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Analysis: India's refining roadmap figures a dream to make it big in petrochemicals

Highlights

India's resilient oil demand outlook will prompt its private andstate-owned refiners to pursue ambitious brownfield and greenfield expansionplans in coming years, undaunted by the widespread push to embrace alternativeenergy forms or electric vehicles, according to industry officials andrefiners.

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Delegates and speakers attending the S&P Global Platts Asian RefiningSummit last week, however, added that most future refining expansions in India-- one of Asia's fastest growing oil demand centers -- will take place keepingthe petrochemicals sector in mind -- a sector whose growth is expected tosurpass the country's GDP growth over the next decade.

"India aspires to continue to be a major player in Asian refining and toalso become a petrochemicals hub," said Neelabh Sharma, chief manager forstrategy at state-run Indian Oil Corp., the country's biggest refiner.

"India's oil sector is on a growth path, with mega plans to addrefineries and petrochemical [plants]. Refiners are increasing theirflexibility in product slate, along with integration with petrochemicalsfor future sustenance," he added.

Presenting a cumulative roadmap for India's refining sector until 2030,Sharma said India will add 113 million mt/year (2.27 million b/d) of capacityby the way of brownfield expansions, along with diversification topetrochemicals production by 2030. In addition, some 78 million mt/year ofcapacity would be added by the way of greenfield expansions, which wouldinclude new petrochemical complexes.

"A host of opportunities are developing in the midstream and downstreamsectors," Sharma said. "Alternative energy systems will take time to developon account of structural issues. Oil and gas is expected to remain themainstay of the transportation sector, with petrochemicals poised to garner abigger share."

India's current refining capacity stands at 247 million mt/year. Whilethe state-run sector accounts for 142 million mt/year of current capacity, theprivate sector has a capacity of 88 million mt/year, with Reliance Industriesand Essar Oil being key players. Various other joint ventures contribute tothe remaining 17 million mt/year of capacity.

As India joins China in pursuing its ambitious refining expansion goals,delegates attending the Platts summit said the new capacity expansions wouldmake up for the shutting down of capacity in other countries, such as Japan,leading to an overall growth in capacity in Asia.

"Expansions of existing and new plants will more than offset closures. Interms of growth, it is mainly a China and India story," said Adi Imsirovic,global head of oil and oil products at Gazprom Marketing and Trading.

STRATEGIC PUSH

Many leading Indian refiners have crafted out ambitious expansion plansin coming years.

IOC Chairman Sanjiv Singh told Platts earlier in an interview that thecompany had set a capital expenditure target of about $28 billion over thenext five to seven years. It would add about 25 million mt/year of brownfieldcapacity in the next five to six years.

Highlighting some key expansions, Singh said that stage 1 expansion ofthe Barauni refinery from the current 6 million mt/year to 9 million mt/yearhad been approved, as well as the stage 1 expansion of the Gujarat refinery to18 million mt/year from 13.7 million mt/year.

Another leading state-owned refiner Hindustan Petroleum Corp. Ltd. hasset aside $9.5 billion for capital expenditure for the next five years,according to company Chairman Mukesh Kumar Surana.

While HPCL is pursuing an expansion of its Visakhapatnam refinery from8.3 million mt/year to 15 million mt/year, it is also aiming to expand itsMumbai refinery's capacity from 7.5 million mt/year to 9.5 million mt/year.

In addition, HPCL has signed an agreement with the provincial governmentin Rajasthan to set up a refinery in Barmer, which will have a capacity of 9million mt/year. It is also planning a petrochemicals complex in Kakinada.

One of the biggest projects that's coming up is a megarefinery-cum-petrochemicals complex in the western coast of India, which wouldhave an annual capacity of 60 million mt. It is being jointly built by thethree state-run refiners -- IOC, HPCL and Bharat Petroleum Corp. Ltd.

"The land for this project has already been identified," Sharma added.

In addition to refinery expansion plans, India has embarked on anambitious fuel quality upgradation program, which would lead to moving to Euro6 fuels directly from Euro 4 by 2020.

"All refineries across India are simultaneously undergoing majorupgradation at a cost of approximately $4.3 billion. It will be 'One India,One Fuel' from April 1 2020," Sharma added.

DEMAND DRIVERS

Delegates said transport fuels would be the main driver of growth inIndia over the next two decades. Sharma said that while the passengers carsegment would witness a compound annual growth rate of 8.9% until 2040, thecommercial vehicle segment would grow at a CAGR of 6.2% in the same period.Air traffic would also post robust growth.

"Over the last few years, low oil prices have stimulated stronger oildemand in India, particularly a shift towards consumer demand associated withgasoline and chemicals," said Mark Quartermain, vice president for crude oilsupply and trading at Shell.

"While commercial vehicle sales drive up distillate sales intransportation, one thing we didn't necessarily imagine coming a couple ofyears ago was the amazing take up in gasoline demand," he added.

Sharma said the share of transport fuels in India's oil demand basketwould increase to 57% by 2040, from 47% in 2016. "While the share of thetransport sector globally will increase by 2 percentage points by 2040,India's growth is expected to increase by 10 percentage points by 2040,as far as the transport sector's contribution to oil demand is concerned,"Sharma added.

He added that an additional 315 million people are expected to move toIndia's towns and cities from rural areas by 2040. "India's strong demand forinfrastructure and consumer goods will boost the outlook for manufacturing."

India's oil consumption posted modest growth in 2017. Overall oilproducts demand in 2017 was 200.51 million mt, up 1.8% from 196.97 million mta year earlier, according to the Petroleum Planning and Analysis Cell.

S&P Global Platts Analytics expects India's oil demand to grow by 300,000b/d in 2018, compared with 120,000 b/d in 2017.

"We have seen a 400,000 b/d increase in demand in January, which showshow important it is to keep an eye on what is going on in India," Quartermainadded.

--Sambit Mohanty, sambit.mohanty@spglobal.com

--Edited by Geetha Narayanasamy, newsdesk@spglobal.com