Protests against fuel price hikes have been a stable scene in Indian political drama. Every political party when in opposition has used the rise in fuel costs to corner the party in power and gain electoral advantage. This would soon be relegated to a relic of the past. Before we elaborate on why this would be the case, let us look at the current gyrations in oil prices globally.

Oil prices which had reached a peak price of nearly $86 a barrel in early October has fallen sharply to less than $60 a barrel today. However, the real story starts in around 2014, when increased production in Shale oil in US led to dramatic fall in oil prices reaching a record low of $38 (Brent) by 2015. This dramatic fall in prices was direct fall out of Saudi/OPEC decision not to cut production following an OPEC meeting in Vienna on November, 2014. Saudi Arabia had decided that cutting production would only result in further reduction in market share, rather it bet that with record low prices, the costlier Shale oil producers would go bust unable to compete with Saudi/OPEC production. This was based on the fact that marginal cost of producing one barrel of oil by US Shale producers was estimated at $70-77 whereas Middle East marginal cost of production was $10-17. Saudi can economically pump oil even at $30 price whereas Shale producers will be forced to stop.

However Shale producers perceived, bringing in production efficiency at every stage of the process. Advancements including longer horizontal pipes, short drilling and completion times and multiple wells at a single location resulted in increased productivity by a factor of 4 in the last 5 years. World bank estimates that the current break-even cost for Shale production in US is around $40.

OPEC realized that their strategy of flooding the market to drive Shale producers had back fired and instead made them even more resilient and robust. That is when OPEC+Russia (The biggest non OPEC producer other than US) agreed for production cuts. This brought stability to oil prices. In 2017, Trump launched one of the biggest stimulus in US history charging US growth to highest levels in decade with resultant increased oil demand. This along with production cut in key suppliers such as Libya, Venezuela and Nigeria resulted in some tightening of oil supply. Shale oil production had reached a peculiar limit, while they could produce millions of gallons of oil, there was lack of pipeline infrastructure that they could use to ship oil out of US. This choking of pipeline infrastructure meant that the Shale production and export was capped for the short term. Saudi and Russia used this effectively to tighten supply resulting in higher oil prices.

Then came Trump’s sanctions on Iran which threatened effectively to cut Iran from the global oil market. Iran, the 3rd largest OPEC producer with a share of world oil production at 5%. The expected cutting of 5% of supply created a bull run on oil prices resulting in $86. All of this changed in November, when Trump announced waivers to his sanction, the punters realized that their bull run bet was off mark. Combined with the fact that Saudi and Russia were producing at record levels in anticipation of Iran sanctions resulted in an oil glut in the market. oil prices are falling rapidly from a scenario of oil supply tightness to oil glut in the market.

The oil prices are expected to be subdued in the near future even with proposed OPEC+Russia production cuts. That is because enormous pipeline capacity is coming on-line in 2019 and 2020 in the Shale oil basin. Nearly 2 -3 million barrels per day of pipeline capacity is expected in 2019 and further 2-3 million barrels per day capacity in 2020. Thus any further production cuts or Iranian sanction will be offset by increased Shale production. With break-even costs of $30-40, the crude oil rates should stabilize around $50-60 in the next two years given the strong head winds from China and its slowing economy (China is the biggest purchaser of crude oil).

But this isn’t the real reason we are predicting decline relevance of oil price to Indian electorate. The real driver would be the coming electrification of transportation industry. This electrification is not in the distant future of 2030s & 40s but is going to start unfolding in the next 3-5 years.

As Amitabh Kant, CEO of Niti Ayog quoted, Indian automotive electrification will begin with two & three wheelers followed by public transportation (buses & taxis) with personal cars and trucks becoming electrified in the end. The first part of the shift is already beginning to take shape.

Two Wheelers

We have today credible electric two wheelers on offer across multiple brands such as Ather, Hero electric, Okinawa Autotech, Twenty Motors and others. Most of these brands are offering in the scooter segment. With the adoption of lithium batteries, these products offer comparable performance as ICE (Internal Combustion Engine). For single charge, they offer 50-70 kms range with top speed of around 50 kmph. As you can see, this is sufficient to cater to most of the urban commuter’s requirement. The cost of running is where the E-scooters score with an average running cost of Rs 0.5 per km as against a cost of Rs 2-3 per km for petrol ones. This credible performance with lower running costs makes E-scooters an obvious choice to any urban customer reflecting in growing sales. Okinawa alone sold 12,000 units in last two months translating to 0.4% of total 2 wheeler sales by one single brand alone. There are also start ups like Tork which are planning to launch e-motorcycles.

Three Wheelers

E-auto rickshaws are already being adopted at rapid pace across the country. With more 1.5 million e-rickshaws, India is home to more battery powered three wheelers than all the electric cars sold in China. One thing to be noted here is that most of these E-rickshaws are Lead Acid battery driven. Lithium batteries is going to make the transition even more rapid. Consider the recently launched Mahindra Treo. The Auto promises a range of 130 Kms+ (listed range of 170 kms) with a top speed of 45 kmph. The charging time is 3 hours 50 minutes and Mahindra claims zero maintenance. The running cost of Rs. 0.5 against Rs. 2 for a CNG auto means, on average an auto driver saves Rs. 5,000 – 6,000 in a month on fuel costs alone let alone service and maintenance costs. With Bajaj also planning to launch e-auto soon, one can expect e-auto rickshaws to dominant the auto sales.

City Buses

Increasingly many cities are starting with trials on electric buses. New Delhi, Pune, Mumbai, Hyderabad, Uttarakhand With smaller range, lower speeds required, city bus transportation is ideal for electrification. Government subsidies is allowing many metropolitan to start adopting electric buses.

Indian commuting

For majority of Indians fuel prices impact them either through cost of fuel for their own vehicle or by the cost of public transport. Now lets us look at the vehicular market in India. Nearly 80% of the ownership is two wheelers. Thus the above trends will render significant share of Indians immune to fuel costs. Yes the electrification of cars will take more, maybe a decade but most Indian car owners do use the above means of transport as well and thus their total cost impact will be mitigated in case of fuel price spike.

It is true that 2 & 3 wheelers constitute a very small share of oil demand and majority of transport oil consumption is by long distance trucking and buses. Significant demand is also from agricultural pump-sets and railways. However, Indian railways is planning for 100% electrification by 2021-22. And government through multiple initiatives (UDAY, Saubhagya, etc) is targeting to give every Indian 24×7 power and more importantly effective power for agricultural use. KUSUM scheme is an ambitious projected launched in June which plans to provide 1.4 crore solar pumps to Indian farmers. Hence the farmer’s dependence on petrol considerably reduces and limited to tractors & tillers.

Of course trucks will continue to stay fossil fuel driven for the foreseeable future. However an average Indian doesn’t realize the impact out-rightly like that of their personal vehicle. Consider this, steel is important element for an average consumer as it is a key raw material in many consumer purchases, however how many of us have bothered when steel prices spiked or fell drastically. What doesn’t pinch one’s pocket directly, one is least concerned.

One should also account that we haven’t even considered the fact that Lithium batteries will continue to fall in prices resulting in lower costs and technological innovation will mean even more improved performance. Battery technology follows the electronic industry with exponential reduction in costs and improvement in performance.

Therefore considering all these factors, one can safely predict that by the time of next general election in 2024, petrol prices will be irrelevant to the average Indian voter. Imagine in 2024 you own a petrol two wheeler and recent petrol price hike is causing a burn in your pocket. Will you go on the road to protest or will you quietly go off to buy the latest electric 2 wheeler?