India As Petroleum Products Export Hub
India has a slight surplus in petroleum refining at this time with put in capability of 126 million tones a 12 months versus the demand of 111.7 million tones a year (roughly 2.5 million barrels a day processing capacity- mbd). The surplus has been exported in final two years. Worldwide there is a large demand for the refined petroleum products, particularly the middle distillates – gasoline, jet fuel, diesel and many others. however capacity to ship the refined products has been missing behind demand. The latter came to a sharp focus with the rise of crude oil prices in final one yr (from about $ 35 a barrel to current $65 a barrel) and through the hurricanes Katrina and Rita in the US Gulf Coast. Though refining capability had not been a public problem in last 25 years in US, lack of capacity drove up the prices when the hurricanes shut down the refineries. All over the World, national economies in past 50 years have been constructed on the availability of cheap crude oil and downstream merchandise. As we speak, China and India are competing with the developed West for oil. Both of those developing economies have their again to the wall. Expensive oil is severely denting their economic growth and exports. Other growing countries suffer from a double whammy i.e. crude oil is expensive and refining capacity to refine into primary, secondary and tertiary products does not exist. China in final 20 years has gone from a net crude exporter to a web giant importer. They’ve one satisfaction i.e. they have sufficient refining capability to refine each internally and externally procured crude. India can also be very a lot in the same state. Though India’s crude demand is half of China, yet it has ample refining capability. The identical just isn’t true for the opposite Indian Ocean Littoral states natural gas prices btu (excluding the Gulf region). Pakistan suffers from perpetual shortage of petroleum products. So do different countries in the area. Main economies like Japan, South Korea and at instances China import petroleum products from the open market to relieve spot shortages. Therefore it makes sense for India to become a refining hub. Crude oil is expensive but it can proceed to be the basis of national prosperity for the subsequent 40 to 50 years. Hence this opportunity i.e. to grow to be a service provider refiner for Asia can’t be allowed to slide by. India has the infrastructure to construct and function enhanced refining capability. Additionally India’s west coast is just not far away from the principle crude oil producing centers of Persian Gulf. This is a bonus, which can scale back the transportation prices.
India has to Duplicate the US Gulf Coast Refining Hub
There are 34 refineries, which dot the US Gulf areas from Mississippi to Texas. 50% of US oil is produced and refined on this region. Pipelines carry the merchandise three thousand miles away to New York and Chicago’s industrial hub. There may be one thing learn right here. US Gulf Coast oil increase grew to become a reality with the invention of oil in Texas in thirties. Later extra oil was found in the shallows of the Gulf Coast. Hence a huge refining infrastructure was constructed around the oil found. At times, there was a refining overcapacity. Since there have been no takers for the refined merchandise in the vicinity, the Gulf region refineries operated at about eighty% of the capability. At the moment it is completely different. Demand has caught up with the provision and there’s a scarcity of refining capability. But that’s a local US challenge. Quickly will probably be redressed. For India there’s one thing to study i.e. construct an infrastructure just like the US on the Gujarat coast to refine and distribute petroleum products to the remainder of Indian Ocean states. So as to keep the prices down, use the existing or expanded maintenance and operations infrastructure. When absolutely operational it turns into an environment friendly means for uninterrupted product distribution. Already the region is a hub for refining and distribution for inner supply (Jamnagar). Geographically the coast is ideally situated on the most important crude oil transport route to the East and Pacific area. A concerted effort to develop refineries for export may go a good distance to produce the area with the worth added finished products instead of transporting crude and constructing expensive refineries in each country. There is a further advantage i.e. sea in the vicinity is deep; hence massive ships could be berthed for incoming and outgoing visitors.
What is the current Standing of Refining In India
There are 18 refineries in India working both in public and non-public sector with a complete capacity of two.5 mbd (million barrels per day). Reliance refinery at Jamnagar is the most important. As a matter of fact this refinery is the fourth largest in the world. After enlargement in four years, this refinery will course of 1.2 million Barrels a day. The smallest refinery is in Guwahati, Assam with zero.1 million barrels a day capability. Different refineries are medium sized with high price of manufacturing and are spread all over the nation to facilitate distribution. Reliance of its own isn’t a petroleum marketing organization. It provides the advertising community of Bharat Petroleum, Indian Oil, Hindustan and others. With huge capacity and concentrated effort in refining only, the company is a low value producer. Essar in Jamnagar is also in the identical place. Its refining capability shouldn’t be as huge as Reliance, however at about zero.7 million barrels a day, it is close behind. This location together with all present refineries is ample to fulfill India’s demand. A 10% surplus is exported out. In the current 12 months, statistics point out that about 0.15 mbd of petroleum products had been exported. The worth added contents of exports earn about $three to four per barrel margin. This is a major hard cash earned from the existing infrastructure. What gives India the sting is its lower crude transport cost and lower labor costs.
In 4 years, India’s demand will boost to about 3.2 mbp. The capacity at that time is predicted to be about three.6 mbd. This will allow the nation to export about 0.Four mbd of the petroleum products. It’s a significant enhance to the county’s worth added exports (diamond reducing and sharpening trade operates on the same value added construction, though at a bit higher margins).
Economics of Refining and Export
Economics of a large export oriented refinery is a complex mixture of product up-gradation, transport costs, sort of crude processed, local labor costs, capital involved, taxes and many others. The crude oil has a direct impression natural gas prices btu but its cost is handed on to the purchaser instantly. A well-run refinery generates about $ eight to $16 margin per barrel of crude processed (Singapore is the important thing instance). Indian refineries have the margin at about half the above quantity, primarily attributable to all of the above elements except the shipping costs. Downstream product mix and functionality to change between product mix at the manufacturing site is the dominant issue, which enhances or reduces the margin. Hence if export oriented refining capacity is to be built then it has to have a versatile manufacturing functionality. These days, gasoline and aviation gasoline prices have surged far ahead of others, due to supply shortage. At different instances it’s the gasoline rich products, which will be the dominant want. An export-oriented refinery has to be able to ship either of the product mix with no serious disruption.
A brown discipline refinery in around Jamnagar may price about 15% less to construct. A 1.0 mbp refinery at a brown field site in the present day will price about $ 2.5 to $3.0 Billion. That is a very massive capital investment. Indian interests alone can’t undertake it. FDI (Foreign Direct Funding) and imported know-how will play an important function. Already Authorities of India below the management of its Petroleum Minister has initiated research to research all potentialities. Surprisingly external pursuits in organising exported oriented refineries have been well developed. natural gas prices btu Shell Global and BP are the primary candidates. They might also participate financially in these ventures. For external pursuits to participate, it is crucial that India supply them incentives, tax breaks and a welcome mat.
Smaller refineries farther from coast can be expanded to meet the local demand with inside assets.
Future of this business for India
If India is to be an exporter then export oriented refineries are to be constructed instantly. Current export orders, to develop the supply chain can be met from the present refineries. But a serious effort to grow to be an exporter would require a critical rethink on the part of Authorities of India. All impediments to this business must be eliminated. A green subject refinery on Gujarat coast will value about $3 Billion. It should earn its investment back in about five years. This is an efficient return, which should curiosity a lot of traders. Hence with financing out there these massive projects ought to be on the same priority as the remainder of the infrastructure modernization in India. Moreover, India’s capital involvement will probably be low as external pursuits are financing the enlargement. India will likely be sharing the benefits, just like China where FDI has created a manufacturing export heaven.
In all GOI has planned five new refineries. Of them, Jamanagar on the west coast and Pardeep on the east coast are seemingly be export oriented. Others will provide the native demand.
Nuclear Energy as opposed to Fossil Gas
India voted for Nuclear Power at Vienna final month when it voted towards Iran at the IAEA meet. Hence the Iran – India gasoline pipeline is on a hold. It might regain life should the US Congress refuse to back President Bush in his effort to put India at par with other nuclear nations to share the nuclear know-how. The piped gas if the pipeline becomes a reality will generate power and provide thermal power to the trade and homes. Crude is still wanted to drive the other elements of the economy, which cannot use gasoline instead of petroleum products like the transportation sector or the military preparedness or the present jet travel. If India’s civilian nuclear ambitions fail then a gasoline pipeline from Iran is a sure bet A crude oil pipeline may follow the gasoline pipeline. Iran has loads of each. For exports, the crude oil pipeline could be sized to meet India’s internal in addition to external wants. The transport value of crude by pipeline shall be halved, giving Indian refiners a particular cost benefit. In any case whether or not crude arrives at the refinery by ship or by a pipeline is immaterial. It’s the requirement of the finished petroleum products within the region, which can drive the growth of this sector.
If a medium sized 1 mbd refinery is built elsewhere in the region (Gawadar in Pakistan or in Thailand), it will value about 30% extra, because these locations lack the infrastructure not only to refine crude but in addition to deliver it to the markets. Elements like these give India a definitive capital value advantage. A.T. Kearney in its report highlighted that cheap labor; simultaneous engineering and native sourcing of supplies are particular pluses for India. Places like Gawadar, though closer to the source of crude, have a particular drawback because the local consumption heart is far away in West Punjab and Karachi and for exports a much larger infrastructure is needed at location which can value billions and 10 to 12 years to build. The latter will eat up the margin rendering it to the decrease finish of profitability. In all India has one thing positive going for itself.