India expands crude oil refinery capacity

MUMBAI // The world’s largest crude oil refinery, on the western coast of the Indian state of Gujarat, is spread over 3,035 hectares and has the capacity to process 1.2 million barrels per day (bpd).

The Jamnagar complex is owned by Reliance Industries, the Indian conglomerate controlled by the country’s richest man, Mukesh Ambani. Through this sprawling network of pipes and metal structures, crude oil – much of which comes from the Middle East – is refined into products such as petrol, diesel, kerosene used for cooking, jet fuel for airplanes and liquefied petroleum gas (LPG), a household and industrial fuel. These products are then distributed across the country and exported globally.

India has rapidly expanded its capacity to refine crude oil over the past decade and the country has become a major centre for petroleum refining. And it is continuing to grow the sector.

There are plans to build a vast refinery in the state of Maharashtra, to be developed by the India Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum, all state-controlled refiners. With a planned capacity of 1.2 million bpd, it is set to rival the Reliance plant. The first phase, which will have the capacity to refine 800,000 bpd, is projected to cost more than 1 trillion rupees (Dh54.6bn).

“India is emerging as a preferred refining hub,” says Mike van Croonenburg, the chief executive of Petrol Storage Broker, an independent broker based in the Netherlands. The slump in crude oil prices has hit refiners’ revenue, but at the same time is helping companies sell product, he says.

In terms of its total refining capacity, India ranks fourth globally, with only the United States, China and Russia ahead of it, according to the International Energy Agency (IEA).

As well as producing petroleum products for use within the country, India is a major exporter of refined products.

Its capacity has risen to 215 million tons a year in the financial year to March 2015, compared with 62 million tons in the financial year to March 1999, government data shows.

Out of 23 refineries operating in India, 18 are owned by state-run companies; three are in the private sector; and two are joint ventures, according to a report by the consultant Pricewaterhouse Coopers.

“The growth in refining capacity has transformed India from a net importer of petroleum products until 2000 to 2001, to one of the world’s largest exporters of refined petroleum products in 2014 to 2015,” PwC says.

But production of crude oil within India is very limited, which means the country is heavily dependent on imports – and this dependency is growing.

“The indigenous production of crude oil in India is not keeping pace with the increased refining capacity,” PwC says. “The challenge before Indian companies is to take effective measures for enhancing the exploration and production of petroleum resources. Simultaneously, the infrastructure for refining, distribution and marketing, import, export and conservation of petroleum products must be improved.”

India is the third-largest importer of crude oil, behind the US and China, and is dependent on imports for more than three-quarters of its supply. Its large refining industry is a major contributing factor in this.

The IEA projects that India’s reliance on oil imports will rise by 90 per cent by 2040, when crude imports will rise to 7.2 million bpd, second only to China, sourced predominantly from the Middle East.