Oil firms to boost naphtha export after KG gas flows

Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL), which market petroleum products in the country, are planning larger exports of naphtha and fuel oil once gas from the Krishna-Godavari (KG) basin begins to flow later this year. The oil companies' plan comes in the wake of a likely shift by industrial users, especially fertiliser units, to less expensive KG basin gas.

"The gas that will flow from the KG basin will affect our fuel sales to industries. This will result in larger exports of industrial fuels," said B M Bansal, director planning, IOC, which sells over half the fuels the country consumes.

Reliance Industries (RIL), Gujarat State Petroleum Corporation (GSPC) and Oil and Natural Gas Corporation (ONGC) have discovered huge gas reserves in the KG basin, which have the capability to wipe away the gas deficit in the country. Reliance is expected to begin producing the gas by the end of this year and will supply first to fertiliser and power plants, which primarily use naphtha and fuel oil in the absence of gas.

Exports of naphtha have almost halved to 0.68 million tonnes in July 2008 compared with 1.02 million tonnes in the year-ago period. Fuel oil exports have risen marginally to 0.56 million tonnes during the same month from 0.42 million tonnes a year ago. "There's a good export market for these fuels," Bansal said.

Increased exports of naphtha and fuel oil will not significantly impact the margins of government-owned oil companies as they sell these products in India at market prices.

Realising the impending change in consumer preferences, Indian Oil is spending Rs 4,000 crore for upgrading its refineries to produce more diesel and petrol and less of fuel oil. "We are setting up petrochemical plants, which will use naphtha from our refineries as feedstock," Bansal said.

The natural gas from KG basin is not only going to affect the industrial demand, but also the retail demand. Companies are planning to sell gas through pipelines to homes for cooking and also setting up natural gas stations for use as transport fuel.

The state-run companies said this would also gradually replace petrol and diesel in cities and cooking gas in kitchens. "Once the gas comes, it will help meet the gap between demand and supply," said a senior BPCL executive. "But once large volumes of gas come, there will be no growth in demand for petrol and diesel."

Oil companies are, however, confident that their current volume of sales will not be affected as they will shift to cities and rural areas situated along the gas pipeline networks.

"We are also getting into distribution and marketing of gas in cities and are talking to gas producers. This will bring revenues for us," said a senior HPCL executive.