State-owned Bharat Petroleum Corporation Ltd’s (BPCL) plan to set up a greenfield refinery in Andhra Pradesh with investments of around Rs 1 trillion is consistent with the massive capacity addition targets set by the country’s downstream oil sector.
The capacity expansion is in view of the projected medium-term growth in demand for petroleum products in a fast-growing economy.
As BPCL is preparing a detailed plan and feasibility report for the upcoming refinery in the southern state, given the size of investment, analysts believe that the refinery’s capacity could be more than 9 million tonnes per annum with a petrochemical component attached to it. Moreover, the strategic location of the refinery around the east coast is expected to enable a smooth flow of crude oil imports and further exports of refined oil products.
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BPCL, similar to its peers – Indian Oil Corp and Hindustan Petroleum Corp– is looking to enhance its refinery capacity as the country is expected to reach its peak demand for oil only in the next 20 years or so. Until then, the domestic consumption of petroleum products is expected to grow.
India’s current refining capacity is 256.8 million tonne, which include the 68 mt capacity of Reliance at its Jamnagar facility, including the units in a special economic zone.
“It’s (BPCL’s) a mega project. If there is Rs 50,000- 75,000 crore investment attached in the initial phase, then there will be a petrochemical component also. It seems it would be higher than 9 million tonne capacity,” said Prashant Vasist, Senior Vice President and Co-Head, Corporate Ratings, Icra. “It would probably be a port based refinery which could enable easier crude imports and exports as you don’t have to lay a huge line etc.”
BPCL has envisaged its refining capacity to grow to 38.5 million tonne by 2028 and to 45 million tonnes by FY29 against the current capacity of around 35.3 million tonnes as of March 2024, as per Icra. BPCL is also expanding the capacity of its Bina refinery in Madhya Pradesh to 11 million tonnes from present 7.8 million tonne.
IOC targets to reach 70.1 million tonne by 2028 from present 87.9 million tonnes while HPCL targets around 33.5 million tonne capacity (including its Rajasthan refinery’s capacity of 9 million tonnes) from 23.2 million tonnes now.
“Our fuel demand is expected to continue to grow. So these companies are putting up their large projects also. Because for next 20 years or at least till 2040, it is expected that India will not reach its peak oil demand,” Vasisht said. “So probably that is the thought. All these capacities are being set up because we still have some time for growth ahead of us.”
The country’s demand for petroleum products including jet fuel, diesel, LPG among others is likely to grow to 239 million tonnes in the financial year 2024-25, as per estimates by the Petroleum Planning and Analysis Cell. The country’s consumption of petroleum products stood at 233 million tonnes last year.
Andhra Pradesh Chief Minister N. Chandrababu Naidu on Wednesday held a discussion with BPCL’s Chairman and Managing Director G. Krishna Kumar on establishment of an oil refinery and petrochemical corridor in the State.
In a post on X, Naidu said Andhra Pradesh has significant petrochemical potential due to its strategic location on the east coast and it is exploring the establishment of the petrochemical corridor with an investment of RS 60,000-70,000 crore.
Analysts feel some fiscal incentives may be given by the Andhra Pradesh government for the facility. Typically, the refinery would take three to five years to get commissioned.
Talking about the cost competitiveness of the project, Vasisht noted that it will depend upon a lot of factors including the SOPs they get from the Andhra Pradesh government.
“Of late these refinery capacities have become very complex. So they are able to make good gross refining margins. For at least the last two years GRMs were very healthy. And these refineries, if they have a petrochemical component, improves profitability of the company,” Vasisht said.
From: financialexpress
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