India’s oil marketing companies (OMCs) plan for a major expansion in refining capacity, with plans to increase their total capacity by 35-40 million tonnes (MT) by the end of fiscal 2030, reaching a total of 295 MT.
This expansion, as detailed in a report by Crisil Ratings released on Friday, will necessitate a substantial capital investment of approximately Rs 1.9-Rs 2.2 lakh crore.
The expansion will primarily consist of brownfield projects, building on existing facilities.
Despite this significant increase in capacity, overall consumption of petroleum products is likely to grow at a moderate rate of 3 percent annually over the next six years.
Several factors, including slower growth in transport fuel consumption, which is to increase by only 2-3 percent annually, have subdued growth.
Anuj Sethi, Senior Director at Crisil Ratings, highlighted that improvements in fuel efficiency, the rise in alternative cleaner fuels, and the government’s 20 percent ethanol blending target are contributing to this moderated growth.
“These factors are driving a shift in consumption patterns,” Sethi explained.
Over the past decade, India’s refining capacity grew by 42 MT, reaching 257 MT by fiscal 2024.
This growth primarily addressed the rising domestic demand, while exports remained relatively stable at 60-65 MT.
Domestic consumption of petroleum products recorded a compound annual growth rate (CAGR) of 4 percent during this period, with transport fuels; comprising 56 percent of total consumption; seeing a 4 percent growth rate.
In the transport fuel sector, diesel consumption, predominantly linked to commercial vehicles, is expected to grow at a slower rate of 2-2.5 percent annually over the next six years.
This is due to a shift towards electric vehicles and natural gas usage in public transportation.
Petrol consumption, largely driven by internal combustion engines (ICE) in two-wheelers, will also see gradual growth.
‘Oil Refiners Maintain Stable Profits Despite Volatile Prices’
Joanne Gonsalves, Associate Director at Crisil Ratings, noted that oil refiners have managed to maintain stable operating profits despite volatile oil prices, achieving rolling average returns of $9-11 per barrel between fiscal years 2016-2024 and a return on investments of 12-14 percent.
“The strategic importance of the sector to the government continues to provide it with significant support,” Gonsalves added.
This substantial investment and capacity expansion reflect India’s ongoing efforts to enhance its oil refining capabilities and adapt to evolving market dynamics.
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