Indian Oil Corporation to Invest $832 Million to Expand Pipeline Network

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Researched by Industrial Info Resources (Sugar Land, Texas)--Indian Oil Corporation Limited (BSE:530965) (IOC) (Mumbai) plans to invest more than $832 million in the next two years to set up pipelines in an attempt to reduce costs incurred from the transportation of products by rail and road. Pipeline transportation saves an estimated 70% when compared to railway-freight costs. The proposed investment would be in addition to projects worth $832 million that are currently being implemented by IOC.

About $375 million would be invested in debottlenecking the 1,870-kilometer Salaya-Mathura crude-oil pipeline. Salaya is located near Vadinar in the Jamnagar district of Gujarat. IOC operates two single-point mooring (SPM) systems in Vadinar to unload crude oil received from very large crude carriers and other tankers. Crude oil is stored at the firm's vast tank farm in Vadinar, which comprises 13 tanks with a total storage capacity of 773,000 tons. The Salaya-Mathura pipeline transports crude oil from the tank farm to IOC's refineries in Koyali in Gujarat, Mathura in Uttar Pradesh, and Panipat in Haryana. After traversing a distance of 435 kilometers from Vadinar, the pipeline branches off at Viramgam in Gujarat to a 148-kilometer pipeline to Koyali in Baroda, Gujarat. From there, the pipeline traverses a distance of 716 kilometers and branches off at Chaksu in Jaipur, Rajasthan, to Mathura and Panipat.

IOC will also make investments to increase the lifespan of the company's three refineries at Koyali, Mathura and Panipat. The Koyali refinery has a capacity of 13.7 million tons per year, and was commissioned in 1965-66 with an initial capacity of 3 million tons per year. The 8 million-ton-per-year Mathura refinery was commissioned in 1982 as the firm's sixth refinery and had an initial capacity of 6 million tons per year. The 12 million-ton-per-year Panipat refinery was commissioned in 1998 as the firm's seventh refinery and had an initial capacity of 6 million tons per year.

IOC is currently developing a naphtha cracker and polymer complex in Panipat, based on captive utilization of naphtha produced from the Koyali, Mathura and Panipat refineries. The project is estimated to cost $3 billion and is scheduled for completion in February 2010. As part of this project, the firm intends to develop a pipeline network to transport naphtha from Koyali and Mathura to Panipat. This includes the 118-kilometer Bijwasan-Panipat pipeline to transport naphtha from Mathura to Panipat. The project entails an investment of $13.55 million.

IOC will also develop the pipeline network to accommodate transportation of crude oil from the prolific fields in Rajasthan, owned and operated by Cairn India Limited (BSE:532792) (Gurgaon, Haryana) and Oil & Natural Gas Corporation Limited (BSE:500312) (Dehradun, Uttarakhand). The project involves the provision of isolating valves, online viscous meters, mass flow meters, and heat tracing of above-ground and recycle lines at Viramgam and Radhanpur in Gujarat. Heat tracing of above-ground lines will also be carried out at Koyali and Sidhpur in Gujarat; Abu Road, Kota, Beawar and Sanganer in Rajasthan; and Rewari and Panipat in Haryana. Recycle lines will be provided at all these locations except Koyali and Panipat. The project is estimated to cost $6.25 million.

IOC, Hindustan Petroleum Corporation Limited (BSE:500104) (Mumbai), and Mangalore Refinery & Petrochemicals Limited (BSE:500109) (Mangalore, Karnataka) are the three public sector refining firms nominated by the Indian government to procure 3 million tons per year of crude from the initial output of the fields. IOC will procure 200,000 tons of crude oil during the initial period up to March 2010, and 1.5 million tons to March 2011.

IOC is considering significant investments in developing a pipeline network for the transportation of liquefied petroleum gas (LPG) across the country. The firm's 275-kilometer cross-country LPG pipeline, connecting Panipat to Jalandhar in Punjab, transports 700,000 tons of LPG from Kohand near the refinery in Panipat to the firm's bottling plants in Nabha and Jalandhar in Punjab. The pipeline will also address the demand for LPG at Baddi and Una in Himachal Pradesh, and Jammu and Leh in the state of Jammu and Kashmir.

IOC plans to develop the 700-kilometer Paradip-Haldia-Durgapur LPG pipeline, connecting the bottling plants at Balasore in Orissa with those in Budge Budge, Durgapur and Kalyani in West Bengal. The pipeline will transport LPG produced at the firm's refineries at Paradip in Orissa and Haldia in West Bengal, as well as LPG imported at the Haldia port. The cost of the project is estimated at $290 million to $310 million.

IOC has also commenced work on setting up SPM systems and offshore pipelines to import 17 million tons per year of crude oil for the upcoming 15 million-ton-per-year refinery in Paradip. The firm is planning to set up a pipeline to transport petroleum products from the Paradip refinery via New Sambalpur in Orissa and Raipur in Chhattisgarh to Ranchi in Jharkhand. The project is estimated to cost $229 million.

IOC had planned to make capital investments of about $9 billion during the ongoing Eleventh Five-Year Plan period, 2007-12. However, the firm has had to revise capital expenditure plans by about 22% to $11 billion because of foreign exchange variation and an increase in project costs because of a rise in the prices of machinery and equipment. Ongoing projects accounted for an increase of 14.5%, while new projects accounted for the additional increase of 7.5% in capital expenditure.

Of the total outlay of $11 billion, IOC is investing $7.75 billion in the company's refining and marketing segment, $2.91 billion in petrochemical projects, and $370 million in exploration and production ventures. The firm is reported to have achieved 43.5% of project targets for 2007-12, as of July 30. IOC plans to commission projects worth $6.25 billion during the current fiscal year.

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