TCG plans $10 billion oil-to-chemicals project in Tamil Nadu

TCG's investment plans comes amid strong growth for chemicals in India to drive a 7% growth, but also at a time of oversupply in the global petrochemicals business

Kolkata-based Haldia Petrochemicals (HPL), a producer of polymers and chemicals, is making a $10 billion bet on an oil-to-chemicals (O2C) project in Tamil Nadu. The project will convert crude oil directly into chemicals to meet the growing demand for polymers in the country, chief executive officer (CEO) Navanit Narayan said. On completion, the project will have a capacity to make 3.5 million tonnes of ethylene and propylene, used in shopping bags, car parts and water pipes, among others.

HPL’s huge investment comes amid a strong demand for chemicals in India. It is also due to oversupply in the global petrochemicals business after China added record capacity last year.

The proposed investment in an O2C project in Cuddalore by the US-based The Chatterjee Group, parent of HPL, and HPL, comes amid spending of Rs 4,000 crore in a downstream chemical project in Haldia to produce phenols and acetone, said Narayan, a Bachelor of Science in Mechanical Engineering from Birla Institute of Technology, Mesra. The 300 kilo tonnes per annum (KTPA) phenol and 185 KTPA acetone venture will be the largest in India and be ready by the first quarter of 2026. A final investment decision on Cuddalore will be taken by the end of the year after funding is secured, with 4-5 years needed for construction and commissioning.

“We are seeking investors for the Cuddalore project, a venture with a global scale, and are in talks with the central government for incentives,” Narayan, who also has a Master of Science in Industrial Engineering & Management Sciences from Northwestern University, Illinois, said.

He expects participation from global and Indian majors in the project. Around 80 per cent of the crude will be directly converted into value-added chemicals, and the rest will be turned into fuels like diesel. Narayan said HPL has not scrapped plans to invest Rs 28,700 crore in Odisha for an integrated refinery-cum-petchem project, announced in 2019. The company is in talks with the state's government to acquire land.

The company operates a naphtha-based cracker in Haldia with a capacity equivalent to 700,000 tonnes per annum (TPA) of ethylene output. It also produces polyethylene, polypropylene, benzene and butane, among others, used to make plastics, glass and rubber. O2C projects are costly, said Swarnendu Bhushan, co-head of research at brokerage Prabhudas Lilladher, who did a report recently on O2Cs. China has the most advanced crude-to-chemicals project with 42 per cent of the oil turning into chemicals, he said.

HPL will use process technology from Lummus Technology for the proposed oil-to-chemicals plant. Lummus is a company it acquired with US private equity firm Rhone Capital in 2020 for $2.72 billion from McDermott. It also acquired Nagarjuna Refineries’ facility in Cuddalore as part of a bankruptcy sale, and is using the same land for its proposed chemical plant. 

India’s market for petrochemicals is growing at 8-9 per cent, said Narayan, with per capita consumption at 13-15 kg. This is still a fraction of the 75 kg in developed countries.

But competition has intensified with companies like GAIL and Petronet LNG planning chemical projects using natural gas and ethane as feedstocks. This is because of lower costs and ample availability in the US. HPL uses naphtha as a feedstock.  Energy Aspects analyst Amrita Sen said at a conference in Goa last month that there was an oversupply of petrochemicals globally because of the excess capacity created in China.  Narayan said that huge capacity additions took place last year, flooding world markets, whereas demand remained subdued due to slower recovery in China. Sen was sceptical of the kind of margins that oil companies plan to realise from new downstream chemical projects. Narayan emphasised on the role of the government, both state and Centre, to incentivise and protect large chemical projects in India.

Import taxes are important, Narayan said, to prevent dumping and cheap imports, and build a domestic chemicals manufacturing base.

India has a 7.5 per cent duty on polymer imports but the free-trade agreement with UAE enables duty-free shipments. India imports over half of the phenol it needs to cater to a 500 KTA market, he added. “We should have duty protection on polymers because if we allow free import without duty, then the local industry becomes stressed,” Narayan said. He added, “We don't have local naphtha available to meet the industry demand.”

The Middle East may turn out to be India’s biggest competitor because it has big oil and gas resources, cheap and easily available, and transport costs to India’s West Coast are low.

Middle East and North American suppliers have a big cost advantage, Narayan said. 

Feedstocks like ethane, naphtha and propane are easily available in the US and Middle East region while Indian petrochemical manufacturers need to import them. Narayan emphasised the need to create chemical hubs in India to improve the economics of chemical projects and offer tax breaks for 5-7 years to make large chemical plants competitive. There are no expansion plans at Haldia as the East Coast location and the draught levels have limitations bringing in large vessels, said Narayan.