India’s refining industry is an interesting study in contrasts. On the one hand, the country boasts of one of the largest grassroots, greenfield refinery ever built in recent times – Reliance Industries Limited’s Jamnagar refinery, whose capacity is 1.2 million barrels per day (bpd) and has one of the highest “complexities” of any refinery. Complexity, in simple terms, is an indicator of a refinery’s ability to convert most of a barrel of crude oil to useful refined products such as fuels, lubricants, and petrochemicals. On the other hand, there are a large fleet of refineries that are small in capacity, were built decades ago, and have significant and extensive modernization needs. Most of these refineries are owned by national oil companies (or “public sector units” as referred to in India) such as Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, and Hindustan Petroleum Corporation Limited. Exhibit 1 is a map of India showing the major refineries and their locations.
Exhibit 1. Map showing major refineries and their locations in India.
Although many of these public sector units are well-capitalized or have the ability to raise funds through listings on the Bombay Stock Exchange, most of these companies have chosen to allocate that capital to expansions through new refineries instead of investing heavily to modernize existing, older refineries. As a result, Indian Oil Corporation chose to build new refineries in Panipat and Paradip. Given this background, India’s refining capacity has grown quite dramatically in recent years, primarily through the addition of new, grassroots refineries, as shown in Exhibit 2.
Exhibit 2. Growth of refining capacity in million barrels per day in India.
Even so, public sector units have invested in existing refineries in a selective manner, pursuing projects that have very high returns and limited technical risk. However, these investments are not sufficient, as reflected by the lower gross refinery margins (GRMs, an indicator of refinery profitability) delivered by these smaller, older refineries (which are on the bottom left of the chart) as shown in Exhibit 3. Therefore, there are significant opportunities in India’s older fleet of refineries to identify modernization projects that will improve their economics, product yields, and operational performance.
Exhibit 3. A comparison of refining capacity and gross refining margin.
At the same time, India’s demand for fuels and refined products is growing rapidly. Exhibit 4 shows that liquefied petroleum gas (LPG, used for cooking), motor spirit or gasoline, aviation turbine fuel or jet fuel, and high speed diesel oil or diesel are all growing at very high growth rates. Therefore, there is a critical need to add new capacity through selective projects at existing refineries as well as new refineries (see Exhibit 5).
Exhibit 4. Demand for refined products in India.
Exhibit 5. A preliminary list of refinery projects in India (announced or underway).
In summary, the Indian refining industry presents a compelling juxtaposition: the modern, complex, world-class facilities like Jamnagar stand in stark contrast to the large fleet of smaller, older refineries in need of extensive modernization. While public sector units have largely prioritized building new, grassroots capacity to meet the nation’s dramatically growing demand for fuels and refined products, the data on Gross Refinery Margins (GRMs) underscores a significant opportunity. To improve overall economic performance, product yields, and operational efficiency, it is critically necessary to identify and execute selective, high-return modernization projects within India’s older fleet of refineries. Addressing this need is key to ensuring that India’s refining capacity can keep pace with the high growth rates of domestic fuel demand across LPG, gasoline, jet fuel, and diesel.
– Uday Turaga
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