Refining-And-Marketing-In-India
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Refining and Marketing in India October 28th, 2020 I Industry Research Overview Contact: The Indian Refining and Marketing industry which is the downstream Madan Sabnavis segment of the entire oil and gas chain consist of 3 kinds of players Chief Economist [email protected] namely: 91-022- 6837 4433 - Pure Refining companies consist of those companies which are Author engaged only in refining. There are very few companies which are only Urvisha H Jagasheth Research Analyst into refining. In India, PSU oil companies have acquired pure play [email protected] refiners. Eg: Chennai Petroleum Corporation Limited (CPCL) has been 91-022- 6837 4410 acquired by IOCL, Mangalore Refinery and Petrochemicals Ltd. (MRPL) Mradul Mishra (Media Contact) by ONGC and Numaligarh Refineries Ltd. (NRL) by BPCL. [email protected] 91-22-6754 3573 - Integrated Refining and Marketing companies are engaged in both refining and marketing of petroleum products in the country. Major Inputs Nitesh Ranjan integrated companies are PSU oil companies like Indian Oil Corporation Senior Manager Ltd. (IOCL), Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd. (HPCL) and private companies like Reliance Industries Ltd. and Nayara Energy Ltd. - Pure Marketing companies are solely into marketing of petroleum products. Shell is the only company in this space in India Chart 1: Trifurcation of the Indian Refining and Marketing Industry Chennai Petroleum Corp. Ltd Pure refining companies Mangalore Refinery & Petrochemicals Ltd Bharat Petroleum Corp Ltd Hindustan Disclaimer: This report is prepared by CARE Ratings Ltd. Petroleum Corp Ltd Indian Refining and Refining and CARE Ratings has taken utmost care to ensure accuracy and Marketing Industry Marketing objectivity while developing this report based on companies information available in public domain. However, neither Indian Oil Crop Ltd the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis/inferences/views or Reliance Industries for results obtained from the use of information contained Ltd in this report and especially states that CARE Ratings has no financial liability whatsoever to the user of this report Pure Marketing Shell Companies Source: CARE Ratings Industry Research I OIL & GAS INDUSTRY Refining Total Refinery Capacity and Utilization Chart 2: Capacity of Domestic Refineries (Unit: Million Tonnes) Chart 3: Demarcation of domestic Refinery ownership 248 249 250 230 234 106 107 107 95 95 Total JVC/PVT 43% Total PSU* 135 139 142 142 143 57% 1.04.2016 1.04.2017 1.04.2018 1.04.2019 1.04.2020 Total PSU Total JVC/PVT Source: PPAC *includes BPCL as well as it is not divested/privatised yet Table 1: Demarcation of Refinery Capacity Utilization Total PSU Total JVC/PVT Total Capacity Utilization 2015-16 94% 111% 101% 2016-17 99% 114% 105% 2017-18 102% 101% 102% 2018-19 106% 99% 103% 2019-20(P) 102% 102% 102% Source: PPAC, CARE Ratings Note: JVC refineries are HMEL and BORL-Bina refineries India ranks 4th in terms of refinery capacity present in the world after the United States, China and Russia and is also home to the world’s largest refinery. Overall addition in capacity of domestic refiners has grown at a CAGR of 2.1% during FY16- 20, whilst the addition in capacity of PSU refiners and Joint Venture/Private refiners has grown at a CAGR of 1.4% and 3.1%. Refinery capacity as of 1.08.2020 has been 249.8 MMT (5.02 million barrels/day of crude oil can be processed), which encompasses 18 refineries in the public sector, 2 refineries established under a joint ventures and 3 private sector refineries. Overall utilization has always been more than the nameplate capacity and refiners have been able to achieve more than 100% capacity utilization in the past 5 years. Refinery throughput has increased at a CAGR of 2.2% during FY16-20. Indian refiners are equipped with the necessary CAPEX to efficiently process high sulphur crude and low sulphur crude and in the last 5 years percentage share of high sulphur crude in total crude oil processing has increased from 71.3% during FY16 to 75.5% during FY20. 2 Industry Research I OIL & GAS INDUSTRY Demand-Supply of Refinery/Petro Products A barrel of crude, when cracked chemically, produces an entire range of fractionates like petrol, diesel, LPG and furnace oil, each having different applications. Indian refineries produce Motor Spirit (MS), High Speed Diesel (HSD), Liquefied Petroleum Gas (LPG), Superior Kerosene Oil (SKO), Air Turbine Fuel (ATF), Light Diesel Oil (LDO), Furnace Oil (FO) and Low Sulphur Heavy Stock (LSHS). Table 2: List of petro-products manufactured by the Indian Refineries and its end-use application Chart 4: Percentage share of Petroleum Products manufactured by Indian Refiners during 2019-20 Product End-use Application LPG Naphtha MS Transport fuel 5% 8% Bitumen HSD Transport fuel & Industrial fuel 2% Others* LPG Domestic and Industrial fuel 18% FO MS SKO Domestic fuel 3% 15% ATF Aviation fuel ATF Petroleum Coke Fuel for power plants and cement plants 6% Naphtha Feedstock for petrochemicals & fertilizers HSD 42% SKO LDO Industrial Fuel 1% Lubes Lubrication for Automotive and Industrial Application FO Industrial Fuel Others (in the pie chart) include products like LDO, LSHS, LSHS Industrial Fuel Lubes and Greases, Propylene, solvents (Hexane, Benzene, Bitumen Surfacing of Roads Toluene, Xylene and Specialty solvents), Reformate, Mineral Turpentine Oil, Carbon Black Feed Stock, Waxes, Sulphur and petcoke etc Source: PPAC, CARE Ratings Transportation fuels (diesel- 42% and petrol- 15%) account for 57% of the total refinery products produced by the Indian refineries followed by Naphtha (8%) which is used as a feedstock in fertilizer and petrochemical industries. ATF is used to fuel airplanes. LPG (5%) is mainly used a cooking fuel in the domestic economy. Chart 5: Production, Consumption, Exports and Imports of all refinery products (Unit: million tonnes) 254 262 263 244 66 67 66 232 61 61 206 213 214 195 185 43 36 35 33 29 2015-16 2016-17 2017-18 2018-19 2019-20(P) 2015-16 2016-17 2017-18 2018-19 2019-20(P) Production Consumption Export Import Source: PPAC 3 Industry Research I OIL & GAS INDUSTRY Production of refinery products has grown at a CAGR of 3.2% during FY16-20 whilst consumption of refinery products has grown at a CAGR of 3.7%. Increase in the refining activities can be attributed to the increase in energy requirements of the domestic economy given the burgeoning population. India has emerged as one of the key global drivers for refined fuels consumption as its economic expansion over the years coupled with rising industrial activity has paved way for infrastructure improvements and better access of energy for commercial and retail consumers. Given the surplus production of certain refined fuels, India is a net exporter of refinery products and our main export destinations are Singapore, United Arab Emirates, Netherland, Malaysia, United States, Israel and Nepal. Exports have grown at a CAGR of 2.1% during FY16-20 while imports have grown at a CAGR of 10.1%. India mainly exports petrol, diesel, naphtha, air turbine fuel and fuel oil. On the other hand we import LPG, bitumen and LOBS/Lube oil. • High Speed Diesel (HSD) Diesel oil is a complex mixture of hydro carbons. It is a brown coloured oily liquid with pungent smell. HSD is normally used as a fuel in medium and high speed compression ignition engines (operating above 750 rpm) in commercial vehicles, stationary diesel engines, locomotives and pumps etc. Automotive diesel fuel serves to power trains, buses, trucks, and automobiles, to run construction, petroleum drilling and other off-road equipment and to be the prime mover in a wide range of power generation & pumping applications and is the most widely used petroleum product. Chart 6: Production, Consumption, Exports and Imports of High Speed Diesel (Unit: million tonnes) 108 111 111 31.6 99 102 29.7 27.3 27.8 81 84 83 24.0 75 76 2.8 1.4 0.2 1.0 0.6 2015-16 2016-17 2017-18 2018-19 2019-20(P) 2015-16 2016-17 2017-18 2018-19 2019-20(P) Production Consumption Export Import Source: PPAC Production of diesel has grown at a CAGR of 3% during FY16-20 whilst its consumption has grown at a CAGR of 2.6%. Exports of HSD have grown at a CAGR of 7.1% in the same aforementioned time period. Most of diesel is produced and sold by Indian state refiners while Private refiners too produce diesel, but most of that is exported. India usually imports diesel due to specific product requirements but during FY20, India’s diesel imports increased by 400% as its refineries were gearing up for new emission rules (BS VI fuel) that were to take effect in April 2020 onwards. Most of the imports were of ultralow-sulfur grades that can comply with the Bharat Stage VI standards. 4 Industry Research I OIL & GAS INDUSTRY Factors which affect HSD demand Diesel is mainly used in the road transport, agriculture, industry and power, generation sectors. The transport sector accounts for 70% (both direct and retail sales) consumption of diesel at all India level. Given the diversity of its usage diesel sales/consumption is often considered as a barometer to judge the economic health of the nation. Other than refuelling of vehicles several other factors also account for increase or decrease of diesel consumption. Chart 7: End-use analysis of HSD sales Others (Including 3 - Wheelers private imports) 6% 6% Mobile towers Private vehicles 2% 13% Truck Power generation 28% 4% Transport, 70 Industrial application LCV Agriculture 5% 9% 13% Others (Shipping & Buses/STU Aviation) 10% Railways 1% 3% Source: PPAC, CARE Ratings * Figures include consumption through retail & direct imports Commercial Vehicle (CV) sales: Commercial vehicles (M&HCV and LCV) account for 3-4% of the overall automobile sales however contribute ~70% of the total transport consumption.