Capacity additions in oil & gas refineries needed
Latest analysis from Frost & Sullivan, Strategic Analysis of Oil and Gas Sector in India, finds that the output of the Indian oil and gas sector was 184.3 million tonnes oil equivalent in 2008 and expects this to reach 339.6 million tonnes oil equivalent in 2015. “To meet this considerable demand, the oil and gas sector is expanding its refining capacity to drive output and export of petroleum products,” said Frost & Sullivan industry analyst Siddhartha Saha. “However, this is likely to widen the gap between domestic demand and supply of crude oil," he added.
A substantial increase in the domestic supply of natural gas and reduced prices of liquefied natural gas (LNG) are likely to encourage gas consumption in power, fertilizer, city gas distribution, and other industrial segments. Owing to the rising consumption of oil and gas, the Government has framed favourable policies to promote exploration and production. This move has caused a quantum leap in domestic natural gas supply. Government policies have also supported the growth of export-oriented refining capacity in the country.
Natural and technological limitations in enhancing global oil production are likely to restrain supply from keeping pace with the demand. This, in turn, could lead to a continued increase in the base-level prices of crude oil. “In India, the pricing of petroleum products and natural gas continues to be regulated by the government,” observed Saha.
The oil and gas sector will have to strategize to deal with volatile prices on the supply side and government-regulated product prices in the coming years. With margins under pressure, Indian refiners have begun to integrate with value-added products such as petrochemicals and invest in methods to improve distillate yields. Moreover, in response to the regulated product prices in the domestic market, the private sector refiners have moved to sell major shares of their products in the export market.
“As crude prices have increased, the spotlight is on widening the gross refining margins by up-grading heavy gas oils and vacuum residue to fuel products. To gain additional revenue, Indian refineries are also integrating horizontally to venture into the production of more value-added products," noted Saha.