The Reliance refinery in Gujarat state is the world’s largest such facility and can process 1.2 million barrels a day. India’s refinery capacity rose to 215 million tonnes a year in the financial year to March 2015. AFP
The Reliance refinery in Gujarat state is the world’s largest such facility and can process 1.2 million barrels a day. India’s refinery capacity rose to 215 million tonnes a year in the financial year

India expands crude oil refinery capacity



MUMBAI // The world’s largest crude oil refinery, on the western coast of the Indian state of Gujarat, is spread over 3,035 hectares and has the capacity to process 1.2 million barrels per day (bpd).

The Jamnagar complex is owned by Reliance Industries, the Indian conglomerate controlled by the country's richest man, Mukesh Ambani. Through this sprawling network of pipes and metal structures, crude oil – much of which comes from the Middle East – is refined into products such as petrol, diesel, kerosene used for cooking, jet fuel for airplanes and liquefied petroleum gas (LPG), a household and industrial fuel. These products are then distributed across the country and exported globally.

India has rapidly expanded its capacity to refine crude oil over the past decade and the country has become a major centre for petroleum refining. And it is continuing to grow the sector.

There are plans to build a vast refinery in the state of Maharashtra, to be developed by the India Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum, all state-controlled refiners. With a planned capacity of 1.2 million bpd, it is set to rival the Reliance plant. The first phase, which will have the capacity to refine 800,000 bpd, is projected to cost more than 1 trillion rupees (Dh54.6bn).

“India is emerging as a preferred refining hub,” says Mike van Croonenburg, the chief executive of Petrol Storage Broker, an independent broker based in the Netherlands. The slump in crude oil prices has hit refiners’ revenue, but at the same time is helping companies sell product, he says.

In terms of its total refining capacity, India ranks fourth globally, with only the United States, China and Russia ahead of it, according to the International Energy Agency (IEA).

As well as producing petroleum products for use within the country, India is a major exporter of refined products.

Its capacity has risen to 215 million tonnes a year in the financial year to March 2015, compared with 62 million tonnes in the financial year to March 1999, government data shows.

Out of 23 refineries operating in India, 18 are owned by state-run companies; three are in the private sector; and two are joint ventures, according to a report by the consultant Pricewaterhouse Coopers.

“The growth in refining capacity has transformed India from a net importer of petroleum products until 2000 to 2001, to one of the world’s largest exporters of refined petroleum products in 2014 to 2015,” PwC says.

But production of crude oil within India is very limited, which means the country is heavily dependent on imports – and this dependency is growing.

“The indigenous production of crude oil in India is not keeping pace with the increased refining capacity,” PwC says. “The challenge before Indian companies is to take effective measures for enhancing the exploration and production of petroleum resources. Simultaneously, the infrastructure for refining, distribution and marketing, import, export and conservation of petroleum products must be improved.”

India is the third-largest importer of crude oil, behind the US and China, and is dependent on imports for more than three-quarters of its supply. Its large refining industry is a major contributing factor in this.

The IEA projects that India’s reliance on oil imports will rise by 90 per cent by 2040, when crude imports will rise to 7.2 million bpd, second only to China, sourced predominantly from the Middle East.

“India’s refinery capacity is projected to rise steadily,” it says.

But the IEA adds, “Indian refiners face an evermore competitive product-export market”, with the Middle East expanding its refining capacity.

The agency says India is one of a few countries, along with the US and South Korea, to rely on imports of crude oil while also being a significant net exporter of refined products.

Its domestic crude oil production at 900,000 bpd is far less compared with its refinery capacity, at 4.4 million bpd.

Its expanded capacity in the sector has led to India having a surplus of refined products, the IEA says. India is a net exporter of all refined products, apart from LPG.

“India has been an important supplier of diesel to Europe and a regular supplier of transport fuel to the Asia Pacific and Middle East countries. Its exports come mainly from the private-sector refiners Reliance and Essar, while the public-sector refiners supply the domestic market.”

India is successfully competing with other countries in the refining space, according to the IEA.

“India’s more modern, privately owned refineries, which are capable of efficiently processing Middle Eastern oil into high-quality products, were able to gain market share from less complex refineries in Europe and Japan.”

India’s energy demands are being driven by factors such as the country’s large population, rising incomes, the expanding economy and a push to increase manufacturing.

“The refining sector plays an important role in energy security by ensuring the total energy demand for petroleum fuels is met from domestic and overseas supplies in a timely manner,” according to PwC.

Companies have ploughed investment into the sector to meet India’s future energy demands.

The expansion of refineries in the Middle East and India’s dependence on oil from the region has led India refiners to “sharpen their focus on improving their performance through modernising and upgrading their refinery configurations”, PwC says.

“In India’s economy, the refining industry plays an important part,” says Pradeep Gupta, the executive director of Jagson International, an offshore drilling company for oil and gas exploration in India. He says the Indian refining industry is set to continue its expansion.

“We expect the demand to accelerate in the 2016 through to 2017 time frame.

“As India’s transport and industrial sectors continue to expand under economic development, and because of the oil price declines and recent government policy initiatives to increase motorway and road infrastructure to promote Indian manufacturing, these factors will help demand grow.”

But India’s refining sector faces a number of challenges, experts say.

Mr van Croonenburg highlights that these include a lack of innovation and operational efficiency, as well as escalating project costs. Also, he points out that the effect on the environment of refineries, which leads to pollution, is another major area of concern.

“Many of the refineries in India are old and need a lot of investment to maintain efficient operations,” Mr van Croonenburg says.

“It is time to retire some of India’s old refineries and set up new ones with bigger capacities.”

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