Sanjay Jog The petroleum ministry has made a strong pitch for developing India as a refining hub. The sub-group on refining for formulation of the 11th Plan has assessed the supply-demand positions of petroleum products in the country up to 2011-12, along with prospects of product exports and projected a total refining capacity of 242 million tonne (mt) by 2011-12. This comes at a time when the government is tackling the issue of rising crude prices and its impact on oil marketing Companies (OMCs). Considering the projected growth of consumption of petroleum products during the 11th plan period, the surplus products available for exports was derived to be over 90 mt in 2012. With most of the refining capacity projected in developing countries, specifically in Asia, the petroleum ministry is of the view that India could not ignore the opportunity. In a presentation to the Planning Commission, the petroleum ministry has said the country enjoys an advantage of its proximity with emerging Markets. Being geographically and strategically located closer to the Markets, particularly in Asia and Africa, India could take the lead and strive to become a major exporter of petroleum products. Hemmed in by sea on three sides, the Indian peninsula offers thousands of miles of coastlines for setting up export-oriented refineries to feed the market as far as the US. Besides, India is very near to major producers of crude oil countries in Middle East region endowed with vast and long lasting reserves. India is considered the natural market for oil and gas produced by the Middle East countries. As oil reserves decline precipitously in Europe and the US and get increasingly concentrated in fewer regions, the Middle East is projected to account for increasing share of oil reserves in the world in 2030 and beyond. Hence, the sourcing of crude oil for refineries from the Middle East would not be a constraint. While US and Europe are likely to face a shortage of skilled manpower, India has developed a vast pool of technical skills and know-how in the oil sector. India has two options to utilise the skilled manpower; (i) Export skilled manpower and/or (ii) Utilise the skilled manpower. A combination of both would lead to optimal utilisation of manpower and value addition. The petromin noted that addition in refining capacity enhances energy security by building greater flexibility in meeting the energy needs of the country in a cost-effective manner. For an energy-importing country like India, importing crude rather than product is a better option. This is so because crude Markets are generally larger and more stable in contrast to product Markets, which are significantly smaller, lack depth and therefore more volatile. According to the projections of the International Energy Agency (IEA), OECD/Paris, in order to meet the rising demand, world crude oil distillation capacity would need to rise to 93 millions of barrels per day (mb/d) in 2010, approximately 10mb/d higher than that in 2004. This represents an average growth rate of 1.8% per year. New refinery additions, however, would struggle to keep pace with demand growth over this period on current construction plans. As a result, utilisation rates would increase to over 86% in 2010. Refining capacity would need to expand further to 118mb/d in 2030. Capacity additions over the projection period will be concentrated in developing countries, because of the difficulties in building new refineries or expanding the capacity at existing ones in the OECD. The producing countries of the Middle East, in particular, would play an increasingly important role in meeting global demand for refined products. In North America, capacity creep would result in a small increase in capacity to 22.1mb/d by 2010 and 25.6mb/d by 2030. Despite these additions and massive conversion of existing capacity to meet new fuel specifications, OECD North America would still be a net importer of refined products in 2030. In Europe, installed distillation capacity will reach 16.6mb/d in 2030. Environmental constraints are hampering refineries from converting capacity to meet projected demand for middle distillates. By 2010, Europe is likely to be a net importer of middle distillates. With current utilisation rates of less than 60%, Russia and other transition economies would not add much distillation capacity over the projection period, but are expected to increase their refinery utilisation rates. The scale of investment needed to produce lower sulphur products to meet European specifications would discourage large-scale refinery upgrading. Although consumption projections have been made for 5 years under the plan, refinery projects have to take into account growth in demand for a much longer period. In view of the higher economic growth resulting in higher level of petroleum consumption, the projected growth in refining capacity would facilitate meeting domestic demand without taking recourse to import of sensitive products. During 2007-08, the growth in consumption of petroleum products was 7%, with diesel registering a growth of 11.1%, which has exceeded the growth projection. Such high growth has led to a substantial import of diesel to the tune of 2.6 mt. The break-even size of a refinery today is higher at around 15 million tonne per annum (mtpa), unlike 6 to 9 mtpa in the past. Along with the break even size the average investment per million tonne capacity of a refinery has also increased substantially by over 50% as compared with the position in late 1990s. Therefore, the ministry opined that the Indian Companies have to plan refining project implementation well in advance to meet the growing future demand. Energy security concerns of the country would be better served by ensuring self-reliance in refining. Self-reliance means not only import substitution but also export competitiveness. Both private and public sector refineries have been successful in exporting products to regional market worldwide. A sales strategy containing domestic sale and exports would drive the public sector oil Companies to optimise cost and revenues through economies of scale and maximum capacity utilisation. Meeting domestic demand and selling in export market have enabled the Indian Companies to operate at above 100% capacity utilisation in the recent years and reap higher profits.