Refiners’ green splurge signals India renewable energy win
India’s renewable energy credentials look set to receive a boost as the country’s largest refiners slow fossil fuels projects and instead focus on green projects.
India’s biggest refiners, which cater to 4.5 million barrels a day of domestic fuel demand, have slowed adding crude processing facilities, and are instead focusing on building electric vehicle (EV) charging infrastructure in India, renewable energy and other green ventures.
State-run IOC, India’s biggest refiner accounting for a third of the country’s refining capacity, said earlier this month that it needs to spend 2 trillion rupees ($24 billion) in energy transition ventures to meet a 2046 net zero emissions target.
The investment, approximately twice its proposed spending in the company’s traditional fuel business, will help spur investment in biofuels, renewables, green hydrogen and carbon capture, company chairman SM Vaidya said.
IOC plans to build 3 gigawatts of renewable power capacity and 0.6 million tons per year of biofuels capacity by 2025, rising to 35 GW of renewable power, 4 million tons/yr of biofuels and 1 million tons/yr of biogas by 2030. By 2050 it plans to have 200 GW of renewable power capacity, 7 million tons/yr of biofuels and 9 million tons/yr of biogas.
The company also plans to set up 4,700 electric vehicle charging stations and 66 battery swapping stations, and is developing a 7,000 ton/yr green hydrogen plant at its Panipat refinery in northern India.
Meanwhile state-run Bharat Petroleum (BPCL) is setting up EV charging stations every 100 km on both sides of the road on 100 highway corridors across the country, PS Ravi, executive director of retail at BPCL, told Gas Outlook.
State oil companies are planning their activities around meeting this specific net zero target by 2040 (2046 for IOCL), Rahul Prithiani, senior director of consulting at CRISIL Market Intelligence and Analytics, told Gas Outlook. These ventures include increasing India’s renewable energy capacity as well as biogas, biofuels and green hydrogen production.
As a result, barely 50 million tons of core refining capacity is expected to come online in India in the next few years, according to company data, while India needs twice that capacity to meet growing fuel demand.
India’s refining capacity expansion has moderated over the past five years, growing at a compound annual growth rate of 1 percent over fiscal 2017-22 compared to 2% during fiscal years 2012-17, Hetal Gandhi, director of Crisil Research, told Gas Outlook.
Gandhi said that disruptions caused by Covid-19 had punctured demand for petroleum products but fuel demand is expected to breach pre-Covid levels and reach a record this fiscal year ending March 2023.
Fuel demand spike
Gasoline and diesel, coupled with coal, contribute the most to India’s pollution — six of the world’s 10 most polluted cities are in India. The Paris-based International Energy Agency expects 4 million b/d of new fuel demand in India by 2040, the largest increase for any country, and OPEC’s World Oil Outlook forecasts India’s oil use to double to 11.1 million b/d by 2045. The oil ministry expects India’s oil demand to reach 220 million tons or over 5 million barrels a day this fiscal year, and growth to average 4-5 percent every year.
“While the current impetus on decarbonization – including improving blending and production of biofuels – is expected to cast a shadow over long term consumption growth, a significant decline in consumption of petroleum products is unlikely,” Gandhi said.
Amid rising fuel demand, Indian refiners are slowing capacity additions.
India’s biggest refinery project at Ratnagiri, a 1.2 million barrel a day single site refinery, and the biggest in the world, was announced in 2016 with participation by Saudi Aramco and the UAE’s Adnoc. It was scheduled for completion this year. It hasn’t even started yet after protests by locals delayed land acquisition in Maharashtra state. The project has now been shelved, with foreign investors thinking twice before planning to invest in Indian downstream ventures.
IOC, which accounts for a third of the country’s 5 million barrels a day capacity, commissioned its latest refinery in 2016 at Paradip. Fellow refiner Bharat Petroleum executed a major expansion programme at Kochi refinery in 2017.
IOC is investing around 1 trillion rupees in its traditional businesses including refining and petrochemicals, IOC executive director Uttiya Bhattacharya, told Gas Outlook. But most of those investments will be focused on new petrochemical facilities, including naphtha crackers and ethylene derivative plants, and a smaller portion towards adding refining capacity.
Investing in chemicals leaves less for motor fuels. IOC will increase the petrochemical intensity index of its refineries to around 15 percent by 2030 from 5 percent. That means IOC will produce lower quantities of diesel, gasoline, and jet fuel, and more chemicals.
State-run Hindustan Petroleum’s (HPCL) latest greenfield refinery project at Barmer has 26 percent petrochemical intensity, and so will future projects, Mukesh Surana, former chairman of HPCL and current CEO of Ratnagiri Refinery, told Gas Outlook.
After deducting 25-26 percent for chemicals and around 10 percent for running the refinery, only 65 percent is available for fuels compared to over 90 percent today for older refineries, Surana added.