Indian Oil To Double Refinery Capacity By 2030
Indian Oil is a mammath in the oil and gas sector in India, straddling 11 refineries with a total capacity to process 80.7 million metric tonnes per annum (MMTPA) of petroleum products. It's forays upstream and downstream have now given the mega corporation (FY17 revenue Rs 4,45,372.91 crore) an arm rest across the oil and gas value chain, from exploration and production for oil and gas, to refining and marketing petroleum products and lubricants (POL), to petrochemicals and lately, renewable energy resources.
The energetic 6.3 per cent stride in the gross domestic product (GDP) only buttresses long-term projections that the demand for POL will only grow within India and at a rapid pace. Indian Oil, therefore, will continue to play the critical role it does in India's energy security.
It may not quite be fortuitous that the petroleum behemoth now has a refinery man at its helm in Sanjiv Singh. Singh, who took charge as Indian Oil Chairman and Managing Director (CMD) on June 1, is a chemical engineer who has spent the last 35 years working at the ground level in Indian Oil refineries. He spearheaded the commissioning and stabilizing of the two modern refineries at Panipat and Paradip, before being inducted into the IOC board as Director, Refineries in 2014. Singh tells Madhumita Chakraborty of BW Businessworld that Indian Oil plans to raise its refining capacity to 153.55 MMTPA by 2030 from 80.7 MMTPA now. In the long-term it strives to source at least ten per cent of its crude oil requirements from its own E&P ventures.
Excerpts of the interview:
Sanjiv Singh, Chairman And Managing Director, Indian Oil Corporation
You assumed office at a piquant moment in the history of the petroleum sector, when crude oil prices, like petroleum products, sway in keeping with the forces of demand and supply (unlike in the phase before the discovery of shale gas, when there was a perpetual demand). In such a scenario, does the strategy of also going into the high-risk upstream business pay off? In other words, how has the strategy of downstream companies going upstream and vice versa worked for Indian Oil?
Sanjiv Singh: To enhance upstream integration, IndianOil has been pursuing exploration and production activities both within and outside the country for more than a decade now, in collaboration with consortium partners.
Today, the corporation's E&P portfolio comprises 18 active blocks ? ten domestic (including two coal bed methane blocks) and eight overseas blocks ? with participating interest ranging from 3.5 per cent to 100 per cent. The overseas portfolio includes eight blocks spanning USA, Canada, Venezuela, Libya, Gabon, Nigeria and Russia.
As on 30 September 2017, the cumulative investment in the domestic assets was US $409.48 million (equivalent to about Rs 2,124 crore) and the cumulative investment in overseas assets was US $2,760.23 million (equivalent to about Rs 17,113 crore).
Overseas, the corporation has five producing assets, viz., Niobrara Shale Oil Project (USA, 2012), Shale Gas Project (Canada, 2014), Carabobo Project (Venezuela, 2010), Taas and Vankor Projects (Russia, 2016). Recently, one domestic asset (Dirok Gas and Condensate Field in Assam near Digboi) has started producing gas and condensate in August 2017.
Till September 2017, the share of IndianOil's production stands at 4.21 million tonnes. IndianOil's share of current production rate from the five overseas and one domestic assets stands at 51 thousand barrels oil equivalent per day, i.e., 2.55 million tonnes per annum.
As part of its quest to become an integrated energy major, IndianOil is expanding its upstream portfolio of domestic and overseas oil and gas blocks, to be able to source about six per cent of its crude oil requirements from its own E&P assets in the medium term.
The BW Real 500 researchers have for several years in a row rated IndianOil the second largest corporate entity in India in terms of assets and income, which is not surprising considering that IOC is today a global giant. It has achieved these heights by ploughing back its profits into infrastructure ? new refineries, pipelines, retail outlets and overseas acquisitions. The company's profitability has sometimes (as in 2014-15) taken a battering because of lingering subsidies that PSUs are still unable to pass on to consumers. Do you think the Indian market (where demand for POL is growing by roughly five per cent annually) is ready to absorb market driven prices?
Sanjiv Singh: Yes, definitely. In fact, pricing of petrol and diesel were deregulated with effect from 26 June 2010 and 19 October 2014 respectively. Thereafter, the retail selling prices of these two products were being set every fortnight by the Oil Marketing Companies (IOC, BPC and HPC) based on the price of the respective product (and not based on crude oil price) in the international oil market and the exchange rate of INR vs. USD. From 16 June 2017, we have implemented daily pricing of petrol and diesel across the country on the same principle.
Recently, the number of fuel stations in the country has crossed the 60,000-mark, which includes expansion of retail networks of private sector players too. With further growth of competition in the market-place in the coming years, I foresee the customers benefiting from market-driven prices both in terms of superior products and enhanced service.
Deregulation of petrol and diesel price and direct payment of LPG subsidy to consumers have changed the market dynamics. On its part, IndianOil is adapting itself to the changing business scenario, and is streamlining its logistics by way of optimising the supply chain and infrastructure and launching a plethora of customer-centric initiatives.
IndianOil has already begun R&D efforts on renewable energy sources. How seriously do you see refining companies diversifying into solar, wind or hydel power in the years ahead?
Sanjiv Singh: IndianOil is fully committed to the objectives of sustainability and the triple bottom-line of People, Planet and Profits. Our approach to Sustainability is in sync with the national goal of reducing energy poverty and preparing for a low-carbon future.
IndianOil's current alternative energy portfolio is 188 MW. This includes 168 MW of wind-power projects in Gujarat, Andhra Pradesh and Rajasthan and 20 MW of solar energy, which comprises 9.5 MW grid-connected and 10.5 MW off-grid projects. We plan to scale up this capacity to 260 MW by the year 2020.
Other initiatives include conversion of fuel stations to run on solar energy, bio-fuels and waste-to-energy projects. As part of this, over 6,600 fuel stations have already been converted to run on solar energy, three 2G-ethanol plants are being set up at Panipat and Dahej, and ten five-tonnes-per-day waste-to-energy plants are also coming up.
Our state-of-the art R&D Centre is where we are shaping a low-carbon future. Besides lubricants technology we are also engaged in cutting-edge research in clean fuels, refinery technologies, catalysts, bio-energy, solar energy, Hydrogen energy, H-CNG blends, synthetic fuels, nano-technology, battery technology, multi-feed (coal, pet-coke, biomass, etc.) gasification/liquefaction, and gas-to-liquid technologies.
We have also launched the IndianOil StartUp Fund to promote collaborative research, develop a vibrant and innovative eco-system, and nurture entrepreneurship fields such as fuel efficiency, renewables, waste-to-energy, water efficiency, business process re-engineering, etc.
As a corollary to that question, once IndianOil has achieved its refining capacity target of 100 plus million tonnes, will new infrastructure be in renewable energy sources?
Sanjiv Singh: In line with India's aspirations to become a refining hub, IndianOil plans to raise its refining capacity from the current 80.7 MMTPA (million metric tonnes per annum) to 153.55 MMTPA by the year 2030, through both brownfield expansions and greenfield capacity creation. IndianOil is also pursuing a 60 MMTPA integrated refinery-cum-petrochemicals project on the west coast jointly with other oil marketing companies (OMCs), that is, BPC (Bharat Petroleum Corporation) and HPC (Hindustan Petroleum Corporation), at an approximate cost of Rs 2.7 lakh crore.
The petroleum distribution infrastructure is also being expanded in line with the company's growth plans. About 8,000 km of pipelines network is being added by the year 2021.
The corporation is also working to convert its refineries to produce BS-VI fuels, the top global standard today, by 1st April 2020. This way, it would not only meet the domestic demand for green fuels but also emerge as a major exporter of fuels of international standard.
Supporting infrastructure for renewables is another key focus area for us. With the evolving nature of road transport, we are also setting-up bio-CNG plants and exploring opportunities for fast charging stations and battery replacement facilities at our fuel stations. IndianOil was the first oil and gas enterprise to launch a charging station for electric vehicles at its fuel station in Nagpur recently.
We understand that renewables cannot be the complete solution for today's energy challenges, while at the same time coal and oil are under increasing scrutiny as polluting sources of energy. Thus, to augment the shift towards less emission-intensive fuels, we are building import facilities, cross-country pipelines and distribution infrastructure to promote liquefied natural gas as a clean and green fuel for domestic, transport and industrial sectors.
I feel that the immediate solution lies in cleaner fuels and higher engine efficiencies as also 'horizon technologies' like 3G Bio, coal gasification, Hydrogen fuel cells, etc.
The oil and gas sector must help catalyse a sustainable evolution. Its own longevity and profitability depends on its adaptability and flexibility to integrate other energy forms as complementary and not adversaries.
What, in your view, are the challenges ahead for the company?
Sanjeev Singh: IndianOil is evolving into an integrated energy and petrochemicals group that is in a state of readiness to take the optimal route to a low-carbon, high-efficiency sustainable future. When we talk of challenges, they are opportunities in work-clothes, as someone said. And we need to see them that way.
Petrochemicals: Petrochemicals and speciality chemicals is a growing and highly profitable business. As the second largest player in the vertical, with a full slate of products and a countrywide logistics and marketing set-up, IndianOil views further integration of refining and petrochemicals as the way forward, and is scaling up its petrochemicals portfolio further with a polypropylene project in Paradip and expansion of existing facilities at its major refinery locations.
Natural Gas: Significant investments are being planned in natural gas import and marketing to align with the country's changing energy mix. Increased global gas availability and low prices have strengthened the government's vision of a gas-based economy, besides presenting attractive growth opportunities to players in the sector. IndianOil has interests across the gas value chain, from LNG import terminals to city gas distribution networks, chief among them being a five-MMTPA LNG import terminal at Kamarajar Port near Chennai, scheduled for commissioning in 2018-19.
Building on its record of successful diversification, Indian Oil, along with Coal India Ltd., NTPC, FCIL and HFCL, formed a joint venture company, Hindustan Urvarak & Rasayan Ltd., for revival of the fertiliser plants located at Gorakhpur (Uttar Pradesh), Sindri (Jharkhand) and Barauni (Bihar). This diversification also has a strategic fit with the company's successful Kisan Seva Kendra model for rural markets.
Upstream Integration: As part of its quest to become an integrated energy major, IndianOil is expanding its upstream portfolio of domestic and overseas oil and gas blocks to be able to source about 10 per cent of its crude oil requirements from its own E&P assets in the medium term.
Globalisation: Globalisation of the company's operations is an attractive business proposition and IndianOil's emergence as a major retail and terminalling player in Sri Lanka and Mauritius is paving the way to entry into other emerging markets in Southeast Asia and Africa, with overseas offices coming up in Singapore, Myanmar and Bangladesh.
R&D: IndianOil's strategic strength in R&D is being further bolstered so as to widen and deepen research into emerging fuel technologies. From licenced technology to commercialisation of in-house expertise in refinery revamps, catalyst evaluation, etc., its scientists are engaged in research on futuristic technologies and harnessing unconventional energy sources like battery technologies, 3G bio-fuels, etc. IndianOil believes that it can be a diversified technology-provider in the near future. With this objective, a new campus of the R&D Centre is coming up at Faridabad to house the new research facilities.
Aviation Fuelling: With new growth avenues opening up in the Indian skies for regional connectivity through tier-II and tier-III airports, the company is working on making its aviation fuel business cost-effective by offering low-cost fuelling infrastructure models at smaller airports through in-house expertise.
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