India expands refining
capacity By Siddharth
Srivastava
NEW DELHI - In the first major
foreign direct investment (FDI) in India's
oil-refining sector, state-owned Hindustan
Petroleum Corp Ltd (HPCL) and the Mittal Group of
companies owned by Indian-born business baron L N
Mittal, well known globally for the Arcelor
takeover, have joined hands to implement the Rs157
billion (US$3.5 billion) Bhatinda Refinery project
in Punjab now under construction.
Petroleum Minister Murli Deora termed the
agreement a "breakthrough" and said that with the
new joint venture in place, the project would now
proceed on a fast track. "I congratulate
HPCL
on getting the first FDI of the country in the
refining sector," he said. The
9-million-ton-per-annum refinery is likely to be
commissioned by 2011.
Mittal will invest
Rs32 billion in taking the 49% stake in the HPCL
refinery and this could mark the beginning of
several others moving in. They include Saudi
Aramco, world's largest oil producer, Cairn
Energy, ExxonMobil, Petrobras, Shell, and China
Petro (CNPC), which are also looking to tie up
with Indian refiners. The reason global
players are looking to India is that the country
is logistically well placed for refineries.
Besides being a major market for crude oil and
petroleum products, it adjoins major demand
centers such as China. Also, crude oil from West
Asia can easily be brought to refineries in India.
Refining is seen as a major
foreign-exchange earner for India to offset the
money spent to import 70% of the country's
energy-consumption needs. State-owned oil-refining
companies have lined up investments to the tune of
Rs500 billion to upgrade their refineries, as part
of efforts to turn the country into the "world's
refinery hub'' as well as meet global standards
because of international interest in the sector.
The FDI announcement comes in the wake of
the recent announcement by India's largest
oil-refining company, the Indian Oil Corp (IOC),
that it will spend Rs560 billion over the next
five years on expanding its refining and other
programs.
The company wants to expand its
capacity from 60.2 million tonnes (66.36 million
tons) per annum of crude oil to 76.7 million
tonnes. While most of the money will come from the
company's internal accruals, some of the amount
will be raised as debt. About Rs300 billion will
be spent on the greenfield Paradip refinery, Rs60
billion on the upgrading of the Gujarat refinery,
and Rs140 billion on a new naphtha unit at
Panipat, a senior IOC executive said recently.
IOC also plans to spend Rs30 billion each
on its Haldia refinery in West Bengal and
quality-improvement programs at various other
refineries across the country.
Recently,
the Panipat Refinery of the IOC, the country's
largest downstream company, doubled its capacity
from 6 million tonnes per annum to 12 million by
spending Rs43 billion.
The Indian
government has recently unveiled plans to expand
refining capacity by 62% to 4.82 million barrels
per day (mbpd) over the next five years as it
steps up efforts to become a major global fuel
exporter.
The new targets exceed estimates
of capacity of 4.2mbpd that were announced last
March. State-run refiners are planning to add
about 1.06mbpd of capacity by 2012, about 50% of
their present capacity, while private companies
would undertake the rest.
The new
capacities aim to plug the global shortage in
refining that has failed to keep pace with demand.
No new refinery has been built in the United
States since 1976 because of environmental
restrictions, though more than 200 million light
vehicles in that country consume 11% of world oil
output. It is estimated that the world's energy
needs will be 50% higher in 2030, with 55-60% of
demand from conventional oil and gas.
Worldwide, refining capacity has increased
by less than 2mbpd while consumption has risen by
almost 4mbpd in the past couple of years.
According to The Petroleum Economist's annual
refinery-construction survey, 9mbpd of new
capacity is in the pipeline, which is almost
double that recorded last year. India is looking
to play a big role here.
Some analysts
have cautioned against over-expansion in refining
because of the slide in crude-oil prices and a
global economic slowdown. However, most agree that
"low-cost refiners'' in India and the Asia-Pacific
region, where the largest refinery additions are
planned, will manage quite well.
India's
exports of petroleum products have increased to
$10 billion in the first six months of the present
financial year and are expected to reach $20
billion during the whole year.
Deora
recently said that the petroleum sector in India
has emerged as a top exporter that has surpassed
the traditional gems and jewelry exports. Deora
said the Indian refining sector has emerged as the
top merchandise exporter.
"India is on its
way to becoming the world's refiner,'' IOC's
director of refineries, B N Bankapur, said
recently.
"Investment needed to set up
refineries in India is much lower as is the cost
of operation. Construction work in our Paradeep
refinery involves around 25,000-30,000 people.
Nowhere else in the world would those kinds of
numbers be easily available, and at competitive
costs,'' Bankapur said.
Bharat Petroleum
Corp Ltd (BPCL) has lined up Rs20 billion at the
7.5-million-tonne-per-annum Kochi refinery.
State-owned Oil & Natural Gas Corp
(ONGC), India's largest explorer, has plans to
invest more than $16.5 billion in the refining
business over the next four to five years. ONGC,
with 13 million tonnes per annum of refining
capacity, plans to scale it up to 45.5 million
tonnes by 2009-10. The company has planned
mega-greenfield projects at Mangalore (at a cost
of $7 billion), at Barmer, Rajasthan, and at
Kakinada, Andhra Pradesh.
Recently, ONGC
and OAO Rosneft, Russia's state oil company,
signed an agreement to bid jointly for exploration
and refining projects, coinciding with the visit
of the Russian President Vladimir Putin to India.
HPCL, India's second-largest state-run
refiner, is looking for a strategic partner for
the Rs180 billion expansion of its Vishakhapatnam
refining complex to 300,000 barrels per day by
August 2010.
The rest of the extra
capacity would come from private refiners, such as
Reliance Petroleum Ltd (RPL), Essar Oil Ltd and
Nagarjuna Oil Corp Ltd.
RPL, a 100%
subsidiary of Reliance Industries Ltd (RIL,
India's largest private company), was formed to
set up a greenfield petroleum refinery and
polypropylene plant at Jamnagar, Gujarat. RPL's
new refinery and RIL's existing one at Jamnagar
will put the city on the world map as an
energy-outsourcing hub.
The 580,000bpd RPL
refinery is to begin operation in December 2008,
to add to the existing 660,000bpd refinery at
Jamnagar, the world's third-largest. The new
refinery will be the sixth-largest, while the
combined capacity will turn the Jamnagar complex
into the world's largest single-location refinery,
with a capacity of 1.2mbpd, or 20% higher than the
current No 1, Venezuela Paraguana.
Reliance has emphasized that the $6
billion project will be the world's only
full-export-oriented refinery for demanding
markets such as Europe and North America.
Siddharth Srivastava is a New
Delhi-based journalist.
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