Both public and private sector oil marketing companies (OMCs) in India are planning to add another 35-40 million tonnes (MnT) of crude oil refining capacity to meet the expected growth in consumption by the financial year (FY) 2029-30. Since the existing capacity is being optimally utilized, this new capacity addition will raise India’s total crude oil refining capacity to around 295 million tonnes in the next six years, according to a recent study by Crisil, one of India’s leading rating agencies.
According to Petroleum Planning & Analysis Cell (PPAC), an arm of India’s Ministry of Petroleum and Natural Gas, the country’s present overall refining capacity stands at 256.82 MnT as of April 1, 2024. Indian Oil Corporation Ltd (IOCL), a government-owned company, leads with a cumulative 70.25 MnT, followed by Reliance Industries Ltd’s, Bharat Petroleum Corporation Ltd, and Hindustan Petroleum Corporation Ltd with 68.20 MnT, 35.30 MnT, and 23.20 MnT, respectively.
| India’s company-wise crude oil refining facilities as of April 1, 2024 |
| Name of the refiner | Capacity (‘000 tonnes) |
| Indian Oil Corporation Ltd | 70,250 |
| Hindustan Petroleum Corporation Ltd | 23,200 |
| Bharat Petroleum Corporation Ltd | 35,300 |
| Chennai Petroleum Corporation Ltd | 10,500 |
| Numaligarh Refinery Ltd | 3,000 |
| Oil and Natural Gas Corporation Ltd | 66 |
| Mangalore Refinery and Petrochemicals Ltd | 15,000 |
| HPCL-Mittal Energy Ltd | 11,300 |
| Reliance Industries Ltd | 68,200 |
| Nayara Energy Ltd | 20,000 |
| Total | 256,816 |
Sources: Oil Companies, and Polymerupdate Research
Low project riskThese capacity additions would require a capital expenditure (capex) of about Rs. 1.9-2.2 lakh crore, with most being brownfield expansions. Project risk in these investments is expected to be low, which coupled with the expectations of steady returns from the business will support credit risk profiles of OMCs.
In the decade through fiscal 2024, India’s refining capacity increased by 42 MnT to 257 MnT, primarily to cater to the growing domestic consumption, as exports remained range-bound at 60-65 MnT over these years. Domestic consumption of petroleum products logged a compound annual growth rate (CAGR) of 4 percent in the past decade. Transport fuels, accounting for around 56 percent of consumption, grew 4 percent, while naphtha (around 7 percent of consumption), grew 2 percent. The rest of the consumption pie, comprising liquefied petroleum gas and bitumen among others, cumulatively grew almost 4 percent.
Anuj Sethi, Senior Director at Crisil Ratings, commented “We expect overall petroleum product consumption to slightly moderate and register around 3 percent CAGR over the next six years, primarily due to slower growth of 2-3 percent in transport fuel consumption. This will be caused by improving fuel economy, rising share of vehicle sales with alternative cleaner fuels, and 20 percent ethanol blending target proposed by the Government of India.”
Increasing electric vehicles to reduce diesel demandAmongst transport fuels, approximately 75 percent of diesel sale is linked to commercial vehicle usage in India, wherein a move towards electric vehicles or usage of natural gas by buses would lower diesel demand, thereby moderating growth to approximately 2-2.5 percent CAGR over the next six years. In contrast, naphtha demand will see a healthy CAGR of 6-7 percent, supported by increased demand from planned petrochemical capacity additions in India. This growth in overall consumption will necessitate a 35-40 MnT increase in refining capacity as the current capacities are already operating at the optimum utilisation level of ~100-103 percent.
For petrol, internal combustion engines (ICE) based two-wheelers account for around 75 percent of consumption in India, with the balance led by passenger vehicles. The rising share of electric two-wheeler sales (expected at 12-15 percent by fiscal 2030 from negligible levels currently) and compressed natural gas (CNG) passenger vehicle sales (expected to reach a share of 17-19 percent by fiscal 2030) will rein in petrol consumption. Blending ethanol with petrol will further reduce the petrol requirement as India aims to achieve a 20 percent blending target by 2026.
Joanne Gonsalves, Associate Director at Crisil Ratings, stated, “Most of the capacity addition would be brownfield expansions to cater to demand for end products, thus lowering the project risks. We have also seen the oil refiners balancing out their operating profits amid volatility seen in oil prices, wherein US$ 9-11 a barrel of rolling average returns were earned between fiscals 2016-2024, recording a return on investments of 12-14 percent. Further, the sector benefits from its strategic importance to the government”.
Public sector to dominateThe Paris-based intergovernmental organization, the International Energy Agency (IEA), said in a recent report that the growth in India’s crude oil refining capacity will be dominated by public sector undertaking (PSU) refineries, as they prepare for continued rising domestic demand and an increased share of petrochemical production. In contrast, the IEA sees little prospect for private refineries to substantially expand their refining operations over this timeframe.
However, both public and private refinery operations will continue to expand existing crude processing capacity through the debottlenecking of existing facilities, likely in tandem with the addition of new or increased hydro-treating capacity, petrochemical unit additions, or residue upgrading. India’s refining industry has built an enviable reputation as a key source of light and middle distillate supplies to global markets, in addition to meeting robust domestic demand growth.
This assessment of oil demand and refining dynamics points to India being well-placed to cement its position as a reliable international product supplier. Despite increased competition from Middle East Gulf export refineries, the 1 million bpd increase in crude processing and upgrading capacity expansions by 2030 offers the prospect of private and public refinery operators meeting both robust domestic oil demand growth and sustaining substantial exports, IEA said.
Existing scenarioIndia’s Ministry of Petroleum and Natural Gas reported a total refining capacity in the country at 257 MTPA (equivalent to 5.02 million barrels per day or bpd). The country processed a total of 255.2 million metric tonnes (5.13 million bpd) in FY2022-23, up by around 6 percent from 241.7 million metric tonnes (4.85 million bpd) in the previous year. For the period between April 2023 and February 2024, India reported a total refining volume of 238.2 million metric tonnes (5.21 million bpd), compared to 232.2 million metric tonnes (5.08 million bpd) reported during the corresponding period of the previous year. Noticeably, for the period between April 2023 – March 2024, India surpassed the crude oil refining volume target of 229.4 million metric tonnes (5.02 million bpd).
The outlook for India’s oil and gas sector is likely to remain evenly balanced during FY2024-25, driven by a growing demand for petroleum products, declining yet healthy gross refining margins yielding healthy refining, continued high crude oil prices, and increasing domestic crude oil and gas production. Meanwhile, EBITDA for standalone petrochemical (petchem) players and integrated refiners will start showing signs of improvement (the same is visible from the April-March 2024 quarter) after being subdued for FY 2023-24. However, the recovery could be in the low single digits during FY2024-25 owing to the moderate petrochemical spreads arising from the oversupply created by the consistent capacity additions in China over FY 2018-19 and FY 2023-24.
Petchem spreads to remain under pressureOMCs may also look to add further refining capacities to integrate with their petrochemical expansion plans, with a view to diversify business. The capex execution and returns will bear fruitful results going forward. According to the India Rating report, EBITDA for standalone and integrated refiners will start showing signs of improvement this year after being subdued in the previous year.
However, the recovery could be low due to the moderate petrochemical spreads arising from the oversupply created by the consistent capacity additions in China over FY 2019-2024. China added 44.2 million tonnes of petrochemical capacity during the past six years, forming 61 percent of the total capacity added in the world during the period. China has been the world's largest importer of polymer and synthetic fibre and now when Chinese demand is being shifted to domestic production, the petrochemical market excluding China is experiencing an oversupply situation.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
