India prioritizes boosting petrochemical intensity in refining expansion

Expanding petrochemical intensity is the top priority for Indian refiners pursuing ambitious expansion strategies, government and refining officials said, as the sector is set to receive nearly $87 billion in investments over the next decade and account for more than 10% of global petrochemical sector growth.

The decision to boost investment in the sector comes as refiners proactively embrace petrochemical ventures as part of a broader strategy to adapt to changing market dynamics, enhance competitiveness and position themselves for sustained growth, especially if energy transition and electric vehicles reduce demand for transport fuels.

"The growing Indian population and rapidly expanding economy are major drivers of increasing demand for petrochemical products," Minister of Petroleum and Natural Gas Hardeep Singh Puri said in a recent government statement.

"As more citizens enter the middle class, the demand for a diverse range of products -- many of which are derived from petrochemicals -- is set to rise significantly." Additionally, he said the government's focus on clean energy is contributing to heightened demand for petrochemical solutions.

According to the International Energy Agency, Indian oil companies are expected to invest heavily in the refining sector to meet rising domestic oil demand. Over the next seven years, 1 million b/d of new refinery distillation capacity is expected to be added -- more than any country outside China.

Puri said that the size of the Indian chemicals and petrochemicals sector is expected to grow to about $300 billion by 2025 from its current size of $220 billion. It could potentially reach $1 trillion by 2040.

"With annual petrochemicals consumption between 25 million mt and 30 million mt, India stands as Asia's third-largest economy, exhibiting a per capita consumption significantly lower than developed nations. This gap presents ample opportunities for demand growth and investment," Puri said.

Refiner targets

The government, along with state-run companies such as ONGC and Bharat Petroleum Corp. Ltd., and private companies like Haldia Petrochemicals, is committed to significant investments. Puri said India's petrochemical capacity is projected to increase from about 29.62 million mt currently to 46 million mt by 2030.

According to petroleum ministry and refinery officials, state-run Indian Oil Corp. aims to expand its petrochemical intensity index to 15% by 2030, from 6.1% currently. This would involve boosting the petrochemical capacity to 13.6 million mt/year by 2030, from 4.3 million mt/year.

Another state-run refiner, Bharat Petroleum Corp. Ltd., is investing in a 2.4 million mt/year petrochemical facility, while ONGC plans to set up two crude-to-chemicals projects in the country -- one in the northern region and another in the south.

"The basic target is to increase the existing national petrochemical intensity in refineries to more than double to around 15% on an average," said a petroleum ministry official.

S&P Global Commodity Insights analysts say that India is rapidly upgrading investment policies to spur growth across manufacturing sectors to diversify away from service-oriented exports and compete in the global goods trade. Recent schemes, such as the production-linked incentive scheme across sectors including automobile, battery, renewable energy components and electronic components, are expected to propel growth in polymer demand.

Commodity Insights analysts expect overall demand growth for key polyolefins -- polyethylene and polypropylene -- between 7.5% and 8.5% over the next 10 years, significantly outpacing gross domestic product growth expectations for the same period.

Plugging shortfall

The chemical industry contributes about 6% to India's GDP, generating employment for over five million people.

India is the world's second-biggest exporter of chemical dyes and agrochemicals, accounting for about 3% of global chemical sales. However, the country is also a net importer of chemicals and petrochemicals, relying on imports for about 45% of its petrochemical intermediates. The government statement emphasized that bridging the gap between domestic demand and supply through local production remains a priority.

Petroleum ministry officials said that increasing the petrochemicals intensity for the country's refiners is essential due to the evolving energy landscape, which could alter the demand for transport fuels.

"Any new refining capacity will have to be complemented by a higher level of petrochemical intensity in the processing configuration," said the petroleum ministry official. "Focusing just on liquid fuels would not be sufficient to ensure the sustainability of refining capacities."

"The crude oil refining scenario would face higher challenges in the next 10-15 years as the use of electric vehicles and renewable sources gather momentum. A dedicated focus on petrochemical production can make the refining business sustainable in the long run," the official said.