December 3, 2021

Brand Of "Game Changer Hub Inc"

Oil companies’ expansion plan creates problem of plenty due to Covid, Energy News, ET EnergyWorld

Oil companies’ mega expansion plan has collided with the pandemic, creating for petrol pumps a double whammy of increased competition and collapsing fuel demand.

In two years, companies have added around 12,500 pumps, increasing the country’s fuel retail network by nearly 20 per cent to 77,200, even as the combined sales of petrol and diesel have plunged about 30 per cent in May. The devastating pandemic cut petrol and diesel demand by 7 per cent and 12 per cent, respectively, during 2020-21 over the previous year. This was the second straight year of decline for diesel.

Even as sales of petrol were normalizing as the first Covid wave tapered off, the resurgence of the virus prompted states to impose fresh lockdowns. The pandemic slowed but didn’t stop setting up of new pumps.

Two-and-a-half years ago, three state-run oil companies—Indian Oil, HPCL, and BPCL—set off the process to appoint dealers at nearly 80,000 locations across the country, which could have more than doubled their then network of 57,000 pumps. They received applications for 95 per cent of locations and have since appointed 12,500 dealers.

“The plan to expand was based on certain fuel demand projections. Projections have gone haywire. They have no meaning,” said an industry executive who was involved in charting the expansion plan. It has been hard for the new pumps to settle down given the pandemic and mobility restrictions.

“Fuel retail business is a localized business. If a new pump comes up close to your own, it will most definitely take away some of your business,” said another executive, explaining how both old, as well as new outlets, have been hurt. Pumps on highways, which are more dependent on diesel sales, have been hurt more.

Indian Oil didn’t respond to ET’s request for comment but HPCL and BPCL said the fuel demand would pick up the moment lockdowns end and retail network expansion was needed to meet future fuel demand growth.

“Considering the demography of the country and the growing energy needs, demand for transportation fuels will continue to grow in the near future at a reasonable rate,” HPCL said. “Network expansion is not only a relevant strategy but is a requirement as well.”

BPCL said growth in bigger cities is plateauing but rural and semi-urban areas are recording high growth. “Traditionally, our presence in major cities was more than the smaller cities. Therefore, during the network expansion, our focus has been on these segments,” it said.

Petrol pumps controlled by state-run oil companies are also facing stiff competition in certain micro-markets from private players that have strengthened their presence. Russia energy giant Rosneft-backed Nayara Energy has added about 1000 pumps to expand its network to 6000 in two years.

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