India's largest state-owned refiner Indian Oil Corp has earmarked $26 billion in investment plans over the next five to seven years as it looks to expand and upgrade its existing refineries, build a new greenfield plant, and push with overseas expansion plans, IOC Chairman B Ashok said Monday.
"Our current refining capacity is a little more than 80 million mt/year (1.6 million b/d) and after all the expansions, we should be close to 100 million mt/year," Ashok said in an exclusive interview ahead of Platts Oil Forums in New Delhi and Mumbai. "All this will happen over the next five to seven years."
He said that IOC will be spending about Rupees 1.75 trillion ($26 billion) on various projects over that period as the company looks to meet the country's rising products demand and more stringent fuel specifications.
The IOC chief said that he saw strong demand potential across products and refining capacity needed to keep pace.
India's oil product demand rose a robust 8.5% in 2015 to an average 3.81 million b/d and that pace of growth was outdone in the first two months of the year when demand rose 10% year on year to an average 4.14 million b/d, data from the Petroleum Planning and Analysis Cell showed.
Leading the growth are gasoline and naphtha, with LPG, diesel and jet also strong contributors.
SEES ROBUST DEMAND GROWTH
Ashok said he expected to see double-digit gasoline demand growth at least for the next two years.
"Vehicles are expected to grow in numbers. That should keep Indian gasoline demand at robust levels," he said.
He added that the government's push for cleaner fuels and raising LPG penetration should keep demand for the cooking fuel strong, while diesel will find support from the New Delhi's "Make in India" push.
"With the government's 'Make in India' push and the emphasis on manufacturing, we will see a lot of new highways being built and that will lead to more goods moving by roads. That should support diesel demand," Ashok said, adding that he expected diesel demand to grow at 6-7% over the next two years.
"As far as naphtha is concerned, currently the petrochemicals per capital consumption in India is low and there is potential for that demand to grow at a much faster rate. That should be able to support naphtha demand," Ashok said.
SEVERAL EXPANSIONS PLANNED IOC, which recently brought online its 15 million mt/year Paradip refinery on India's east coast, will be playing a lead role in plans to build a greenfield refining and petrochemical complex on the western coast of India.
Indian Oil Minister Dharmendra Pradhan in January asked the three state-owned refiner IOC, Hindustan Petroleum Corp. Ltd., and Bharat Petroleum Corp. Ltd. to build a greenfield refinery to meet India's rising oil product demand.
"We have asked the government in [the western state of] Maharashtra to identify the land. It will be an integrated refinery and petrochemicals project. In today's world, it make sense to have integrated operations. We are also trying to make this refinery as flexible as possible -- to switch the balance between fuels when needed," Ashok said.
This project should come on stream in the next seven to eight years, he added.
Other expansion projects on the cards include: expansion of the 13.7 million mt/year Gujarat refinery to 18 million mt/year; expansion of the 8 million mt/year Mathura refinery to 11 million mt/year; expansion of the 15 million mt/year Panipat refinery to 20 million mt/year; and expansion of the 6 million mt/year Barauni refinery to 9 million mt/year.
"All these expansions will happen within the next seven years," Ashok said.
IOC has also already started work on qualitative upgrades at many of its refineries to meet the government's mandate to move to Euro-VI equivalent fuels, directly from Euro-IV, by 2020.
"We should be able to meet the deadline. We have started working on that. It's a tough task, do doubt," he said.
CRUDE IMPORT DIVERSIFICATION
IOC will meanwhile look to further diversify its crude oil import basket as the start of the Paradip refinery on the eastern coast will open up a window to import an additional 12 million mt of the feedstock this year, Ashok said.
"To us the key is to what extent we can diversify our crude oil basket," Ashok said. "With the Paradip refinery starting and moving closer to full capacity, we will need an extra 12 million mt of crude oil."
IOC until now has been blending heavy crudes with lighter crudes for use at its west coast refineries. But Paradip refinery is designed to handle heavy crudes on its own.
"Paradip will increase the proportion of heavy crudes in our import basket substantially but the increase will be gradual," he added. "We will not be looking to use huge volumes of heavy crudes in the first year."
IOC in its latest annual report said that crude oil imports account for 92% of the company's overall costs. To reduce this bill, the company is taking steps to increase purchases of "high value grades" and from new suppliers -- such as Latin American exporters.
And while IOC scouts the market to meet the company's incremental demand for crude oil, Ashok said the company would increasingly look at opportunities in the spot market to pick up cargoes.
"We are making some attempts to reduce our term purchases so that it gives us the flexibility to go in for more spot cargoes. Last year, we reduced our term purchases and that gave us tremendous flexibility in sourcing. We should be able to continue with that flexibility this year too," he added.
Indian state-run refiners in recent years have been largely buying 80% of their crude import requirements through term deals and about 20% from the spot market.
But last year, some refiners like Indian Oil Corp imported up to 30% Minister Pradhan in a recent interview with Platts said that formulating a flexible crude oil import policy for the country's state-run refiners is top on his agenda.
OVERSEAS AMBITIONS
Ashok said IOC had no plans to reduce its capital expenditure despite a climate of weak oil prices and would push ahead with its overseas expansion plans over the next few years.
"The low price environment is giving us an opportunity. We are looking for overseas assets in the upstream sector. In the downstream sector, we are a bit more focused on the nearby markets for opportunities," he said referring to IOC investments in neighboring countries.
IOC currently has a retail business in Sri Lanka and Mauritius. It also has a lubes and petroleum product marketing business in the Middle East. Ashok said that Africa would be a potential target for downstream investment opportunities for Indian oil companies.
"We are very much focused on the African market. We think we can play a creative role there," he said.
