India’s $20 billion refinery expansion to cut fuel oil output

The Dollar Business Bureau

India may soon become a net importer of fuel oil as several of its state-owned refiners have announced they will make multi-billion dollar investments to upgrade their units and produce more profitable refined products including gasoline or diesel.

The country’s three state-run energy companies - Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum - look to invest $20 billion on refinery expansions. These firms plan to add units which would process fuel oil into diesel and gasoline, thereby increasing their output and meeting the growing local demand for transport fuels.

Meanwhile, private refiners such as Essar Oil and Reliance Industries have already spent heavily to build state-of-the-art refineries to produce gasoline at the expense of fuel oil.

"Our fuel oil production will be less because everywhere we are going for residue upgrades," said B Ashok, Chairman of the country's biggest refiner Indian Oil Corp (IOC), said to Reuters.

Now the state-run refiners following the same footsteps, Indian will need to considerably increase the imports of fuel oil.

During April to September, India's exports of net fuel oil averaged 109,000 tonnes, according to Petroleum Planning and Analysis Cell. Once these state-oil firms begin to increase the output, the need of fuel oil imports could grow substantially by late 2017.

This could also narrow down the price difference between diesel and fuel oil, from its current $17.61 a barrel. Also, the demand of shipping fuel could rise substantially due to the government's emphasis on the coastal development and movement of cargoes, which is considered cost efficient than road transport.

"Already, gasoil and fuel oil differentials have started shrinking from about $30 three years ago to $16-$18 now and it is likely to narrow further as refiners are destroying fuel oil to produce gasoil and gasoline," Gulf Petrochem Director S Thangapandian said to Reuters .

IOC, the biggest expansion investor, is planning to invest Rs.500 billion ($7.48 billion) by 2022 as it looks to raise its refining capacity by about 30% to 2.08 million barrels per day (bpd). The company envisions to expand its Panipat refinery to about 400,000 to 500,000 bpd.

BPCL and HPCL look to invest $11.25 billion to expand refineries and halting fuel oil output, install fuel oil upgrading units in almost all plants.