Petroleum products are the single-largest export commodities from India. Going by projections made by the International Energy Agency (IEA), India enjoys the geographical advantage of becoming the refining hub of the world. Hemmed in by the sea on three sides, the Indian peninsula offers a vast coastline to set up export-oriented refineries. Moreover, India?s proximity to emerging markets provides it with a distinct commercial advantage.
That?s precisely the reason why Kuwait Petroleum Corporation (KPC) recently announced its plans to invest in India?s refining sector. KPC?s top brass was in India last fortnight and announced their plans to set up a new integrated refinery cum petrochemicals plant in association with Indian Oil Corporation (IOC).
That?s not all. Steel czar, LN Mittal?s joining hands with Hindustan Petroleum Corporation (HPCL) for the 9 mmtpa Bhatinda refinery project along with US energy major, Chevron?s decision to pick up a 5% equity stake in Reliance?s new 29 mmtpa refinery project at Jamnagar SEZ are indications enough that the global energy community is confident of India emerging as a refining hub.
The oil sector is the country?s largest foreign exchange earner. Starting from virtually no exports in 1999-2000, the oil sector now rings in 17% of the country?s foreign exchange. Gross exports of petro-products from India during 2006-07 stood at $18.6 billion (with volumes at 32.4 million metric tonne). On $48.3 billion of crude imports in 2006-07, 17% amounts to $8.2 billion.
In April-October 2007, the export of petroleum products touched $14.6 billion (23.4 mmt). Major products exported from India across the globe (including Europe and the US) include diesel, petrol, naphtha, jet fuel and industrial fuels.
High demand for petroleum products, coupled with soaring international prices, have sustained refining margins at comparatively higher levels than before. In the medium to long term, this trend is expected to continue, which in turn brightens the prospects of refining as a strong growth centre in the hydrocarbon world.
World over, especially in Europe, there has been no substantive addition to refining capacities. In fact, at many places refineries are being closed down because of environmental concerns. Central Asia?s refineries are old and require a huge dose of investment. During last three years (2003-2006), world refining capacity has increased by 3,282 thousand barrels a day. The capacity addition in three countries, China, India and the USA, constitute 84% of these additions.
India has 19 refineries, 17 in the public sector and two in the private sector, with an installed capacity of 148.97 mmtpa. The PSU refineries have a 71% share (105.47 mtpa) in the total installed capacity. At present, India ranks fifth in the world in terms of refining capacity after the US, China, Russia and Japan.
To meet the projected demand for petroleum products up to 2025, world refining capacity is required to be augmented at about 1.5% a year. Asia in general is projected to be the centre of growth for the next two decades. Considering this scenario, there appears to be an excellent opportunity for capacity augmentation in the Asian region.
Oil prices have remained high and volatile since the winter of 2004-05 and international oil market analysts have projected that oil prices would continue to be at high levels for the foreseeable future. The high prices, backed by rising demand in emerging economies, have resulted in refineries earning high margins. Thus, investment in refineries has become much more attractive.
In order to cash in on the opportunity and become a significant player in the world petroleum market, Indian companies have planned capacity addition of 92 mmtpa during the 11th Plan period, 2007-12. Most of this capacity addition would be for export markets. Thus, refining capacity at the end of 11th Plan is anticipated at 242 mmtpa, against the existing capacity of 149 mmtpa. New projects planned in the country include the Paradip refinery of Indian Oil Corporation in Orissa. The project was earlier conceived to be a 9 mtpa refinery, but in order to improve the economic viability of the project, the feasibility of an integrated refinery-cum-petrochemical complex at Paradip against stand-alone refinery was examined along with a review of refining capacity. Based on the report, IOC has now revised the project as a 15 mtpa refinery-cum-petrochemical complex. The estimated cost is about Rs 25,646 crore with completion scheduled for October 2011. As of October 31, 2007, Rs 936 crore was already been spent on the project.
In addition, Hindustan Petroleum is setting up a 9 mtpa refinery along with the LN Mittal group at Bhatinda in Punjab. The project is expected to be completed in 2010-11. Bharat Petroleum Corporation is setting up a 6 mtpa at Bina in Madhya Pradesh.
In the private sector, Reliance Industries Ltd is already constructing a new refinery in the Jamnagar SEZ with a capacity of 29 mtpa. The refinery is expected to be completed in 2008-09. Nagarjuna Oil Corp is also planning a new refinery at Cuddalore with a capacity of 6 mtpa.
To improve their performance, refineries are taking various measures including the processing of lower priced high sulphur crude, setting up single-buoy mooring facilities to reduce transport cost, adding units to provide quality fuels, benchmarking performance internationally through Shell Global, bringing improvement in yields and adding petrochemical facilities to improve value addition.