India needs 20 world-scale crackers—facilities that turn petroleum into petrochemical products—between now and 2030 to be self-sufficient
India’s petrochemical sector is a key pillar of the economy and one of the fastest growing, with demand growing at a CAGR of 8%-plus over the last five years. The sector is a key input for an array of vital substances, including plastics, solvents, fertilisers and pharmaceuticals. The key factors that have driven the industry forward include strong GDP growth, changing consumer behaviours and government initiatives. Despite witnessing healthy growth, the penetration level of petrochemicals in India is far lower than global average. India’s per capita consumption stands at 10kg compared to the global average of 30kg, indicating significant headroom for growth.
Maximising the domestic potential can help the sector achieve robust growth. It is a $20 billion market, and has the potential to grow to $70 billion by 2030. This implies potential investments of $40-60 billion and an opportunity to create 20-25 lakh new jobs across the value chain. The challenges the sector faces include under-penetrated end-user markets, limited access to competitive feedstock, absence of a robust ecosystem with downstream players, low focus on R&D, and regulatory and policy issues. For India to overcome the challenges, and for its domestic industry to reach its full potential, it must act on three key things.
Blueprinting for success: A good starting point is to emulate global successes. There are key success factors that made hubs like Rotterdam, Singapore and Fujian world-class and these are the ones India should consider—a robust ecosystem with anchor investors, high-quality logistics network, investor-friendly policies, regulations and incentives, high-quality infrastructure, and well-defined ownership structures.
The Shanghai Chemical Industry Park (SCIP), for example, has anchor investors like BP, Bayer and BASF, who invested over $7 billion in ‘wave one’ for large-scale projects. This was supported by $1.5 billion in support industries and infrastructure. This initial anchor investment led to subsequent investments by 5-6 domestic and international players in ‘wave two’ of development, including Degussa, a chemicals company, for an organic peroxide project.
This investment was supported by SCIP’s fiscal incentives such as corporate tax exemptions, duty allowances and discounted interest rates on debt. Clearly, big investment requires an attractive ecosystem, which is something India needs to work on. Establishing a steering team with the Centre, states and industry representation could be one idea to drive this forward. Another successful strategy is optimising production costs. South Korea, China, Japan and Europe, which face similar feedstock issues as India, have made their supply chains more efficient with integrated complexes through reduced transportation costs as well as optimised processing costs (utilities, labour), creating advantages for integrated players vis-à-vis non-integrated ones.
In India, players like RIL and IOCL have adopted this strategy in selected locations, and there is room for other refineries to do the same. Long-term strategic options will need to be explored for feedstock security. Increasing domestic demand: Slow-scale adoption in many industry segments has stunted the sector’s growth. In agriculture, plasticulture is low as is the use of engineering plastics in automotive. Enhancing usage in such sectors requires awareness, co-creation with end-users and focused R&D to help industries understand the benefits from petrochemicals adoption.
In growing industries such as automotive, agriculture, medicine, infrastructure and electronics, petrochemicals can create better quality products, better efficiency, reduce costs and reduce waste. For example, the Indian automotive sector uses 5kg of engineering plastic per car, compared with 19kg in developed countries. With initiatives like Make-in-India driving up automotive manufacturing, there is an opportunity to replace metal in cars with engineering plastics produced by the domestic petrochemicals industry.
Strengthening the ecosystem: Simply drawing from global success stories and enhancing domestic demand will not be enough. If India doesn’t make drastic improvements to the ecosystem, it will be difficult for the country to be self-sufficient in meeting demand growth. There are three ways to help build such an ecosystem.
- One, it needs to expedite petrochemicals park implementation through creating world-class production facilities with scale and efficiency. Drawing on global successful hubs, whilst recognising her unique end-market needs, India can tackle the challenge of growing the domestic sector.
- Two, there has to be more focus on R&D. One can look at South Korea, where the government developed a systematic investment plan to increase R&D investment from 3.2% of its GDP to 5% in 2012. This investment was aimed to support the development of key technologies such as catalysts and ecofriendly products, which are now used extensively across electronics, auto, medical equipment and others. India’s focused R&D efforts should develop production technologies like catalysts, additives and others that specifically enable domestic production and lower costs.
- Three, the government has to play a leading role in driving India’s petrochemicals vision. Incentives such as import duty waivers on feedstock and cheap credit are lower in India than other Asian countries, whilst investor-friendly processes such as single-window clearance, policy support for land acquisition and established industry bodies offering business advice and support are lacking. Addressing these concerns as a matter of priority will boost confidence in the sector and encourage foreign investors to value India’s petrochemicals future. India needs more than 20 world-scale crackers—specialist facilities that turn petroleum into petrochemical products—between now and 2030 to be self-sufficient. We have a long way to go in building this sector, but there is much to gain when we do. The prize is there for the taking, and now we must work together, as government, business leaders and members of the economy, to grab it with both hands.
Author is Partner & Lead, O&G and Chemicals, AT Kearney