Refineries: The way forward… - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Refineries: The way forward…

May 20, 2003

Refining companies are planning to either expand their refining capacity either through upgradation of their existing plants or by developing new grass root refineries. In this article, we take a look at the existing refining capacity of Indian oil industry and the likely addition in the next five years. In FY02, the domestic refining capacity of the country was about 116 MMTPA with IOC being the largest refinery having a total refining capacity of about 38 MMTPA. On the other hand, the consumption of petroleum products was about 99 MMTPA. This shows that there is an oversupply in the petroleum products production in the country. Despite this, a lot of capacity additions will be seen in the next five years, which is expected to be to the tune of about 40 MMTPA.

Refinery sector: Set to explode
(MMTPA)Existing
capacity
Capacity
addition planned
Location Planned
commisioning
IOC38.06.0Panipat grass root refineryFY06
HPCL13.09.0Punjab grass root refineryFY07
BPCL8.511.0Bina grass root expansion (6) and
expansion of existing capacity (5)
FY07 and
FY05 respectively
Kochi Refinery
(Subsidiary BPCL)
7.5-  
Numaligarh Refinery
(Subsidiary BPCL)
3.0-  
RIL27.8-  
MRPL
(Subsidairy HPCL and ONGC)
9.0-  
Essar oil 10.5Grassroot refineryFY05
Bongaigaon Refinery2.5   
Chennai Petroleum6.53.0Expansion of existing plantFY04

The major input for the refinery is crude oil. Considering the growth of crude oil production in the country, we find that the domestic production of crude oil has stagnated at about 32 MMTPA levels. With the total reserves of crude in place, the production of crude oil is likely to remain stable at the same levels for about next five years. This deficit of the crude oil requirement is being met through imports. The crude oil import dependency of the country in FY02 was about 70%. With the addition of further capacity by existing and new refineries, the import dependency of the country is likely to increase to about 75% by FY07.

The government is focusing on increasing its domestic crude assets through NELP (NELP: will the dream materialize?). Though it is seeing some signs of success, we have still a long way to go. Also, the efforts by ONGC to procure crude from its stake in foreign oil fields will enhance India's capacity indirectly. With de-canalisation, the oil companies are free to choose their own source of crude supply to meet crude oil requirement. This will also help them to meet the crude requirement at lower prices.

Due to the capacity additions the country has now reduced its dependency for petroleum products. The country has become net exporter of petroleum products and exports will increase with new capacity additions taking place. Also, companies are likely to become more competitive on the domestic front.

On the demand side, demand of motor spirit (MS), LPG and high-speed diesel (HSD) is likely to increase in the next few years. While the deficit of LPG is likely to increase as the customer shifts from kerosene oil to LPG, kerosene oil will see surplus capacity. While the surplus in motor spirit is likely to decline, that in the diesel is expected to increase. Major drivers for growth in the demand are economic growth, better agricultural output, higher infrastructure spending, and increased demand from key consuming industries like power, fertilizer and automobiles.

The government's thrust on infrastructure improvement bodes well for the refining sector. Also with the increasing competition on the marketing front, with the dismantling of APM (APM: where have we come), the companies have started becoming more self sufficient in terms of their product requirements. Also given that the number of retail outlets is going to increase by about 50% in the next few years, this increase in refining capacity will help the companies to meet the additional demand from retail outlets. We see more competition and sophistication in the petroleum product market, which is good for the consumers. For companies, the future will be a time aggressiveness and innovation in the product mix and services.

Equitymaster requests your view! Post a comment on "Refineries: The way forward…". Click here!

  

More Views on News

5 Green Energy Stocks to Watch as India Readies for a Revolution (Views On News)

Oct 13, 2021

The excitement around green energy stocks has opened up a huge contrarian opportunity in the traditional energy space.

Top Performing PSU Stocks over the Past One Year (Views On News)

Oct 1, 2021

After a decade of underperformance, PSU stocks have woken up. Here are the best performing PSUs of past twelve months.

Linde India Shares Hits New High. Up 230%+ in One Year (Views On News)

Aug 26, 2021

Linde India shares have surged sharply in the past few trading sessions. What's causing the rally?

ONGC Logs Massive Jump in Net Profit as Crude Oil Prices Double (Views On News)

Aug 16, 2021

Rising crude oil prices compensate ONGC's fall in production.

HPCL Shares Under Pressure After Profit Declines in June Quarter (Views On News)

Aug 5, 2021

Rising crude oil prices and forex woes weigh on HPCL's quarterly numbers.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE OIL & GAS


Dec 6, 2021 (Close)

S&P BSE OIL & GAS 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS