* Temporary spur to demand from blackouts
* Demand growth 25 percent in some states
* Lack of monsoon rains fuels irrigation, generation demand
By Nidhi Verma and Jessica Jaganathan
NEW DELHI/SINGAPORE, Aug 1 Diesel use in India
temporarily spiked during two days of massive power cuts which
left hundreds of millions of people without grid power,
highlighting increasing clamour for the fuel to back up a
rickety national grid.
Hot weather across the country and a shortfall in annual
monsoon rains had already pushed demand as the grid struggles to
meet peak consumption. The government has had to halve prices
for farmers needing pumped water - ruling out any subsidy cut.
Diesel usually makes up about 40 percent of fuel consumption
in Asia's third-largest oil importer, although much of the
demand is covered from domestic production and imports in the
last year have been about 60,000-70,000 tonnes a month.
"Demand is higher and it significantly went up in the
northern region in the last two days," said an official at
state-run refiner Indian Oil Corp.
Hundreds of millions of people across India were left
without power on Tuesday, trapping miners, stranding train
travellers and plunging hospitals into darkness when grids
collapsed for the second time in two days.
"Diesel demand is very high, about 25 percent growth in some
states, mainly due to power shortages. The blackout is a one-off
case, but otherwise demand is high due to power shortages. It
should ease out in the next one or two months," Bharat Petroleum
Corp Chairman R. K. Singh told Reuters.
Last year, around 15 percent of total diesel demand of about
1.4 million barrels per day (bpd) in India was consumed for
power generation, said Victor Shum at consultant Purvin & Gertz.
"I expect increased use of diesel-fuel power generators in
the near term when the government tries to find solutions to the
power grid failure. Diesel consumption should therefore
increase, further boosting diesel crack spreads in the region."
The New Delhi government has forecast diesel consumption
should grow 5.9 percent in the current fiscal year, about the
same pace as gasoline and slightly below the economy as a whole,
which should expand by about 6.5 percent.
POWER AND WATER
In June, when temperatures in New Delhi soared past 40
degrees Celsius, diesel sales were up 14 percent from a year ago
to 6.08 million tonnes and down only slightly from May as the
monsoon failed to bring its usual respite from irrigation
shortages and heat.
The Indian government caps the price of diesel in an attempt
to protect the poor and control inflation while petrol is sold
at market rates. Diesel is 40 percent cheaper than gasoline.
"Diesel being the cheapest commodity it is always a
preferred fuel," Singh said.
Petrol sales in June were only 1.34 million tonnes.
The near drought conditions and power cuts mean New Delhi is
unlikely to be able to cut its massive subsidy on diesel prices,
analysts said, leaving markets disappointed again over its
ability to rein in budgets.
"The government would be committing political suicide if it
chose to raise diesel prices during this trying period," said
Traders said that despite the massive blackouts, they did
not expect huge import demand for diesel as inventory is still
adequate in the country and prices are high.
"Maybe if the blackout lasted 15-20 days then there might be
imports into the country, but I think it is only a temporary
problem as a lot of the power has been restored," said an
Rains had also revived by Wednesday, bringing down
temperatures and watering parched farmlands.
"The weather is cooler now with temperatures having gone
down, I don't think there has been a spike in air-conditioner
use," said a source with an Indian refiner.
"At this point, I think Indian refiners will only import if
there is any maintenance or outage that affects the
supply-demand balance," said a second Indian trader.
However a source at IOC said his firm would buy diesel from
private refiners in the country instead of importing at a higher
Singapore cash prices for the 500 ppm sulphur diesel and 10
ppm sulphur diesel, diesel grades imported by India, were at
$122.17 and $123.02 a barrel respectively on Wednesday, Reuters
Premiums for both grades climbed to more than one-year highs
in July on refinery outages and maintenance in Singapore and
Japan which have curtailed supply in Asia.
(Editing by Jo Winterbottom and Helen Massy-Beresford)