India plans final refinery expansion as electric vehicle era looms

This comes even as New Delhi is struggling to strike a balance between rapidly adopting EV and bolstering energy security by taking recourse to affordable and more reliable transport fuels

In what may be the last wave of grassroots refinery projects, the crude oil-refining capacity of state-run companies may go up by 500,000-600,000 barrels per day (bpd) in a little more than 10 years, according to industry executives and government officials.

 

This comes even as New Delhi is struggling to strike a balance between rapidly adopting electric vehicles and bolstering energy security by taking recourse to affordable and more reliable transport fuels.

 

There are plans for three new refineries, which are in addition to the ongoing addition of around 800,000 bpd, around 16 per cent of the current capacity, according to the industry data.

 

The proposed projects — in Andhra Pradesh, Uttar Pradesh, and Gujarat — are still on the drawing-board, with Bharat Petroleum Corporation Ltd (BPCL) and Oil and Natural Gas Corporation (ONGC) trying to identify the right type of land, hard and strong with little need for expensive piling, for a refinery-cum-petrochemicals plant. Soft, soggy land can drive up the project cost, an industry official said.

 

Costs are more critical today than for projects planned earlier because the shelf life of transport fuels is on the wane as India projects Net Zero emission by 2070.  

 

BPCL is leading in this with an emphasis on petrochemicals and fuel export, an atypical strategy for Indian state refiners, which have traditionally met the country’s needs for transport and cooking fuels.   

 

BPCL’s focus on a proposed 240,000 bpd refinery in Andhra Pradesh is on petrochemicals with an oil-to-chemical conversion intensity of as much as 40 per cent — nearly twice that of Hindustan Petroleum’s upcoming grassroots refinery project in Barmer, industry sources said.

 

Simultaneously, it is studying the potential for a smaller 120,000 bpd refinery venture in Allahabad, where it owns land provided BPCL can find investors for both projects. It will need pipeline infrastructure to source crude oil from the west coast. The proposed facility in Allahabad will focus on transport fuels, with India’s northern region the biggest growth guzzler of petrol and diesel.

 

ONGC is evaluating plans for a refinery in Gujarat, a state with the highest refining intensity in the country. But industry sources say the explorer’s interests in Gujarat may be because of land available at existing projects. Earlier this year, the company completed ownership of OPAL, a mega petrochemicals complex spread over 5 square km in the port city of Dahej.

 

India programme of refinery addition, which started before the pandemic, will lead to an addition of 1.06 million bpd by 2028, taking the total to 6.2 million bpd, which includes HPCL’s 180,000 bpd Barmer plant and India Oil’s 180,000 bpd project in Nagapattinam (Tamil Nadu), according to Petroleum Minister Hardeep Puri: After meeting the domestic oil demand of around 5.5 million bpd, refiners will have a capacity of at least 700,000 bpd for export.

 

CRISIL said in September India’s oil-marketing companies were expected to add 800,000 bpd of refining capacity by 2029-30, requiring an expenditure of Rs 2.2 trillion.

 

“Project risk in these investments is expected to be low, which coupled with the expectations of steady returns from the business will support credit risk profiles of OMCs,'' it said. 

 

Top officials in the industry have had talks with Saudi Aramco, seeking investment in new refineries, but the kingdom’s insistence on long-term oil supply conditions to ensure a captive market for its crude oil is delaying negotiations, sources said.

 

Saudi Arabia and the United Arab Emirates had agreed to take a 50 per cent stake in a 1.2 million bpd plant, along with chemicals ($44 billion), in Ratnagiri, Maharashtra, during Prime Minister Narendra Modi’s first term. But politics and protests over land acquisition torpedoed the project.

 

India will be the biggest contributor to oil demand growth this year, with consumption growing at six times China’s pace, according to the data from global forecasters like the International Energy Agency and US Energy Information Administration.