India’s oil marketing companies are expected to add 35-40 million tonnes of crude oil refining capacity by the end of the fiscal 2029-30 in order to meet the growing energy demands of the country and the expected growth in consumption, as per Crisil Ratings.
Furthermore, the agency estimates a capital expenditure of Rs 1.9-2.2 trillion for the projected capacity additions, with most of the capacities being brownfield expansions. The additional capacities will take the country’s installed base to 295 million tonnes by 2030.
“Most of the capacity addition would be brownfield expansions to cater to demand for end products, thus lowering the project risks. We have also seen the oil refiners balancing out their operating profits amid volatility seen in oil prices, wherein $9-11 per barrel of rolling average returns were earned between fiscals 2016-2024, recording a return on investments of 12-14%,” said Joanne Gonsalves, Associate Director, Crisil Ratings. ‘Further, the sector benefits from its strategic importance to the government”.
Rs 30,000-crore deal for Vi network boost
Anil Ambani led Reliance Infra zooms 12% after board approves Rs 3000 cr fund raising via QIP
Bajaj Housing Finance Vs LIC Housing Finance: What’s a better stock to pick? Check on valuations, market cap and asset quality
EPFO: You can make a guaranteed tax-free corpus of Rs 3.3 crore in 30 years with Voluntary Provident Fund – Check calculations
In the decade through FY24, India’s refining capacity increased by 42 MT to 257 MT, primarily to cater to the growing domestic consumption, as exports remained range bound at 60-65 MT over these years.
Domestic consumption of petroleum products registered a compound annual growth rate of 4% in the past decade, as per the agency. Transport fuels, accounting for 56% of consumption, grew 4%, while naphtha which accounts for 7% of the consumption, grew 2%. Consumption of liquefied petroleum gas and bitumen, cumulatively grew almost 4%.
“We expect overall petroleum product consumption to slightly moderate and register 3% CAGR over the next six years, primarily due to slower growth of 2-3% in transport fuel consumption,” said Anuj Sethi, Senior Director, Crisil Ratings. “This will be caused by improving fuel economy, rising share of vehicle sales with alternative cleaner fuels, and the 20% ethanol blending target proposed by the Government of India.”
Project risk in these investments is expected to be low, as per the agency. This, coupled with the expectations of steady returns from the business will support credit risk profiles of OMCs.
India’s oil demand growth is set to overtake that of China’s by 2027, the International Energy Agency had earlier said. The country’s oil demand will reach 1.2 million barrels per day during 2023-2030, accounting for more than one-third of the projected global demand growth of 3.2 million barrels per day.
“India is forecast to be the single largest source of global oil demand growth from 2023 to 2030, narrowly ahead of China. Underpinned by strong economic and demographic growth, the country is on track to post an increase in oil demand of almost 1.2 mb/d over the forecast period, accounting for more than one-third of the projected 3.2 mb/d global gains,” Toril Bosoni, Head of Markets at the IEA had said.
As per the IEA’s report on the Indian oil market, the country’s oil consumption is set to increase at a faster pace than other countries, in part, because the country is still in the initial stages of economic development.
The country’s refining capacity is currently estimated to be close to 5.8 million barrels per day by the IEA and is set to expand by 1 million barrels per day by the end of the decade. The projected growth will be dominated by public sector undertaking (PSU) refineries, as they prepare for continued rising domestic demand and an increased share of petrochemical production, it said.
The three state-owned OMCs – Indian Oil Corp. Bharat Petroleum Corp, and Hindustan Petroleum Corp have charted out plans to expand their refining capacities to meet the rising demand. In addition to the domestic capacity, the refineries may also cater to exports of petroleum products.
In 2023, India was the fourth-largest exporter of middle distillates globally and the sixth largest refinery product exporter at 1.2 mb/d. New refining capacity is forecast to boost product supplies to global markets to 1.4 mb/d through mid-decade before edging lower to 1.2 mb/d by 2030 given the steady rise in domestic demand, as per IEA.
Crisil noted that OMCs may also look to add further refining capacities to integrate with their petrochemical expansion plans, with a view to diversify business. However, the capex execution and returns will bear watching.
From: financialexpress
Financial News
