WPC 2021: Petrochemicals to de-risk Indian refiners' conventional fuels businesses

07:30 AM | March 12, 2021 | Kartik Kohli

India is becoming one of the world’s largest economies, driving consumer trends that affect chemical consumption—a massive, opening market. Meanwhile, changes resulting from the energy transition are driving new investment patterns in the country, with an increased focus on petrochemical opportunities. New government regulations are enabling this change, driving India toward a basket of energy sources and refinery/petrochemical integration.

The India forum, held on Friday during IHS Markit’s World Petrochemical Conference (WPC) 2021, being held in a virtual format, moderated by Ravi Narayanaswamy, vice president/business development at IHS Markit, addressed these themes as well as the challenges of the COVID-19 pandemic, the lessons learned, and what the future holds for the post-COVID world. “Some of the habits formed during the pandemic, for example the working-from-home culture, will result in a lesser commute, leading to lesser demand,” he said.

Narayanaswamy said that the transition will to some extent be offset by a preference in India for use of private vehicles instead of public transport. He also questioned whether plastics sustainability will take a back seat with customers preferring to use virgin plastic as a packaging option instead of using recycled material from a hygienic perspective.

SM Vaidya, chairman of Indian Oil, told the forum that the imposition of lockdown and work-from-home rules was a massive challenge for a state-owned company, particularly from an IT perspective. “However, our robust and ready IT infrastructure that has been built over the years ensured a seamless transition,” he said. The company faced an unforeseen crash in demand for its products. Vaidya said that the challenge was to adjust production runs at the company’s 11 refineries in sync with reduced demand, and to manage inventories.

The unprecedented situation created unique challenges in different product lines, said Vaidya. “While demand for some products was plummeting, the demand for liquefied petroleum gas [LPG] was soaring,” he said.

Vaidya said that for construction projects, the pandemic hurt international supply chains and equipment availability, and that licenses from different countries were severely affected during the early part of 2020. “During the lockdown, activities came to a standstill and sent the project timelines haywire,” he said. Vaidya said that when the restrictions were eased, mobilization of labor became a big challenge, given the weakening of contractors' financial situation. Vaidya also noted that large-scale lockdown had induced rural migration and interstate restrictions in India.

“However, work started progressively, and at present work is going on in full swing at all the company’s 3,200 project sites,” Vaidya said. He added that the company is confident of achieving its capital-expenditure target of almost 260.0 billion Indian rupees ($3.5 billion).

Vaidya noted that domestic primary-energy demand is growing. India's per-capita energy consumption is only a third of the worldwide average and with demand going up, there is a place for all forms of energy including fossil fuels, renewables, gas, biofuels, and hydrogen, he added.

Consumption of diesel and gasoline will remain and Indian demand for gasoline has already exceeded pre-COVID levels, said Vaidya. Domestic demand for gas and oil is currently at 8590% of pre-COVID levels, he said. According to estimates, demand for oil in India in 2040–50 will be about 10 million b/d, Vaidya said. To meet the increasing demand, Indian Oil is in the process of strengthening its refining capacities, he said.

Indian Oil recently announced plans to expand the capacity of its refinery at Panipat, India, from 15 million metric tons/year (MMt/y), to 25 MMt/y. The company will also build a polypropylene (PP) unit and a catalytic dewaxing unit at the site. The cost of the project is Rs329.46 billion.

Indian Oil with its affiliate Chennai Petroleum (Chennai, India) decided in June 2020 to build a 9-MMt/y refinery complex at Nagapattinam, India. The companies will also build a PP plant. The cost of this project is Rs289.8 billion. Vaidya added that Indian Oil is expanding its naphtha cracker at Panipat and looking to build a naphtha cracker at Paradip. Vaidya said that to de-risk the company's conventional fuels business, it is moving more into petrochemicals.

Mukesh Surana, chairman and managing director of Hindustan Petroleum Corp. Ltd. (HPCL), told the forum that petchems offer a risk-mitigation portfolio in case of demand destruction in transportation fuels, and yield better margins. Surana noted that refiners in India are looking to integrate with petchems and that all greenfield projects in India today include petchems.

HPCL is establishing a 9-MMt/y refinery/petchem project at Pachpadra in the Barmer district of Rajasthan State. The project involves about 25% of petchem intensity, said Surana.

Indian Oil's refineries traditionally had poor petchems intensity, somewhere in a 35% range, which means that less than 5% of the company's crude oil consumption was being converted into petchems, said Vaidya. “But now we are consciously upping it to 15%,” he said. Vaidya noted that the company can grow in petchems because India is an importer of petchems. The company is bullish about the petchems business and making substantive investments, he added.

Surana said demand for petchems is growing in India and that the country's upwardly mobile middle class and overall demography supports that growth. He added that domestic petchems growth is supported by several government schemes such as the national smart cities mission, and make in India and self-reliant India campaigns.

Vaidya said that Indian Oil is looking at all possible ways to extract petchem molecules from its refinery streams.

Surana said that HPCL is one of the leading domestic producers of lubricants. After saturating the domestic market, the company now plans to supply lubricants to 30 countries, up from the 14 countries it currently supplies in the Asean region, Indian subcontinent, Gulf Cooperation Council region, and some African countries.

Vaidya noted that the path to energy transition will be different in each country. “India will chart its own path,” he said.

India will lead the way in gas consumption and the use of natural gas will help drive the country's energy transition, said Vaidya. The country’s energy mix consists of about 6.2% natural gas and the government plans to increase that to 15% by 2030.

IHS Markit vice chairman Daniel Yergin, during the recent CERAWeek 2021 by IHS Markit virtual conference, noted that prime minister Narendra Modi is shifting India toward a gas-based economy. Yergin said that this will transform the use of energy across the Indian economy, reduce urban pollution, and unlock opportunities across the nation.