Logic would dictate that falling oil and natural gas prices would benefit the biggest global consumers: China and India.
That is certainly happening, with the energy bills of each country slashed by billions as the price of oil has fallen. But even though India is projected to have 1.7 billion people in the decades ahead to 1.3 billion for China, investors should not expect companies such as BHP Billiton (NYSE: BHP), Caterpillar (NYSE: CAT), Exxon Mobil (NYSE: XOM) and others in the energy sector to gain tremendously from investment in India, as happened with growth in China’s oil demand.
China is the world’s largest net importer of oil, with India the fourth largest. In 2014, China imported 6.4 million barrels of crude oil a day. For India, about 2.3 million barrels of crude was imported daily in 2014. Those figures are expected to increase, along with the projected economic growth in each country. Both the International Monetary Fund and World Bank peg India’s economic growth at 7.8% this year. For China, growth should be around 7%, according to the same sources.
Due to the size of their populace and gross national products, both China and India leave a huge footprint in the world’s wholesale commodities market.
But at the retail level, it is an entirely different matter. In China, as an example, there are more than 400 Wal-Mart (NYSE: WMT) stores operating across the world’s most populous nation. During the 2014-2016 period, Wal-Mart has plans to open 110 more facilities in China.
There is no appreciable Wal-Mart presence in India, as the country has fought off the biggest retailer on the planet and others like it, too. Wal-Mart has only cash-and-carry businesses, and has not expanded at all the last two years in India. It is much the same story in the market for fuels and other commodities in India, too.
BP PLC (NYSE: BP) was just rejected in its bid to sell jet fuel to the aviation market in India. There was no reason given by the Indian government. The aviation fuel market in India is dominated by state enterprises. Domestic air travel in India is expected to triple over the next decade, resulting in a lucrative, expanding market for aviation fuels and lubricants. Under the present regime in India, that will do little to bolster the global sector.
It is not like BP hasn’t attempted to establish itself in India as a responsible corporate citizen. In 2011, BP agreed to buy a 30% stake in oil and gas blocks operated by India’s Reliance Industries for $7 billion. BP, the second largest oil and natural gas company in Europe, invested even more funds in India for exploration and development in the energy. But its second application to market jet fuel was simply denied by the Indian government.
The market continues to grow in India. February saw the consumption of refined oil products hit a record 3.91 million barrels for the second most populous country on earth.
But the investment in infrastructure and manufacturing in India, from both foreign and domestic sources, has not been nearly robust enough to have much of an impact on the growth of India’s demand for oil in absolute barrels. The period of sustained double-digit investment in the Chinese fuels and lubricants demand sector soared for over a decade. For India, it was less than half that long, and ended in 2008, according to the China Economic & Industry Data Database.
This commitment by China resulted in the country being the second largest shale gas producer in 2014, behind the United States. But internal production in China is not expected to keep up with the demand of the country. That will result in more imports of natural gas, which will bring down the global glut.
As a result, China has signed two deals with Russia for natural gas through pipelines in Siberia. India does not have the infrastructure to affect the natural gas market, as three sets of pipelines are required to bring the fuel to the end user.
In India, there is only around 15,000 kilometers of natural gas pipeline and about 16,000 kilometers of oil pipeline. By contrast, China has well over 40,000 kilometers. The U.S. has over 500,000 kilometers of natural gas pipelines, with many massive construction projects underway.
India is not seeking guidance or financial assistance for its energy sector from the financial markets, either. On the New York Stock Exchange, there are seven publicly traded corporations in the manufacturing and energy sectors that are headquartered in China and Hong Kong and have a market capitalization of over $10 billion. From India, there is only Tata Motors (NYSE: TTM).
Beijing endeavored to gain from the global market in both capital and guidance by going public with many of its energy concerns, such as China Petroleum & Chemical (NYSE: CNP), CNOOC Ltd. (NYSE: CEO) and PetroChina (NYSE: PTR). New Delhi chose not to pursue this route, which has limited its ability to grow.
China is now the fourth largest producer of oil and liquids, and it exports refined products such as diesel fuel. But production cannot keep up with the demand of its economy, so China will continue to exert its influence in the global fuels and lubricants trade, although not at the torrid growth of the previous decade. Due to its self-imposed programs limiting critical growth, demand from India will not be reminiscent of China’s soaring consumption.
Cheap Oil Here to Stay – For Now
Crude hasn’t been this cheap since March 11, 2009. And it’s likely to stay low for a while. OPEC refuses to cut production. And US production is expected to increase – not decrease – an additional 600,000 more barrels a day. The Saudis have played this one wrong – and you could profit from their blunder.
Top analyst Tyler Laundon’s found what he considers the best way to play this new, cheap oil boom.