Gas availability key to refining capacity

The answer to whether there are too many refineries in the country could lie in a commodity that is currently in severe short supply "" natural gas.

"Petrol, diesel and LPG would ultimately be replaced by gas. This is going to be the century of gas," says the head of an upstream company who did not want to be identified.

This shift to gas would also hit domestic oil refining companies working on a export-led growth strategy since "Europe and the US could also shift to gas in the long run", he added.

The threat from gas-to-liquid fuels is currently underplayed in the country. In fact, India is aggressively adding oil refining capacity, a move that is already being questioned by the country's apex planning body "" Planning Commission.

India's current refining capacity of 149 million tonne a year (mtpa) will grow to 241 mtpa by the end of the Eleventh Plan in 2012. Product availability, which is expected at 143 million tonne (mt) in 2007-08, will be almost 27 mt higher than the demand of 116 mt. By 2011-12, the difference between availability of products and demand is expected to rise to 96 million tonne, which is more than half of the current refining capacity.

So will all the domestic refineries be feasible? "Under present conditions, there appears to be a significant export market," said an analyst with an international consultancy, which advises oil companies on future projects.

As to why investors are keen to pump in money into refineries in India, China, Japan and West Asia lies in the fact that the industry in the environmental-sensitive developed countries in Europe and the US is gradually shrinking.

"These companies will ensure that a significant portion of the products are exported to their home countries," the analyst said. "But then the bigger question of the world shifting to gas, which is a cleaner fuel, will need to be addressed."

The demand challenge: The government is also attempting to bring in the use of biofuels such as ethanol-blended petrol and biodiesel, to replace a significant portion of automobile fuels. "If all the oil companies follow Reliance's example of planting jatropha plants for biodiesel extraction, another significant part of auto fuels will go out of the market."

The "d" word is already being uttered in oil circles. Demand is expected to decrease in countries like Japan and Singapore.