Global diesel shortage, India's gain

State-owned refiners stand to gain from surging European demand for diesel as winter sets in and natural gas supplies from Russia are set to dwindle

- S DINAKAR

A looming global shortage of diesel in Europe presents India with more than one opportunity to profit from strong margins. A shortage of the fuel, a key contributor to inflation, has been exacerbated by the conflict in Ukraine, and western sanctions on Russian fuel supplies. The slowdown in natural gas supply means the West needs diesel to heat their homes this winter. And India might have a solution to their problems-by exporting fuel to meet much of the continent's needs. Rising diesel prices also present an opportunity for India's battered state oil refiners to salvage some of the losses they are incurring on selling transport fuels at government-administered rate for months.

"India is not only self-sufficient in diesel but also produces a surplus because it's the biggest product from our refineries," said M K Surana, CEO of Ratnagiri Refinery and Petrochemicals, which is pursuing India's biggest refinery-cum-chemical plant in Maharashtra. "Indian refineries are diesel-oriented," Surana, a former chairman of HPCL, added.

"It's an opportunity for India to export diesel to Europe," said Prashant Vashisht, vice president and co-head, corporate ratings, at Mumbai-based ICRA. "Globally, refining capacity has been cut, and diesel use is less discretionary compared with, say petrol," he added. Europeans can choose not to run their vehicles but can ill afford to not heat their homes in winter.

"The diesel crack spreads are healthy, and have been elevated for many months now," Vashisht added. Record rates for both diesel and coal amid surging demand is a direct consequence of the sanctions on Russia, which was Europe's biggest supplier of cheap natural gas, a fuel used to produce electricity and heat homes. Diesel crack refers to the profits from converting crude oil to diesel.