IMAGINE DRIVING TO THE nearest ‘petrol pump’, but not to tank up your vehicle. There are no takers for petrol or diesel since vehicles now run on electricity and other non-fossil fuels. So, instead, the ‘pump’ offers facilities such as rest rooms, dining, charging stations, restaurants, toy shops and convenience product stores. Companies, including Mukesh Ambani’s Reliance Industries, the country’s biggest private refiner and an early mover in most such cases, has already spotted the opportunity and is transforming itself. For RIL, data is the new oil.
But what about state-owned oil refining and marketing companies such as Indian Oil Corp. [IOC], Bharat Petroleum Corp. Ltd. [BPCL] and Hindustan Petroleum Corp. Ltd. [HPCL], set up to source and refine crude to meet India’s growing energy demands?
Legacy of the Past
From 1947 to June 2010, the Central government controlled and subsidised petroleum prices to protect consumers (diesel was de-regulated only in 2014). The OMCs were at the receiving end most of the time, their balance sheets in red each time international crude prices shot up. Expansion and modernisation depended on the government, and most of the refineries were operating at gross refining margins (GRM) of less than $4 per barrel. GRM — the amount a company earns from turning every barrel of crude oil into fuel — is the global benchmark for efficiency and profitability of a refiner. IOC was started in 1959, BPCL in 1952 and HPCL was incorporated in 1974. Some of their refineries (23 put together) are more than a century old.
It takes around seven-eight years to set up a new refinery. However, the economy is growing fast and so is the country’s energy need. Fuel demand is set to reach 400-450 MMTPA by 2040, from the current 249 MMTPA, according to various estimates. In 2015, the government set a target to reduce India’s import dependence on crude to 67% by 2022 vis-a-vis the current 84-85%. Also, the world is moving towards a greener future, and private sector companies, including RIL and Adani, are betting big on renewables.
For OMCs, however, the immediate priority is to increase capacity. They are giving thumbs down to energy transition for at least two-three decades, and are instead transforming themselves into technology and research-based high-value petrochemical makers. IOC, BPCL and HPCL together are investing around ₹2 lakh crore [$27 billion] to increase their refining capacities [from 249 MMTPA to 298 MMTPA] and double their petrochemical capacities [to over 6 million tonnes by 2025].
IOC is increasing its capacity by 25 MMTPA to 106 MMTPA by 2023-24, says chairman and managing director Shrikant Madhav Vaidya. “The refineries will have the latest technology with high energy and operational efficiency. These will be petrochemical-intensive and plans are to have at least 15% of crude converted into petrochemicals, where the margins are more,” he adds.
IOC currently has 11 refineries, and is increasing capacity by 26.5 MMTPA to 107 MMTPA by 2025-26. Capacity of its Koyali refinery in Gujarat will go up from 13.7 MMTPA to 18 MMTPA post expansion, and capacity at Panipat refinery in Haryana will increase to 25 MMTPA from 15 MMTPA. A new 9-MMTPA plant is being built at its subsidiary, Chennai Petroleum Corp. Ltd. At its five-year-old Paradip refinery, built at an investment of over ₹34,555 crore, a new ₹5,654-crore Mono Ethylene Glycol (MEG) plant is coming up, which will make IOC a major producer of polyester fibres. A similar ₹5,251-crore petrochem plant is coming up at its Gujarat refinery, which will help reduce the country’s dependence on butyl acrylate, a key ingredient for polyester and plastics.
Expansions are also underway at its Guwahati and Barauni refineries. Old plants are also being refurbished for better efficiency and high-value petrochemical products such as the Styrene Monomer project at Panipat and the Lube Integration project at Gujarat refineries. “All new refineries have higher complexities and can process heavier crudes to give a better yield for our products. Petrochemicals contribute 4% of revenues and 18% of profits,” says Vaidya. The refinery expansions, costing over $13 billion, or over ₹1 lakh crore, are slated to be commissioned within the next four-five years.
OMCs’ Expansion Plans
Increase in refining capacity at Koyali refinery [Gujarat] from 13.7 MMTPA to 18 MMTPA.
Increase in capacity at Panipat refinery [Haryana] from 15 MMTPA to 25 MMTPA.
Subsidiary Chennai Petroleum Corp. Ltd. (CPCL) to set up 9-MMTPA plant.
Plans a Mono Ethylene Glycol plant, a key ingredient for the production of polyester fibres, at Panipat and petrochem plant at Gujarat refineries.
Propylene Derivatives Petrochemical Project (PDPP) at Kochi refinery.
Motor Spirit Block Project at Kochi refinery for BS-VI fuels.
Kerosene Hydrotreater (KHT) and Petro Resid FCC unit at Mumbai refinery.
Niche petrochemicals at Kochi petrochemical complex.
Polypropylene unit at Rasayani, Maharashtra.
Expansion of Mumbai refinery from 7.5 MMTPA to 9.5 MMTPA.
Expansion of Visakhapatanam refinery from 8.3 MMTPA to 15 MMTPA.
A new 9-MMTPA greenfield refinery cum petrochemical complex in Barmer, Rajasthan.
A 1.7-MMTPA additional petrochemical project in Bathinda, Punjab.
Shrikant Madhav Vaidya, Chairman and Managing Director, Indian Oil
“India’s energy transition will be through multiple fuel sources”
There won’t be any one form of energy. It will be fossil fuels, gas, renewables and biofuels, says IOC CMD. Edited excerpts.
On EV Transformation
India’s EV industry is in a very nascent stage, if you look at the sales so far. A lot of other issues like the cost factor, range anxiety, battery issue etc. need to be addressed before it becomes a threat. We have to import lithium batteries. So the shift can be from oil imports to lithium imports. At Indian Oil, we are developing aluminium air oxide batteries in a tie-up with an Israeli company (Phinergy Ltd.). Trials are going on in Israel, and the Proof of Concept has already been done. Once the field trials succeed, we will put up a manufacturing unit for aluminium air batteries. India is one of the largest producers of aluminum and we will be ready for competition when the actual EV revolution comes. The EV industry needs to develop the ecosystem. It is not just charging stations, battery swapping stations. It is a long-haul journey and we are taking the right steps. As and when these will be a threat to pure oil products, we will be able to ramp up our entry in this area in a big way.
On Green Fuels
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