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INTERVIEW: India's refiners need to diversify to de-risk in changing energy landscape - FIPI chief

Highlights

Refiners need to boost competency in petrochemicals, renewables, hydrogen

Expanding products portfolio key to diluting risk from volatile global markets

Diesel, jet fuel exports gain speed as economies open up after the pandemic

India's refining sector needs to adopt a dual approach of diversifying into petrochemicals and alternate fuels, as well as improve efficiency of its oil business amid stricter emission norms, to meet the challenges of the changing energy landscape, the head of the Federation of Indian Petroleum Industry told S&P Global Commodity Insights in an interview.

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FIPI's Director General Gurmeet Singh said that the post-pandemic recovery in oil products demand, both in the domestic and export markets, had opened up a window of opportunity for Indian refiners to grow sales volumes sharply and make up for the volume losses of the past two years.

"Surging demand in domestic and export markets offers an attractive growth opportunity for Indian refineries to stay competitive and be able to meet ever-tightening emission standards," Singh said, adding that the country exported 62.7 million mt of petroleum products in the fiscal year 2021-22 (April-March).

"Our refining sector needs to devise viable business models which will help to strengthen its competency in petrochemicals, renewables, alternatives fuels and hydrogen. We will also need to look at the core areas of refinery efficiency improvement. These developments will surely help Indian refiners to de-risk from global market volatility," he added.

Embracing change

Singh said that hydrogen is currently made at refineries via steam reforming of natural gas.

Giving an example of the refinery diversification being planned, Singh said Indian refiners were looking to produce green hydrogen for utilization in the refineries by setting up large-scale electrolyzers to produce green hydrogen from water that would help to decarbonize the hydrogen production process.

"Tapping into the low-cost alternatives and syncing them with the refining and petrochemical industries will be steps toward carbon neutrality. We need a policy and regulatory framework to achieve suitable research and development infrastructure in support of indigenous manufacturing of critical low-cost technologies and high-quality fuels across India," Singh added.

Singh said a lot of research in alternative energy had resulted in the development of technologies for production of biodiesel and 2G-ethanol, which would support the initiatives of the government to move to cleaner fuels and help cut dependence on crude oil imports.

"Bio-refineries can help in integrating biomass conversion processes and equipment to produce fuels, power and chemicals from agriculture, forest and bio-waste as feedstock. Further, India's refiners and are in the process of setting up second generation or 2G ethanol plants that convert agricultural wastes to biofuels," he added.

Singh said the Indian refining industry has been establishing itself as a major player globally and has emerged as a refining hub in Asia. Its refining capacity currently exceeds domestic demand, making it the fourth-largest refiner in the world and second-largest refiner in Asia after China.

The country's annual refining capacity has increased from a modest 62 million mt in 1998 to around 250 million mt presently.

Golden opportunity

India's gasoil exports jumped 39.34% month on month to 3.36 million mt in March, according to latest Petroleum Planning and Analysis Cell data. The surge in outflows brought gasoil exports to the highest level in almost two years, with volumes last recorded higher in April 2020 at 3.40 million mt.

Over January-March, India exported 8.36 million mt of gasoil , up 11.36% from the same period a year earlier.

India 's jet fuel exports also made a sharp U-turn in March, rebounding from a five-month low in February to a more than two-year high on the back of recovering air travel demand, particularly in Western countries.

The country's jet fuel exports surged 49.15% month on month and 49.39% year on year to 617,000 mt in March. Jet fuel exports were last higher at 656,000 mt in December 2019. Over January-March, exports totaled 1.48 million mt, up 28.61% year on year.

Singh said most refiners had undergone major upgrades to produce ultra-low-sulfur fuel BS VI fuels -- equivalent to Euro 6 norms -- in line with the government's decision to leapfrog directly from Euro 4 to Euro 6 fuels.

With more than 1.3 billion people, India is home to 18% of the global population but accounts for a mere 7% of the world's energy demand.

"This vast gap, coupled with the rising aspirations of Indians for improved living standards, will be the key driver of the country's energy demand," Singh said. "As a result, India is set to experience the fastest growth in energy consumption among all large economies."

The government plans to invest $150 billion and $30 billion in refining and petrochemicals sectors, respectively, by 2030. In addition, an investment of $150 billion is envisaged for the E&P sector, while an investment of $60 billion is being planned for the natural gas sector over the next few years, Singh said.