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

GULF OIL LUBRICANTS Share Price Up by 7%; BSE OIL & GAS Index Up 2.5% (Market Updates)

Sep 28, 2020 | Updated on Sep 28, 2020

GULF OIL LUBRICANTS share price is trading up by 7% and its current market price is Rs 683. The BSE OIL & GAS is up by 2.5%. The top gainers in the BSE OIL & GAS Index are GULF OIL LUBRICANTS (up 6.7%) and ONGC (up 5.2%).

ONGC Share Price Up by 5%; BSE OIL & GAS Index Up 1.9% (Market Updates)

Sep 28, 2020 | Updated on Sep 28, 2020

ONGC share price is trading up by 5% and its current market price is Rs 73. The BSE OIL & GAS is up by 1.9%. The top gainers in the BSE OIL & GAS Index is ONGC (up 5.2%).

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE OIL & GAS


Sep 28, 2020 11:55 AM

S&P BSE OIL & GAS 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS