Indian refiners push expansion with tilt towards petrochemicals, smaller carbon footprint

India will be one of the few countries to witness refining capacity growth over the next few years, but expansions will reflect a bigger share of petrochemicals as refiners look to widen their product slate to reduce overdependence on transport fuels, according to speakers at the India Energy Week and a report by the International Energy Agency.

Refining CEOs who attended the conference in Goa were unanimous in their view that India would need to grow its refining capacity as well as increase its bandwidth to produce more petrochemicals. But at the same time, there was a need to be conscious of their responsibility to fight climate change. As a result, refiners will need to increasingly use technologies to ensure that emissions are minimized.

"Driven by a vision of transforming India into a net exporter of petrochemicals, we are commencing our maiden journey into the high-growth petrochemicals industry with a propylene recovery unit/polypropylene unit project at our Vadinar refinery," said Prasad Panicker, head of refineries at Nayara Energy.

India's oil secretary Pankaj Jain said Indian state refiners' expansion programs would focus increasingly on boosting conversion ratios from crude to petrochemicals to about 10%-15%, from around 4%-5% currently.

"We are bullish about India's growing economy, and we are aggressive on building refining capacity to cater to the rising energy demand, but in a responsible manner. We will be moving largely from transportation to petrochemicals and balance capacity increase," BPCL chairman Krishnakumar Gopalan told the conference.

"Oil may have a significant presence in the world until 2050. The challenge is how we build our refineries [while] keeping the emissions reduction factor in mind," he added.

HPCL-Mittal Energy Ltd CEO Prabh Das also said it was considering adding new capacity to its plant at Bhatinda in northern India.

Long-term strategy

Sumit Ritolia, refinery economics analyst at S&P Global Commodity Insights, said Indian refiners were proactively embracing petrochemical ventures as part of a broader strategy to adapt to changing market dynamics, enhance competitiveness, and position themselves for sustained growth in the future in the event energy transition and electric vehicles hit demand for transport fuels.

"Investments by BPCL, ONGC, HPCL, Reliance Industries and Nayara Energy in the petrochemicals sector indicate conscious efforts to diversify portfolios beyond traditional refining activities. This diversification allows them to tap into new revenue streams and insulate themselves from the cyclicality of the oil and gas industry," he added.

The IEA released a report titled "Indian Oil Market -- Outlook to 2030" at the conference in which it said that Indian oil companies were investing heavily in the refining sector to meet the rise in domestic oil demand.

"Over the next seven years, 1 million b/d of new refinery distillation capacity will be added -- more than any other country in the world outside of China. Several other large projects are currently under consideration that may lift capacity beyond the 6.8 million b/d capacity that we expect so far," it added.

On a global basis, the most important driver of oil demand growth over the medium term is expected to be petrochemicals, accounting for about 2.7 million b/d of additional oil products demand during 2023-2030, the IEA said.

"We estimate that a combination of new plants and incremental expansions will see Indian feedstock demand rise by about 210,000 b/d over the period. Of this growth, 120,000 b/d is additional naphtha input to steam crackers and for aromatics production, and 90,000 b/d is LPG and ethane used in steam crackers and propane dehydrogenation plants," it added.

Oil products export hub

The IEA said India's refining industry had built an enviable reputation as a key source of light and middle distillate supplies to global markets, in addition to meeting robust domestic demand growth. This assessment of oil demand and refining dynamics points to India being well placed to cement its position as a reliable international products supplier.

"Despite increased competition from Middle East Gulf export refineries, the 1 million b/d increase in crude processing and upgrading capacity expansions by 2030 offers the prospect of private and public refinery operators meeting both robust domestic oil demand growth and sustaining substantial product exports," the IEA added.

In 2023, India was the fourth-largest exporter of middle distillates globally and the sixth largest refinery product exporter at 1.2 million b/d, the IEA said.

"New refining capacity is forecast to boost product supplies to global markets to 1.4 million b/d through mid-decade before edging lower to 1.2 million b/d by 2030, given the steady rise in domestic demand," it added.

Some drag on domestic demand for refined products will come from the push for a 20% ethanol-blending mandate. This will dampen gasoline demand growth as the share of ethanol increases over time. Similarly, rising sales of EVs, particularly in the two-wheeler and three-wheeler segments, will crimp gasoline demand growth, especially towards the end of the decade, the IEA said.

"These factors will boost the volume of gasoline available for export," it added.