West Coast refinery could get a new home as demand for such plants revives

Renewed interest in adding refinery capacity in India owes to the long-term decline of the business in Europe; and in the short-run, the Ukraine war has been a key driver

The colossal refinery project in Maharashtra has got new backers. After a dispute over land acquisition since 2018 has stalled progress on the 60 million metric tonnes per annum (mmtpa) West Coast Refinery, competing proposals have now come to the petroleum and natural gas ministry from Nagpur, apart from the one at Raigad, near Mumbai. 

The proposal to locate the plant at Nagpur, far from the coast but almost at the centre of India’s rail network “makes little sense”, said a top government official. The backers for the move include segments within the BJP. Both former Maharashtra chief minister Devendra Fadnavis and union road transport and highways minister Nitin Gadkari are from Nagpur. 

To compete with them, the current coalition ruling the state, Maharashtra Vikas Aghadi, has after years of delay, warmed up to locating the greenfield refinery at Raigad. The alliance, which includes the Shiv Sena, NCP and the Congress, too has approached the union ministry for this purpose. Saudi Aramco and Abu Dhabi National Oil companies jointly hold 50 per cent stake in the project along with IOC, HPCL and BPCL. The original land bank of over 6,000 hectares needed for the massive refinery-cum-petrochemical complex was supposed to be in Ratnagiri district, but could not take off. 

Renewed interest in the project is part of a global fresh look at expanding refinery capacities in the wake of the shortages of petroleum related products. The short-term crunch is due to the Ukraine-Russian war, the longer-term one is due to a fall in global refining capacity. An IEA report says 2021 was the first time in 30 years when new total refining capacity installed was short of closures. The picture was likely to change a bit in 2022, as net addition was estimated to be 1.2 million barrels a day. 

In 2021 the total investment in refining capacity had dropped to $900 billion. It will reverse to $1.4 trillion by 2024-25, a level last seen about a decade ago. 

Most of those new capacities are supposed to be in Asia, principally China and India. A Mordor Intelligence report notes this region, with 26.3 per cent of the global refining capacity, will expand its leadership. A key element of this leading role is supposed to be played by the West Coast Refinery. Once completed, it would take India’s total refining capacity past the 300 mmtpa mark from the current 249.22 mmtpa. The current Chinese-to-Indian refining capacity ratio is 16:5.

India needs large-scale refineries to meet the still expanding export market for petroleum products and, of course, for domestic consumption. There are 23 functional refineries in India, of which 19 belong to public sector companies, one is owned by a joint venture Company and three by private companies (RIL and Nayara). 

Many of these refineries are old and less than 10 mmtpa each. “No refinery at a smaller size is viable today,” said R S Sharma, former chairman of ONGC. His company runs India’s smallest refinery at Tatipaka in Andhra Pradesh at 0.66 mmtpa. While Sharma did not say so, the location and, therefore, the size of many of these refineries were the result of political decisions rather than economic logic. This refinery was to produce naphtha, but the demand for the product fell and the unit was shifted to produce mineral turpentine oil. The demand for locating the West Coast refinery near Nagpur has a similar logic. 

India’s opportunity comes from the mothballing of the Europe-based refineries, which is expected to continue despite renewed interest in them in the current war. 

“The business model for these refineries relocated to India would be viable if they also get into the production of value-added products, mainly petrochemicals,” said an industry expert in the private sector. RIL is doing so, and so is the model for the West Coast refinery, the source added. 

The RIL SEZ refinery, with a capacity of 35.2 mmtpa, has already begun major investments in petrochemicals. The West Coast refinery, expected to now cost over $50 billion, is also an integrated refinery and petrochemical project. On completion, it will have three refining units with a capacity of 20 mmtpa each that together will process 1.2 million barrels of crude oil a day. 

Renewed interest in adding refinery capacity in India owes to the long-term decline of the business in Europe. The list of plants like Shell’s 8 mmtpa refinery at Wesseling, Germany and Livorno in Italy are already on course for closure. 

Besides, S&P Platts data shows a staggering 24 refineries in the Continent (see list) had planned maintenance shutdowns in 2022 at some stage or the other. These units were just coming out of reduced production runs due to Covid last year, but now the sudden current shortage has made those maintenance plans difficult. The long-term viability of many of those forced to run without downtime, will be up for question.

Indian companies are therefore trying to move into the breach. HPCL is running a modernisation project for its Visakhapatnam refinery, at an estimated cost of Rs 20,928 crore ($2.5 billion). The project was scheduled for completion in July 2020. Parliament data shows about 86 per cent of the work was completed by February. The cost of the project has, however, been revised to Rs 26,264 crore ($3.5 billion). 

IOC, with 11 refineries under its belt (See Table), has announced plans to increase its refining capacity from the current 80.7 mmtpa to 150 million metric tonnes per annum by 2030. While India expects to hit 450 mmtpa, China hopes to reach one billion by 2030 as per China National Petroleum Corp's Economics & Technology Research Institute data. 

Environment and petrochemicals:

The huge expansion plans will have ecological implications. Refineries have a strong carbon footprint. Plans to capture value-added chemicals will have a mitigating impact. 

Currently, petrochemicals comprise less than 20 per cent of the value of the output of refineries. “This could conceivably reach as high as 80 per cent before the end of this decade in some of the refineries. The only growth areas for conventional fuel, we expect, will remain in the aviation turbine fuel business,” an industry expert said. However not all the capacity of Indian refineries will be able to migrate up the value chain. In the IOC shelf itself there are refineries like Koyali with a 13.7 mmtpa output, set up in 1965 and also later ones like Mathura set up in 1982 (eight mmtpa) which will have difficulties in making the transition. 

“The refinery ecology has to be consolidated to above 10 mmtpa for the sustained value from new investment to come and the carbon footprint to be kept minimal”, added Sharma. 

Oil refining capacity fell for first time in 30 years in 2021: IEA

• Oil refining market is expected to record a CAGR of slightly more than 1.5% upto 2027
• Asia-Pacific account for 26.3% of the global refining capacity
• Near term crisis: 24 European refineries with total capacity of 4.307 mmtpa have repairs\maintenance in 2022
• Most refineries to be integrated with petro-chemical complexes. 512 such projects expected to commence operations in China during 2021-2025.
• India: IOC to invest over Rs 1 trillion to raise refining capacity to 150 mmtpa 
• Top global players are: ExxonMobil, Royal Dutch Shell, BP, Sinopec, Saudi Aramco
• West Coast Refinery configuration--Production scale 2% of India’s GDP and 10% of Maharashtra GDP
  • Three refining units with a capacity of 20 Mt each that together will process 1.2 million barrels of crude oil per day; own port facilities
  • Annual petrochemical capacity of 10.85 mmtpa
  • Polyethylene will be 29% of the total annual petrochemical capacity of the complex at 3.15 mmtpa; polypropylene &  xylenes with 27% (2.93 mmtpa) and 22.1% (2.4 mmtpa) respectively

Table: The 23 functional refineries in India

Refinery

Year established Company Capacity (mmtpa)

Digboi

1901 IOC 0.650 Guwahati 1962 IOC 1.000 Barauni 1964 IOC 6.000

Koyali

1965 IOC 13.700 Bongaigaon 1974 IOC 2.700 Haldia 1975 IOC 8.000 Mathura 1982 IOC 8.000 Panipat 1998 IOC 15.000 Paradip 2016 IOC 15.000

Manali

1965 CPCL (part of IOC) 10.500 Nagapattinam* 1993 CPCL 0.000 Mumbai 1954 HPCL 7.500 Visakhapatnam 1957 HPCL 8.300

Mumbai

1955 BPCL 12.000 Kochi 1963 BPCL 15.500 Bina 2011 BPCL 7.800 Numaligarh 2000 Numaligarh 3.000 Mangalore 1996 MRPL 15.000 Tatipaka 2001 ONGC 0.060 Jamnagar 1999 RIL 33.000 RIL SEZ 2008 RIL 35.200 Vadinar 2006 Nayara 20.000 Bhatinda 2012 HPCL-Mittal Energy 11.300 TOTAL 249.216

* Operation of Cauvery Basin Refinery of CPCL of 1.0 MMTPA has been stopped since 01.04.2019 to build a 9 MMTPA capacity Source: Responses in Parliament 

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