The country's oil demand is set to increase by 3.5 billion barrels per day from 2017 to 2035, which will account for a third of global oil demand growth. India's expanding middle class will be a key factor, as well as its growing need for mobility, according to Wood Mackenzie.
On the other hand, China — currently the second-largest oil consumer in the world — may soon need less oil. In 2017, it overtook the U.S. as the biggest importer of crude oil, but it's set to see a decline in oil demand growth from 2024 to 2035, Wood Mackenzie Research Director Sushant Gupta told CNBC.
That's due to two trends: Alternative energy sources such as electricity and natural gas are displacing the need for gasoline and diesel. And, a more efficient freight system and truck fleet will also result in sluggish road diesel demand, Gupta said.
For India, as demand grows, an oil shortage is already imminent. The country is only expected to add 400,000 barrels per day in firm refinery capacity out to 2023 — paling in comparison to demand growth — warned Wood Mackenzie.
"We think the most likely situation is that India would need between (3.2 million and 4.7 million barrels per day) of new capacity out to 2035 to remain self-sufficient in transport fuels. So we are talking about a future capacity which is 1.7 to 2.0 times the current. This is clearly an uphill task, unless domestic refiners can commit to their planned capacity additions," Gupta said in a Wood Mackenzie release accompanying the India demand projection.
With India's refinery yields still highly tilted toward diesel, Wood Mackenzie added that India needs to start focusing on increasing gasoline. However, with a global surplus of gasoline expected in the long run, India could consider importing the fuel, the research firm suggested.
India's fate has long been tied to oil prices, as it is a net oil importer, and rising prices are set to hit its economy. As a result, its currency could continue weakening, its current account and trade deficits are set to widen further, and its growth could be affected.
In the long run, the country could choose to switch its passenger transport sector — cars, vans and utility vehicles — to run on electricity instead, suggested Gupta.
"However, the market readiness ... is low, and the policy formation is uncertain," he said.
The country could also impose fuel efficiency standards for trucks, which don't currently exist, he said, or switch to cleaner fuels like natural gas.