Touted to be the world’s fastest growing economy, India’s demand for oil seems insatiable. As per Petroleum Planning and Analysis Cell (PPAC) data, India’s consumption of petroleum products, which includes domestic and industrial fuels, rose 17.7 percent to 15.2 million tons (MT) in October 2015 from 12.9 MT in October 2014. Current oil and gas production in the country cannot meet this constantly increasing demand. Over the past decade, crude oil imports have doubled to about 3.8 MMbpd (million barrels per day), making it the third largest crude oil importer (behind China and the US). Domestic demand for fuels is the catalyst for refinery capacity growth.
India is now the second largest refiner in Asia (after China), with the fourth largest refining capacity in the world. The IMF’s World Economic Outlook 2016 report states that India’s growth is driven by private consumption, which has benefited from lower energy prices and higher incomes.
With the drop in oil prices, refiners in India are filling up their petroleum reserves as a hedge against price volatility and supply disruptions. Oil storage capacity of 5.3 MMt is being built at three locations: Visakhapatnam (already operational), Mangalore, and Padur. The IEA (International Energy Agency) says that domestic demand for oil could touch 10 MMbpd by 2040, largely due to growth in the manufacturing sector and industrialization. The dip in global oil prices has reduced the cost of diesel in India and the money has gone back to the government. This deregulated fuel market allows private Indian refiners to compete with public sector companies on a level playing field.
The refining industry consists of companies such as Indian Oil Corporation (IOCL), Bharat Petroleum Corporation, Hindustan Petroleum Corporation, Chennai Petroleum Corporation (CPCL), Mangalore Refinery and Petrochemicals Ltd (MRPL), Reliance Industries (RIL), Essar Oil Ltd (EOL), etc. Major companies belonging to the upstream industry are Oil and Natural Gas Corporation (ONGC), Oil India (OIL), Cairn India, and Reliance Industries (RIL).
Presently, India has 22 major refineries in operation with total installed capacity of about 4.6 MMbpd. The downstream industry is dominated by public sector companies; IOCL is the largest refining company, and with its subsidiary CPCL it operates 35 percent of India’s refineries. Indian refiners are investing over $30 billion in additional projects in the next five years. A project feasibility study is also being conducted to build a 1.2 MMbpd refinery on the west coast in two phases. Refineries in India, both in the private and public sectors, are scaling up and investing in new technologies, adhering to regulatory compliances, and creating world-class facilities; because it is critical to be compliant, competitive, and environment-friendly. Capital expenditures are likely to escalate due to new regulations to curb air pollution and produce Euro-6 standard fuels by 2020.
The increased refining capacity provides opportunities to strategic investors, technology licensors, service providers, equipment suppliers, and EPC contractors. The government proposes to set up at least three petroleum, chemical, and petrochemical investment regions (PCPIR), and this will benefit the downstream sector.
It is obvious that with the convergence of multiple factors and a conducive investment climate, India’s downstream sector is on the brink of exponential growth.
Editor & Public Relations Manager,
ARC Advisory Group, India