.

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Tags: China, India, Oil demand growth, Moody's ratings,