29 Nov 2017 16:47 IST

Better to be prepared today than be sorry tomorrow, says Indian Oil Chairman

Need to take a call on either to import products or develop one’s own capacity

Does it make sense to set up a mega refinery in the country when there are already 23 refineries (public and private sector combined) here, is the question in the minds of many. Indian Oil Corporation Chairman, Sanjiv Singh, believes that a decade from now there will be a need to meet growing domestic needs. “We expect the demand to grow and we have to be ready. Building our own capacities has its advantages.” he says. In an interview with BusinessLine, Singh shares his views on the domestic demand and supply, refinery upgradation, gas economy, and the need to have a diversified crude oil portfolio. Excerpts:

India is perceived to have too many refineries and there is no room for another mega one. As a key stakeholder in the proposed mega refinery project, what is your take on it?

If we look at the present demand numbers, last year the total domestic consumption of petroleum products was 194 mt.

The country has an installed capacity of 230 mt, and refiners process a little over 240 mt. That may be a discount of nearly 9 to 10 per cent of internal fuel from refining capacity, although we have surplus. But that is not probably significant enough even today. Especially on the transportation fuel, you discount petcoke, sulphur, bitumen and fuel oil.

We are adequate if we discount the heavier product, in terms of transportation fuel.

And if the same happens with Reliance Industries’ 30 million tonnes export oriented refinery, the country is just self sufficient.

Either we take the call to import the products, or decide to build our own capacity, which can be done either by greenfield refinery, or by expanding existing capacity.

Both have their own advantages. Capacity addition can be low cost and faster, but will be limited, especially when refineries are upgrading to BS VI. So, we strongly feel that 10 years down the line, there would be a deficit, if we don’t build more capacity today.

There would be a demand for more, and we have to be ready.

What about the shift to green fuel, electric vehicles? Will it not impact demand?

It is true that other forms of energy are also coming. Gas is taking a significant portion as far as transportation fuel is concerned, and tomorrow it will be also used as feedstock.

It’s not just CNG, but LNG is also coming in. We are hearing about a similar change in electric vehicles. Apart from that, even the transportation business models may change.

The efficiency of the existing engines will improve with time. It will also impact the demand.

Building our own capacities has its own advantages. We import crude from a variety of sources. If we depend upon product import, probably the sources will be lower than the crude ones. Secondly, it has indirect advantages like growth in ancillary industries, employment generation, and capability within the country.

Many of Indian Oil refineries have lived their life and aged. You have been looking at certain configuration for these refineries to produce specific products. Explain.

It is true that many of our refineries have aged. We have the oldest one in Digboi, Assam. But, if you look at the refineries then probably everything has been upgraded.

All are digitally controlled, and making Euro IV or BS IV products, and are being upgraded to BS VI. Apart from their nameplate year or year of commissioning, probably everything has been continuously upgraded.

But, upgradation has its own limitation, like the Barauni refinery, which is a 6 million tonnes one operating three units. By any standard, these units are very small.

Baroda has a 13.7 million tonne refinery, operating seven crude units. When we are upgrading, we are revamping these refineries to large single units.

We are revamping Barauni to 9 million tonnes and it will be a single 9 million unit.

It is not only that we are creating new capacity, we are also modernising these refineries in a true sense. Tomorrow when these refineries operate, they will operate in a very efficient manner.

Along with brownfield expansions, we are also creating capability in terms of flexibility in these refineries for creating value added products.

This will make them much more viable. We understand very well that tomorrow’s product slate will be different from today.

Does it make sense to have a standalone refinery, or will you go for a huge petrochemical unit?

Seeing the uncertainty of tomorrow, it is extremely logical to have an integrated refinery today, with required flexibility.

Where does your mega refinery project stand today?

We (IndianOil-Bharat Petroleum-Hindustan Petroleum) are going ahead with it. We have identified the land and are proceeding.

The State government has initiated the process of land acquisition.

It is a large piece of land and sensitive issue. We have done the preliminary assessment of the refinery configuration, market survey with respect to products and petrochemicals which need to be and can be produced. We are working on these in parallel. We will be able to give a firm timeline once the land gets acquired.

How will the venture work? What is the broad structure?

For the time being there are three partners. 50 per cent is with Indian Oil and 25 per cent each with Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd.

We have an understanding that the fuel products will be marketed by the three companies in the same way. The petrochemical products will be marketed by the joint venture itself.

We are open to take a strategic partner, as time goes by. That will come probably when we have gone a little more ahead with the project, when have land with us and done the configuration work.

Even if we get a equity partner in future, we will remain the majority stakeholder. We don’t want to lose the controlling stake.

(The article first appeared in The Hindu BusinessLine.)