India's HPCL to Revive 300,000-Barrel-per-Day Refinery in Andhra Pradesh

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Researched by Industrial Info Resources (Sugar Land, Texas)--State-controlled oil-refining major Hindustan Petroleum Corporation Limited (BSE:500104) (HPCL) (Mumbai) has decided to proceed with a stalled 300,000-barrel-per-day (BBL/d) refining and petrochemicals complex at Visakhapatnam, in Andhra Pradesh. The project will be in the Petroleum Chemicals and Petrochemicals Investment Region (PCPIR).

In 2007, HPCL, in association with Total S.A. (NYSE:TOT) (Paris, France), Oil India Limited (BSE:533106) (Noida, Uttar Pradesh), Mittal Energy Investment Pty Limited (Singapore, Singapore) and GAIL (India) Limited (BSE:532155) (New Delhi), planned the refinery and petrochemicals project in Visakhapatnam with a proposed investment of $10 billion. However, the project was deferred after the global economic slowdown led to a sharp decline in consumption of petroleum products. Later, HPCL decided to stall the project after Mittal Energy and Total opted out of the project. The Visakhapatnam project is one among several projects that were deferred due to the global financial meltdown. In 2009, Indian Oil Corporation Limited (BSE:530965) (IOC) (Mumbai) decided to delay construction of its proposed 15 million-ton-per-year refinery at Paradip in Orissa, due to huge cost escalations.

According to B. Mukherjee, the chief financial officer of HPCL, the company will revive the Visakhapatnam project and proceed with re-examination of the techno-economic feasibility of the refinery complex. HPCL will finalize investment, funding options and employment opportunities in consultation with other partners after receiving regulatory approvals and clearances. Earlier, the company had planned this refinery as an "only for export" unit that would cater to customers in the Middle East and Southeast Asia. About 2,500 acres of land has been acquired near HPCL's existing facility at Vishakapatnam.

HPCL currently operates an 8.3 million-ton-per-year refinery at Visakhapatnam and a 6.5 million-ton-per-year refining complex at Mumbai. In a related development, HPCL has announced an investment of $3.3 billion on a 190,000- to 320,000-BBL/d refinery in the Lote Parshuram area, in Maharashtra's coastal district of Ratnagiri. The company plans to double the capacity of the refinery in the future. Construction is likely to be completed within 48 months after receiving necessary clearances. The project in Lote Parshuram was planned after space constraints deterred capacity expansion at the Mumbai refinery. HPCL is also building a 190,000-BBL/d refinery at Bhatinda in Punjab, in association with Mittal Energy Investments Pte Limited. The project includes a 1,014-kilometer pipeline network from Mundra in Gujarat to Bhatinda.

For related news, see September 23, 2010, article - HPCL Closing in on Project Site for Proposed Greenfield Refinery in Maharashtra.

HPCL's expansion projects come at a time when Indian refiners have planned to add 1.5 million BBL/d of refining capacity in the next two years. After catering to domestic consumption, the expansion is likely to create a surplus of 2.1 million BBL/d. Presently, India produces 185 million tons of petroleum products for a demand of about 140 million tons. By 2012, the country's refining capacity is expected to reach 5.46 billion BBL/d. While there has been skepticism over the capacity expansion, industry experts are optimistic that the surplus production could place India in an advantageous position. In the last few years, countries in Western Europe have not performed capacity augmentation of refineries. In 2010, although demand in Western Europe is forecast to contract 2.41%, demand for fuel in the U.S. is expected to grow 0.8%, and in 2011, demand for petroleum products in the U.S. is likely to grow 0.7%.

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