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[ Approach ][ Capabilities ][ Staff ][ Clients ][ Press ][ Library ][ Contact ]NEW DELHI (KWR) - August 20, 2007 -- India has unveiled plans to substantially expand its refining capacity over the next five years and to become a major global fuel exporter. Currently, India has oil-refining capacity of 2.6 million barrels per day (bpd) against domestic consumption of about 2.2 million bpd. The refining capacity is expected to rise to 4.84 million bpd (240.96 million tons per year) by 2012, an increase of 62 percent from current levels.
"Considering the projects under implementation and the projects at various stages of approval, the refinery capacity in India is expected to go up to about 240 million tons per annum. This implies that an additional capacity of 92 million tons will be added in the next five years," India's oil minister Murli Deora has said.
Among the country's new refinery projects, the first to get off the blocks is Essar Oil's $2.2 billion new refinery at Vadinar in Gujarat state on the west coast. The refinery was commissioned in November. It will initially produce 150,000 barrels per day (bpd) of gasoline, diesel, liquefied petroleum gas and kerosene. Essar, which restarted work on the refinery in March 2005, plans to raise capacity to 280,000 bpd by mid-2008 and to 320,000 bpd the following year. The capacity could then be doubled by replicating the existing units.
The plant will feed Essar Oil's network of around 900 filling stations spread across the country. That network is set to rise to 2,000 outlets by next spring. Essar also plans to export 35-40 percent of the products because it would not be feasible to sell its entire products in the domestic market, an Essar official said. Indian refiners are prevented by the government from passing on the full increase in oil costs to customers because of political considerations.
Projects set to be commissioned by the 2011-12 fiscal year include Reliance Petroleum's 580,000 bpd export refinery at Jamnagar, Indian Oil Corp.'s (IOC) 300,000 bpd Paradip refinery in Orissa state, Hindustan Petroleum's 180,000 bpd Bhatinda plant in Punjab state, and Bharat Petroleum's 120,000 bpd Bina refinery in Punjab. The private sector Nagarjuna Oil is also likely to commission its planned 120,000 bpd refinery in Chennai in southern India during this period.
In addition, IOC plans to raise capacity at its Panipat refinery in north India to 300,000 bpd from a current 240,000 bpd and to expand its Haldia refinery by 30,000 bpd to 150,000 bpd. Hindustan is expanding the Mumbai refinery to 158,000 bpd from 110,000 bpd, and its Vizag plant to 167,000 bpd from 150,000 bpd, while Bharat is extending its Kochi refinery by 40,000 bpd to 190,000 bpd. Hindustan further plans to raise Vizag refining capacity to 300,000 bpd. Finally, Oil and Natural Gas Corp subsidiary Mangalore Refinery and Petrochemicals plans to increase its capacity from 194,000 bpd to 300,000 bpd.
Simultaneous to the refinery expansions, India has forecast an increase in its oil products exports to 93 million tons in 2012 from 21.5 million tons in 2005-06. The country expects to export 31 million tons oil products in 2007-08, 41 million tons in 2008-09, 68 million tons in 2009-10 and 80 million tons in 2011-12. Asia's third largest oil consumer expects domestic demand to grow at a compounded annual growth rate of 2.9 percent to 132 million tons in 2011-12 from 114 million tons estimated for the current year. India imports 70 percent of its oil needs.
India's "refiners have expanded well ahead of demand, which needs to catch up," Koh Ban Heng of Singapore Petroleum Co., said. "India's expected growth in fuel demand hasn't taken off."
In China, the world's second-largest oil user after the U.S., retail sales of fuels rose 34 percent in 2005.
"India is about 10 years behind China in terms of demand growth," Koh said. India has to export its surplus, which is mainly heading to western markets and Africa, "making India an important player" globally.
"There isn't any denying that India will have a surplus of capacity for some time to come," S. Raghunath, an analyst with trader Trafigura said. "Indian refiners have to sell fuels in faraway markets and they will have to compete with refiners located nearby." In addition, government controls on domestic prices have eroded profits at India's state-owned refiners, prompting them to export to stem losses from selling fuels locally.
"There's a potential refining surplus looming from 2010 to 2012," Fereidun Fesharaki, of FACTS Inc., a Hawaii- based consulting firm, said in New Delhi. "The surplus will be critical not only in Asia but also will have an impact worldwide."