Oil refining sees two-way growth opportunity

As Indian companies pump in big money into oil refining, aiming to increase the refining capacity by 62 per cent to 241 mtpa by 2012, overseas oil majors are keen to be part of the growth game being played in this centre of the Asia-Pacific consumption hub.

The investment flow, though, is likely to be two-way, as Indian refiners also look at exposure to the refining sector overseas to gain a strategic advantage.

According to industry analysts, India (along with China and West Asia) is set to be among the major refining hubs of the world, thanks to its location. In fact, India is already a net exporter of petroleum products though it imports as much as 72 per cent of its crude oil.

"Foreign investors are looking for a slice of this pie," said an energy analyst. Some high profile investors who have recently shown interest in the Indian refining sector include steel magnate Lakshmi Niwas Mittal, who is reportedly keen on partnering with Hindustan Petroleum Corporation Ltd (HPCL) for developing its 9-million-tonne capacity Bathinda refinery, which would involve an overall investment of Rs 12,000 crore.

Also, the Bharat Petroleum Corporation's 120,000 barrel-per-day Bina refinery is being set up through a joint venture with Oman Oil.

"Many foreign investors had earlier pulled out of these refinery projects due to various reasons. Now, there is a renewed interest," an industry watcher said.

Reliance's 29 million tonnes per annum (mtpa) second refinery at Jamnagar had attracted major energy players such as Chevron, Exxon and China National Petroleum Corporation, though none of them managed to clinch a deal.

The Indian Oil Corporation (IOC) too had offered Kuwait Petroleum a stake in its Paradip refinery and Panipat petrochemicals project. "Nothing has worked out so far, but they are back on the negotiating table," a senior IOC official said.

The government too is promoting the sector through various initiatives like the proposed SEZ-type scheme for the sector dubbed as Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR).

While refining capacity is projected at 241 mtpa by 2012, the consumption in that year is seen at 132 mtpa. "With refining capacities growing faster than domestic demand, the country will only strengthen its present status as a net exporter of petroleum products," said an analyst.

Industry watchers say that the current global refining capacity is not adequate to meet the demand. Fuel specification norms too have become much more stringent, forcing old refineries to either shut down or revamp themselves. "There is thus huge scope for oil refiners everywhere," an analyst said.

Heading Out: Even though the refining opportunities lie within the country, there have been attempts by Indian companies to set up shop abroad. Such an investment often opens up opportunities for upstream participation in the host country.

The IOC has reportedly been eyeing refinery stakes in China, Nigeria and West Asia for quite some time now, besides looking at setting up greenfield refineries. Reliance also proposes to set up a refinery in Russia in exchange for equity oil from that country's rich oil fields.

"We continue in our attempts to enter the refining sector overseas, even though there are no Indian refineries overseas so far," an IOC official said.

The industry, however, is not too worried about the lack of Indian refineries globally. "The opportunities lie within the country. Oil companies can better market petroleum products from India, when they are only exporting the specific product to countries which need that product," said an analyst.

He adds that investment levels in the West are much higher as well. "Clearances such as environmental ones mean heavy investments. Setting up refineries in India is much more cost-effective," an analyst said.