Petroleum refiners eye exports

Surplus capacity set to double to 33.4 million tonne by 2006-07.

India's surplus refining capacity is set to nearly double to 33.4 million tonnes by the end of the next financial year and more than treble to 56 million tonnes in 2011-12 from 17.5 million tonnes at the end of 2004-05.

The country's refining capacity is projected to rise from 127 million tonnes now to 154 million tonnes in two years and 210 million tonnes by 2012.

At the same time, the demand is expected to touch 120.4 million tonnes by the end of 2006-07, compared with the present level of 111.7 million tonnes. Assuming a growth rate of 3.7 per cent observed during the last three years, the petroleum ministry has projected the demand at 144 million tonnes at the end of 2011-12.

The only private sector refiner, Reliance Industries Ltd, which has around 25 per cent share in the country's total refining capacity, plans to upgrade to 60 million tonnes from 33 million tonnes.

Essar Oil is hoping to get its refinery going with a 12 million tonne capacity next year. By then, the public sector refiners are expected to add 26 million tonnes.

The public sector companies will invest about Rs 63,348 crore in refineries by 2011 for a capacity of 138 million tonnes. The refiners are making these large investments with an eye on the ever-expanding global markets for petroleum products.

AT Kearney, in a recent report, has said there is an unfulfilled demand of 115 million tonnes for petroleum products in the international market which presents an attractive opportunity for India.

Indian oil refineries have already got petroleum products the second place in exports during 2004-05, next only to gems and jewellery.

Of a total of 17.5 million tonnes, the country exported 7 million tonnes of diesel, 2.8 million tonnes of petrol, 2.9 million tonnes of naphtha, 2.4 million tonnes of aviation turbine fuel and 1.8 million tonnes of industrial fuels like furnace oil.

While the opportunity exists for India, executives in oil companies point to two constraints.

"India is heavily dependent on import of crude oil. Besides, there can be tough competition with the oil producing and exporting countries eager to invite investments in the refining sector," said an executive.

The AT Kearney report also predicts stiff competition, especially from the existing refining hubs of West Asia and Singapore, and in large markets like China, for those who want to invest there.

Profit margins will depend on technology adopted by refiners, in which case the Reliance Industries refinery has an advantage since it can process the cheapest of crude at the lowest cost.

Petroleum Minister Mani Shankar Aiyar recently summed up the challenges for success when he said, "Having new export oriented refineries may be advantageous, provided due focus is put on the quality of products, the product mix, economies of scale and crude flexibility."