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| India Infoline Sector Reports | Wed, 18-Feb-2004 16:16:31 IST (GMT+5:30) | |
| Refining | ||
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Refineries In India Fuel refinery Installed capacity & capacity utilization As of January 2000, the installed refiningcapacity is 109mmtpa consisting of 17 refineries. Of these 7 refineries are owned by IOC,2 each by HPCL & MRL and 1 each by BPCL, CRL, BRPL and MRPL. The capacity utilization of Indian Refineriescompares favorably with the utilization of refineries in USA, European Union, Japan andSingapore. Product pattern of refineries The product pattern of the refineries havealso undergone significant changes with additions and modernization of secondaryprocessing facilities and the availability of light and sweet crude. Demand And Supply The country has reached near self-sufficiency,with installed refining capacity of 109mtpa but refinery throughput during the said periodwas about 98mtpa and the imports for the said period was about 12mtpa of petroproducts(including private). For FY01, domestic production from refineries is estimated tobe 109.58mtpa (about 2.31 million barrels per day) while consumption would be around104mtpa. During the said period, the 17 refineries together would process about 112mtonsof crude. The domestic crude supply is expected to be around 31.97mntons and imports,including imports by Reliance Petroleum Ltd and Mangalore Refinery and Petrochemicals Ltdis estimated to be about 80.9mnt. IOC is the canalizing agent for all petroproducts (for PSUs only) similarly exports of these are undertaken only if the domesticdemand is insufficient. Even in the case of de-canalized products excepting Naphtha, theactual imports are negligible as the price subsidy in the products marketed by publicsector oil companies is so large that importation/ parallel marketing of the importedproducts becomes uncompetitive. Till such time APM continues subsidies - price disparitiesare likely to exist, and would not in any way affect the ability of the refineries tomarket the products. The situation could however changedramatically in the event of decontrol of the industry and removal of the petroleumproducts from the negative list. This issue is separately dealt with in the chapter onDe-regulation. Gross Refining Margins Under APM, compensation for refineries isbased on capital employed plus an incentive for better product pattern and lower fuelloss. Refineries are required to sell the products to marketing companies atpre-determined prices and thus are insulated from international price movements of thefinished goods produced by them. The detailed mechanisms by which the Gross RefiningMargins (GRMs) are computed are given in the chapter on APM. Lube Refinery Lube Oil Base Stock - Manufacturing Process Currently, the three refineries withfacilities to manufacture LOBS are HPCL - Mumbai, MRL - Chennai & IOC - Haldia whosecombined capacity is 670 tmtpa. LOBS currently manufactured by oil companiesin India can be categorized as follows. · High Viscosity Index (HVI) oils, which areessentially used for manufacture of lubricants · Low Viscosity Index (LVI) oils, which areused in manufacture of greases · Turbine Oils (T Oils) which are used forspecialty grade lubricants Within each of the grades there are sub-gradeswhich are used in varying mixtures for manufacture of lubricants/ greases. HVI is superiorin quality than LVI and thus over the years, LVI production has been decliningcontinuously. The LVI production in 1999 constituted less than 0.50% of the total LOBSproduction compared to 12.63% in 1993-94. Pricing Of LOBS And Return To Manufacturers While lubricants and greases have been fullydecontrolled in 1993, the lube oil base stock prices are still determined by the GOI. Luberefineries are covered under the APM and are entitled to reimbursement of cost and returnon capital employed. The transfer price of feed ("Reduced Crude") to the luberefineries is the retention price of the lube feedstock of the fuel refineries. Therefining cost and return varies from refinery to refinery and is determined on the sameprinciples as applicable to fuel refinery. The retention price per mt of LOBS is thenprorated over the products using indices as per the standard product pattern. Details aregiven in the chapter on APM. The refineries sell the LOBS at the pricedetermined by OCC, which is fixed every quarter based on import parity. The refiners shallsurrender the difference between the retention price and transfer price to the OCC. Present Demand / Supply Scenario And TariffStructure The estimated consumption of LOBS excludingre-refined oils during the year 1999 is estimated to be more than 700tmt as against theactual production of 632tmt. Due to the procedure followed by OCC in fixation of transferprices for LOBS, the landed cost of imports has been cheaper than the domestic price ofLOBS. The integrated oil companies (ie IOC & HPCL) which produce LOBS are constrainedto use their own production at transfer prices, but MRL which is a pure refiner isexperiencing a lot of difficulty in marketing the LOBS. We understand that the oilcompanies are marketing LOBS, as lubricants at price, below the transfer price byforegoing a part of LOBS refining margins. Unless the lube refinery is fully de-regulated,the situation does not look all that good for LOBS manufacturers at least in the immediatefuture. Greenfield Refineries And Refining Expansions The refining capacity has increased from69mtpa as of April 1999 to 109mtpa as of December 1999. The various projectsimplemented during the year includes the 3mtpa Numaligarh refinery, 27mtpa RelaincePetroleum Ltd project at Jamnagar, MRPL's expansion by 6mtpa to 9mtpa. During the year thecompany further hiked its refining capacity from 9mtpa to 12mtpa by debottlenecking. IOC'sKoyali refinery was expanded by 3mtpa to 12mtpa and Barauni refinery from 3.3mtpa to4.2mtpa. By the end of Ninth Plan Period the capacityis expected to increase to about 129mtpa as against the estimated 110mtpa. The proposedrefineries include:
We expect all these capacities to come up by2005 while the projected demand for the same period as per Tata Research Institute wouldbe about 157mtpa. Thus contrary to the belief the refinery capacity would be lesser thanthe estimated demand. Consumption Of Petroleum Products Energy consumption is a direct function ofeconomic growth. In the last 5 years, the CAGR of consumption is about 5.9%. Theestimated product consumption for FY00 is about 97mtpa. Robust demand growth was witnessedin retail products like MS & HSD and industrial products like naphtha, thanks to theauto sector boom and increased industrial activity. Also due to price distortions arising out ofAPM and the continued increase in transportation activity, HSD continued to grow at a muchhigher rate than the other products. In fact the share of HSD as a % of total petroleumproducts consumption is around 40%. The pattern of consumption of petroleumproducts has thus undergone a significant change in the last two decades. Due to increasein consumption of LPG & HSD the volumes of light and middle distillates have grown bynearly 5 times and the sales of heavier ends has grown by less than 3 times. Theavailability of light & sweet crude and the additions to cracking capacity greatlyaided the domestic refiners to change their product pattern in line with the changes inthe consumption pattern. The consumption of petroleum products alsofollow a peculiar pattern with sales dipping during the monsoons and thereafter picking upin the last two quarters of the financial years. This is essentially true of HSD and sinceit constitutes about 40% of the total sales, the overall sales gets affected due to theseasonality.
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