Indian refiners are hoping petrochemicals will save them if the tide of climate change and electric cars were to displace petrol and diesel as the key transportation fuel in future. Refiners are faced with a deep dilemma: to raise capacity to capture the growing fuel demand or stay cautious fearing the rise of electric vehicles could leave much of their new capacity under utilised.
The dilemma of the sector was best captured by oil minister Dharmendra Pradhan at a recent conference to unveil plans on building the country’s biggest refinery on the west coast, when he said in half-jest that the bureaucrats in his ministry were split in camps over Stanford professor Tony Seba and his predictions on energy.
This division has been apparent in the meetings of an official panel, comprising oil ministry bureaucrats and industry executives, tasked to ready an approach paper for refinery expansion by 2040. Competing views at the panel – whose first meetings were spent discussing a video in which Seba famously predicts the end of oil age by 2030 – have ensured the report, supposed to be ready in just three months, is still being finalised a year after the task was begun.
Meanwhile, Pradhan told ET in a recent interview that he expected refining capacity to go up by 150 million tonnes in 7-8 years from 235 million tonnes per annum now, and if demand for transportation fuels were to drastically go down in 15 years, the refining complexes could be tuned to primarily produce petrochemicals.
State oil companies already seem to be on the job. Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum are together building a large petrochemicals complex adjacent to the planned refinery on the west coast. Another refinery planned in Rajasthan by HPCL too would house a petrochemicals unit from the very beginning. Similarly, HPCL is building petrochemicals complex at its other existing facilities while Indian Oil is spending millions of dollars to add petrochemicals facility at its newly-built refinery in Odisha.
“Disruptive technologies can create havoc many times. But that is part of our job to align ourselves to the situation and create a business model that survives. And that is the reason that we have diversified into petrochemicals,” said MK Surana, chairman of HPCL.
“LPG and naphtha can go more for producing petrochemicals, and probably some technology can be devised in future to convert liquid into gas,” he said. But it won’t be easy to reorient refineries to direct most of their outputs towards petrochemicals due to the limitations of refining technology as well as limits of petrochemicals demand.
“India clearly needs more refining capacity in near term. However, the addition runs the risk of underutilisation due to potential electric vehicles’ growth in the long term,” said Deepak Mahurkar, partner at PwC. “If and when auto fuels’ demand reduces, refineries can in lieu opt for maximising production of feed-stock for petrochemicals. The refinery configuration will not permit full conversion. Also, the economics and petrochemicals off-take need will limit such a possibility.”
ET VIEW: Reorient Operations
Indian refinery companies must re-orient their operations for the energy transition that is underway to address the challenge of climate change. The focus on petrochemicals is one way to offset the eventual decline in demand for petrol and diesel. These companies would benefit in understanding how global refinery majors are diversifying to remain viable. They should invest in R&D that could leverage their existing technological resources to take advantage of new business opportunities.
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