MUMBAI: Oil marketing companies are likely to add 35-40 million tonnes of crude oil refining capacity and take the installed base to 295 mt by fiscal 2030 to meet the rising consumption forecast as the current capacities are already being optimally utilized at 100-103 percent.
This will require a capital expenditure of Rs 1.9-2.2 trillion, with most of the incremental capacity additions coming up in brownfield expansions.
In the decade through fiscal 2024, the country’s refining capacity increased by 42 mt to 257 mt, primarily to cater to the growing domestic consumption, as exports remained rangebound at 60-65 mt during these years, according to a Crisil analysis.
Domestic intake of petroleum products clipped at a compound annual growth rate of 4 percent in the past decade. Transport fuels, accounting for 56 percent of demand, grew 4 percent, while naphtha (7 percent of consumption), grew 2 percent. The rest of the consumption pie, comprising liquefied petroleum gas and bitumen among others, cumulatively grew almost 4 percent.
Within transport fuels, diesel (40 percent of consumption) grew 3 percent; petrol (13.5 percent of consumption) grew 8 percent, and jet fuel (3 percent of consumption) grew 4 percent.
Anuj Sethi, a senior director with the rating company, expects overall petroleum product consumption to slightly moderate and register 3 percent annually through the next six years, primarily due to slower growth of 2-3 percent in transport fuel demand as fuel economy improves will the rising share of vehicle sales with alternative cleaner fuels, and 20 percent ethanol blending target proposed by the government.
Amongst transport fuels, 75 percent of diesel sale is linked to commercial vehicles, wherein a move towards electric vehicles or usage of natural gas by buses will lower diesel demand, thereby moderating growth to 2-2.5 percent per annum over the next six years, he said.
For petrol powered two-wheelers account for 75 percent of petrol consumption, with the balance led by passenger vehicles/cars. The rising share of electric two-wheelers (expected at 12-15 percent by fiscal 2030) and compressed natural gas (CNG) passenger vehicles (expected to reach 17-19 percent by fiscal 2030) will crimp petrol intake, he said, adding ethanol blending with petrol will further reduce the petrol demand as the government aims to achieve a 20 percent blending by 2026.
In contrast, naphtha demand will see a healthy annualized growth of 6-7 percent through 2030, supported by increased demand from planned petrochemical capacity additions.
This growth in overall consumption will necessitate a 35-40 mt increase in refining capacity as the current capacities are already operating at the optimum utilisation level of 100-103 percent.
According to Joanne Gonsalves, an associate director with the agency, most of the capacity addition will be brownfield expansions to cater to demand for end-products, thus lowering the project risks. We’ve also seen oil refiners balancing out their operating profit amid price volatility, wherein $9-11/barrel of rolling average returns were earned between fiscals 2016-24, giving an RoI of 12-14 percent.
Oil companies may also look to add further refining capacities to integrate with their petrochemical expansion plans, with a view to diversify business.
