Dec 3: Oil refining companies in India need to focus more on production of downstream chemicals to overcome the loss due to shrinking gross refining margins (GRMs) in conventional fuel business, according to CRISIL.
The volatility in crude oil prices has meant spreads haven’t increased apace with crude oil prices. The petrochemicals demand is growing at a compounded annual growth rate (CAGR) of 8-9% due to increasing consumption of plastics. India’s per capita consumption of plastics is only 10 kg while global average is 30 kg. In due course, the increase in electric vehicles and technological advancements may have a bearing on demand growth for transportation fuels such as petrol and diesel. On the other hand, India is witnessing a huge growth in basic petrochemicals demnad which is met mainly through imports. The demand for petrochemicals from end use applications such as packaging, automobiles, electricals and electronics remain healthy.
By 2030, domestic ethylene demand from major end-use segments such as PE, MEG and polyvinyl chloride (PVC) is expected to reach ~15 million tonne. Domestic ethylene capacity, however, may not keep pace. Supply is expected to touch ~9 million tonne by 2030, resulting in an ethylene deficit of 6.1 million tonne, which will gradually increase to
9.4 million tonne by 2035 in the absence of capacity additions.
Propylene deficit presents a similar case as ethylene. By 2030, domestic propylene demand is expected to be 14.5 million tonne, but capacity would lag. Supply is expected to be ~8 million tonne by 2030, leading to a propylene deficit of ~6 million tonne (assuming self-sufficiency), which will gradually increase to 9 million tonne by 2035 in absence of
India is a net importer of most polymers. Over the past 10 years, imports have increased at ~15% CAGR as domestic capacities lagged demand. The import dependency for PE, polypropylene (PP) and PVC was 37%, 20% and 55%, respectively, in fiscal 2018.
Lack of olefin capacities in India has also resulted in limited production of other downstream chemicals. For example, India is a net importer of propylene derivatives. Of the total propylene production, more than 95% is used to make PP. Given concerns over availability of feedstock propylene, players are apprehensive about adding downstream capacities for propylene derivatives.
This demand supply mismatch opens up a huge opportunity to add capacity in downstream chemicals. Integrated refining and petrochemical players would be in a better position to take advantage of strong demand potential in petrochemicals and other chemicals.
By 2035, nearly 55-60 million tonne of loss in fuel demand owing to penetration of electric vehicles and
improvements in fuel efficiency is expected. Nearly half of that loss can be offset by increasing the oil to chemical ratio of a refinery, which, in turn, can be achieved
by integrating investments in crackers and HS-FCC.
Increasing the yield of naphtha in a refinery and integrating the refinery with a steam cracker can provide a rich and diversified petrochemicals chain.