Naphtha exports to dip on rising domestic demand

Naphtha exports are expected to fall on rising demand from Indian oil marketing companies (OMCs).

According to a highly-placed official source, most OMCs, including Indian Oil Corporation, Hindusthan Petroleum or Bharat Petroleum Corporation (BPCL), have upgraded their refineries and will start producing refined naphtha. Besides, the ministry of petroleum has decided to make petro products cheaper in the domestic market.

Naphtha is the raw material for production of polymer and is also used in the manufacture of motor spirit. Globally naphtha prices have experienced volatility due to the movement of crude prices. Officials from another OMC said the demand for naphtha is increasing from the polymer sector for manufacturing polypropylene, polyethylene and PVC.

“Growing demand for polymer is another reason for stalling naphtha from being exported. It has happened already but may take some time to start in large scale. This is because the upgraded refineries are facing some teething problems initially and thus one cannot depend entirely on domestic refineries initially.”

Major oil refiners in India are HPCL, BPCL, IOC and MRPL. “Many domestic PSU oil refiners have also set up polymer manufacturing plant from where naphtha could be diverted in the domestic market,” said a source.

Polymer production in India is both gas-based and naphtha-based. While GAIL manufacturers polymer from natural gas, Reliance Industries units manufacture polymer both from naphtha and gas. IOC and Haldia are naphtha-based polymer manufacturers. Haldia is the only player which completely depends on imported naphtha.

While IOC manufactures polymer, ONGC has set up a plant in Gujarat for starting operations. Similarly, HPCL has set up a polymer plant in joint venture with Mittal group in Bhatinda, Punjab. BPCL proposes to commission a production facility as well.

While naphtha consumption in India had dropped from a high of 13.9 million tonnes (mt) in 2006-07, to 10.1 mt in 2009-10, it has started picking up gradually to 10.7 mt in 2010-11. Naphtha export, on the other hand which grew sharply from a few hundred tonnes in 2000-2001 to 93 mt in 2007-08, stands at 99-106 mt post 2008.

According to ministry of petroleum data, estimated demand for naphtha in the domestic market for FY12 is expected to grow by 11.45 per cent.