By K Radhakrishna

India has witnessed a spectacular growth in the refining sector over the years. In 1947, at Independence, there was only one refinery located in Digboi with a capacity of 0.25 million tonnes per annum. Subsequently, Standard Vaccum Oil Company put up a refinery in Bombay in 1955: and Caltex at Visakhapatnam in 1957.

Today there are 14 refineries in the country, 13 in the public sector and one in the joint sector, with an install capacity of 60.4 million tonnes per annum. Out of the 13 PSU refineries, 6 are owned by Indian Oil Corporation Limited (IOCL), while the other 7 are owned by Hindustan Petroleum Corporation Limited (HPCL) (2). Madras Refineries Limited (MRL) (2) and one each by Bharat Petroleum Corporation Limited (BPCL), Cochin Refineries Limited (CRL) and Bongaigaon Refinery Petrochemicals Limited (BRPL). One refinery in JVC is the 3 million tonnes Mangalore Refinery Petrochemicals Ltd.

Demand for Petroleum Products

The demand for petroleum products is linked with the energy requirements of the country, which is a function of the country, which is a function of the level of economic activity as a measured by the GDP. Presently India is undergoing major economic and industrial reforms for integrating its economy with the global economy. In the liberalised scenario, the hydrocarbon sector has been identified as one of the main areas of the focus.

Major policy changes are planned for the vital sector to make the oil industry globally competitive. With the reforms package formulated and expected high growth in all economic sectors, the demand for petroleum products is expected to show a compound growth of about 7%. In absolute terms, the demand for petroleum products by the year 2006 07 is expected to increase from the present level of 80 million tonnes to 155 million tonnes per annum.

Challenges

The challenges for the refining sector are threefold:

To build up adequate refining capacity new refineries, expansion and replacements.

To update/implement the emerging technologies to meet the predominant demand for middle distillates.

To improve the quality of India's petroleum products to make them environment friendly and globally competitive

In the liberalised scenario, the Government has opened the refining sector to Joint Sector as well as to the private sector for achieving faster growth. About 27 million tonnes per annum additional capacity is planned to come up under PSUs. Under joint venture, 43 million tonnes per annum capacity will be added in the next 54 6 years. Out of this 43 million tonnes per annum capacity will be added in the next 5 6 years.

Out of this 43 million tonnes per annum capacity, IOCL have tied up with Kuwait Petroleum Company for one refinery, HPCL with Oman Oil Company and Saudi Aramoco for two refineries and BPCL with Oman Oil Company and Shell International for two refineries. In the private sector, etters of intent (LOIs) have been issued for about 41 million tonnes per annum refining capacity. The companies to whom LOIs have been issued are Reliance (15 MTPA), Essar (9MTPA), Ashok Leyland (2 MTPA), Nippon Denro (9MTPA) and Soros Foud (6 MTPA) . Under the EOU category, about 29 million tonnes per annum capacity has been approved. In sum, additional refining capacity of about 110 million tonnes per annum excluding EOUs is planned for implementation during the next 5 6 years.

Opportunities

Creating additional refining capacity of about 110 million tonnes per annum during the near future will require an investment of over US $ 22 billion. With such phenomenal growth in this sector, there is ample scope and opportunity for the transfer of technologies required and export of capital goods, etc., to India. The technologies required will be for upgrading the bottom of the barrel and to meet the predominant demand for middle distillates and also to improve the quality of petroleum products to make them environment friendly and globally competitive.

Most of the new refineries will be located on the coasts while the major centres of demand for the petroleum products are in the inland locations, particularly in North/North West regions. Therefore, there are opportunities for building inland refineries in the country. The refineries in the country are also allowed forward integration in the fields of petrochemicals, etc., for better value addition, which opens up another vast area for investment.

India has a strong commitment to pursue an energy policy which will take due account of the environmental considerations. Accordingly, the country is adopting more environmentally benign measures with regard to usage and quality of fuels. Lead phasing out benzene reduction in gasoline, sulphur reduction and cetane improvement of diesel are amongst the prominent measures that are under implementation/consideration. Such quality upgradation of fuels will call for adopting latest/state of the art technology requiring huge investments of the order of US$ 2500 million by way of providing reformulated gasoline producing units, hydrocrackers, hydro treaters,hydrodesulphurisers, etc.

India's Advantages

India has large reserve of trained and highly skilled manpower at a relatively much lower cost compared with advanced countries. Further, with a large population base and a currently very low per capita consumption of petroleum products, India is amongst the fast emerging markets . The country has also acquired enough experience in the installation and efficient operation of petroleum refineries in the last 35 years. It is, therefore, considered that the operating cost will be low and the value addition in Indian refineries will be of a very high order and that the setting up of refineries in India for the domestic market as well as for exports would be economically attractive.

India