Column: The strange case of our oil exports

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: India’s export profile gives the impression that it is an energy surplus country. However, almost everybody knows it to be otherwise. Then why does it export so much of refined petroleum products?

During the year 2008-09, India’s petroleum exports stood at $26.8 billion. These exports were 14.7% of the country’s total annual exports. They were also the second-highest exports in value terms closely following gems & jewellery exports, which were worth $27.7 billion. In the previous year, petroleum exports were India’s topmost exports at $27.4 billion and a share of 17% in total exports. The lower export value of petroleum products during 2008-09 is for obvious reasons. The global economic downturn from September 2008 affected prospects of such exports, particularly in India’s main export markets such as in West Asia (e.g. UAE and Saudi Arabia) and Europe (e.g. the Netherlands and Germany).

Notwithstanding the downturn in 2008-09, petroleum products continue to remain India’s main exports. This is puzzling since India imports almost 80% of its crude requirements. India does have a surplus balance in refinery production, mostly on account of its refineries working overtime. Capacity utilisation in Indian refineries—be it in private or public sector—is well above 100%. This is an activity where India’s public sector has been matching its private counterpart in equal measure. But do India’s refineries function beyond their capacities for meeting domestic consumption or exports?

There is no unambiguous answer to the question. Motivations for producing more for domestic consumption or exports are guided by the prevailing incentive structure in the domestic refined petroleum market. These motivations, again, are different between the public and private refiners.

With retail prices of domestic petroleum products continuing to be controlled, the incentives for private refiners are very different from those in the public sector. Private refiners cannot afford to sell their products at controlled prices. As a result, when operating costs increase, primarily because of increases in global crude price, they have no option other than passing on the increase to consumers through higher retail prices. However, with public refineries not doing so, the private refiners become uncompetitive in the domestic market. Thus, they have no option other than scouting overseas markets.