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India’s crude oil refining capacity is likely to rise by 17 percent in the next six years amid growing demand for infrastructure-led value-added products. These refineries are working on strategies to focus on high-value products for sustaining future growth. Continuing capacity expansions, Indian crude oil refineries are projected to add 1 million barrels per day (bpd) of additional capacity by the financial year 2030.

The Paris-based intergovernmental organization, the International Energy Agency (IEA), said in a recent report that the growth in India’s crude oil refining capacity will be dominated by public sector undertaking (PSU) refineries, as they prepare for continued rising domestic demand and an increased share of petrochemical production. In contrast, the IEA sees little prospect for private refineries to substantially expand their refining operations over this timeframe.

However, both public and private refinery operations will continue to expand existing crude processing capacity through the debottlenecking of existing facilities, likely in tandem with the addition of new or increased hydro-treating capacity, petrochemical unit additions, or residue upgrading. India’s refining industry has built an enviable reputation as a key source of light and middle distillate supplies to global markets, in addition to meeting robust domestic demand growth.

This assessment of oil demand and refining dynamics points to India being well-placed to cement its position as a reliable international product supplier. Despite increased competition from Middle East Gulf export refineries, the 1 million bpd increase in crude processing and upgrading capacity expansions by 2030 offers the prospect of private and public refinery operators meeting both robust domestic oil demand growth and sustaining substantial exports.

Oil demand by product (million barrels/day)
Particulars	2023	2030	Compounded Annual Growth Rate (%)
LPG/ethane	0.9	1.1	3.2
Naphtha	0.3	0.4	5.9
Gasoline	0.9	1.0	0.7
Jet/kerosene	0.2	0.3	6.9
Gasoline/diesel	1.8	2.3	4.5
Residual fuel oil	0.2	0.2	1.3
Other products	1.2	1.3	2.1
Total products	5.5	6.6	3.2
Annual change	0.2	0.1

Sources: International Energy Agency, and Polymerupdate Research

Decarbonizing – a major challenge
In common with refineries elsewhere, Indian operators face the challenge of decarbonizing their activities while delivering the energy needs of the customers they serve. To achieve the targeted goal of Scope 1 and Scope 2, substantial investment is required in the coming years. This, in turn, requires the industry to maintain a healthy level of profitability. Refiners are investing to include low-carbon hydrogen in their processes and attempting to source an increased share of electricity from renewable sources, such as solar and wind power. However, the greater global challenge of responding to falling domestic demand, which refineries in mature markets will face by the end of this decade, extends beyond 2030.

Macroeconomic and social drivers, along with a burgeoning middle class, will propel demand growth for jet fuel, gasoline, and diesel. Travel, both domestically and internationally, is becoming a reality for an ever-increasing share of the population. Similarly, heavy-duty diesel use is also set to rise rapidly in the coming years as India’s manufacturing sector benefits from policy-led initiatives such as Make In India, as well as rising consumption-led service sector growth.

Therefore, rising incomes are intricately linked to higher use of petrochemicals. Some drag on the domestic call on refined products will come from the push for a 20 percent ethanol blending mandate. This will dampen gasoline demand growth as the share of ethanol increases over time. Similarly, the rise of EVs, more particularly in the two- and three-wheeler vehicle segments, will crimp gasoline demand growth, especially towards the end of the decade. These factors will boost the volume of gasoline available for export. Nevertheless, rising per capita gross domestic product (GDP) and urbanization is likely to support further strong increases in overall demand, the IEA report added.

Capacity utilization to slow
Capacity utilization rates of Indian refineries rates have historically been assessed among the highest in the world and at times above 100 percent of nameplate capacity. Assuming a 12 percent average downtime for planned maintenance per year, IEA estimates Indian refineries to operate at utilization rates close to 90 percent. This is comparable to levels achieved in other high-growth countries. Moreover, it also shows that refineries have the potential for higher runs if markets signal a need for additional supply.

Meanwhile, Indian refining investments have raised average complexity levels substantially, via the addition of coking and other residue-upgrading technologies. This has facilitated a pivot away from light and medium sweet crude feedstocks towards heavier, sour crudes from the Middle East, Latin America, and, on occasion, from Canada and Europe.

Simultaneously, the share of light and middle distillates production has increased, with fuel oil yields halving over the past decade, despite average crude imports dipping towards 30 American Petroleum Institute (API). This trend is set to continue with two vacuum residue hydrocrackers due to start up this year, with an associated loss of fuel oil output and an increase in petrochemical feedstocks, as well as light and middle distillate production.

Against this potential for additional growth in refinery activity, Indian refineries face several domestic constraints that may yet slow progress going forward. Factors such as land acquisition constraints, the domestic pricing regime, and the inability of refineries to pass through government sales tax (GST) to their customers may adversely affect the industry. The flip side to increased crude processing is that India will become more reliant on crude imports and hence increased attention is needed on its security of supply and how the government and industry can best prepare for any possible disruptions, the report added.

India’s major petrochemical projects on the go
Companies	Significance
HPCL-Mittal Energy Ltd (HMEL), Bathinda, Punjab	Completed construction of a 1.2 Mt/yr ethylene capacity steam cracker and achieved full operations, to boost naphtha requirements into 2024
Hindustan Petroleum Corp. Ltd’s (HPCL), Barmer, Rajasthan	Commercial operations at this petrochemical complex, including an 820 kt/yr steam cracker, are expected during 2024
Indian Oil Corp. Ltd (IOCL), Panipat	Conducting incremental expansions to increase naphtha use
GAIL India, Usar	Expected to start operations at a 500 kt/yr PDH facility during 2025
Bharat Petroleum Corp. Ltd’s (BCPL), Uran	To supply propane to GAIL India on a long-term agreement
Petronet	To build a 750 kt/yr PDH unit to start operations in late-2026 or 2027

Sources: International Energy Agency, and Polymerupdate Research

India to drive global crude oil demand
On a global basis, the most important driver of oil demand growth over the medium term is projected to be petrochemicals, accounting for about 2.7 million bpd of additional oil product demand during 2030-2030. A report released by the Paris-based autonomous intergovernmental organization, International Energy Agency, forecasted India’s crude oil demand to witness a compound annual growth rate (CAGR) of 3.2 percent until 2030.

Globally, this demand takes place is largely the result of patterns of investment in production facilities, which typically take around five years to progress from final investment decision to commercial operations. The IEA report estimated that a combination of new plants and incremental expansions will see Indian feedstock demand rise by about 210,000 bpd over the period. Of this growth, 120,000 bpd is additional naphtha input to steam crackers and for aromatics production, and 90,000 bpd is liquefied petroleum gas (LPG) and ethane used in steam crackers and propane dehydrogenation (PDH) plants.

DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com