India is one the few countries in the world that has a heavy dependence on crude oil imports while also being a significant exporter of refined products. At present, the country imports 80 per cent of its oil requirements and 40 per cent of its gas requirements. While the recent years marked by depressed crude prices made a strong economic case to import cheap crude, these low prices also resulted in a revenue hit for domestic refiners. Competition too has intensified in the sector, leading refining companies to contemplate ramping up existing refining capacities to retain their export markets.
According to the International Energy Agency, in terms of total refining capacity, India ranks fourth globally, with only the US, China and Russia ahead of it. The country’s current installed refining capacity stands at over 230 million tonnes per annum (mtpa), spread across 23 refining facilities. Of this, nearly 65 per cent (150 mtpa) is owned and operated by public sector players, while the remaining 35 per cent (80 mtpa) belongs to private sector companies.
Player-wise, state-owned Indian Oil Corporation Limited (IOCL) has the maximum refining capacity at 69.2 mtpa. The company’s key refineries are those at Koyali (13.7 mtpa) in Gujarat and Panipat (15 mtpa) in Haryana. In the private sector, Reliance Industries Limited tops the list with an installed crude oil refining capacity of 60 mtpa at Jamnagar, Gujarat, followed by Essar Oil Limited’s (EOL) 20 mtpa capacity at Vadinar, Gujarat. Recently, Russia-based Rosneft along with its partners bought a 98 per cent stake in EOL, in the largest foreign direct investment deal in India during the year (2016).
Key expansion plans
One of the mega plans in the oil refining sector is the 60 mtpa facility (two phases of 40 mtpa and 20 mtpa each) proposed to be set up at Rajapur, in Ratnagiri district, Maharashtra. The facility, entailing an investment of Rs 1.5 trillion-Rs 2 trillion, will be the world’s largest refinery complex. It is being developed by a special purpose vehicle formed by IOCL, Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL). The project, announced by the Ministry of Petroleum and Natural Gas in December 2015, is still at a nascent stage. At present, site visits and land acquisition are under way. The government has appointed Engineers India Limited as the technical agency to prepare a detailed feasibility report for the project.
Meanwhile, a number of refining companies have embarked upon their expansion plans. IOCL, for instance, plans to invest Rs 400 billion to expand its refining capacity to 104.55 mtpa by 2022. It is looking to scale up its Koyali refinery to 18 mtpa from the current 13.7 mtpa, while the capacity of the Panipat refinery will be raised to 20.2 mtpa from the current 15 mtpa. Besides, a 3 mtpa capacity addition is planned for the company’s refining facilities in Mathura (Uttar Pradesh) and Barauni (Bihar), which will take their capacity to 11 mtpa and 9 mtpa respectively. The recently commissioned 15 mtpa Paradip refinery in Odisha will also see a capacity addition of 5 mtpa while about 3 mtpa will be added to the Digboi and Bongaigaon refineries.
Other state refiners too have planned capacity additions to meet the rising demand for petroleum products, both in the domestic as well as foreign markets. For instance, BPCL is looking to increase its total refining capacity to 53 mtpa, by ramping up its units at Mumbai and Kochi.
India’s refining sector is poised for higher growth, given the elaborate expansion plans chalked out by several refiners. However, equally important will be the development of other downstream infrastructure, such as transmission pipelines. Land acquisition still poses a huge challenge to the development of greenfield projects. The mega project at Ratnagiri, which has been witnessing land issues since its announcement, is a case in point. Such issues push up costs and disturb project economics significantly. Besides, most of the refining facilities in the country are very old. It may thus be a good idea to retire some of these facilities as their operation costs are rising sharply with age. Overall, the government’s thrust on the sector’s development bodes well for the future.