India's IOC to Invest $224 Million in Panipat Capacity Expansion

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Researched by Industrial Info Resources (Sugar Land, Texas)--India's state-owned pipeline owner and operator Indian Oil Corporation Limited (BSE:530965) (IOC) (Mumbai) is planning to invest $224 million in the expansion of the company's refinery at Panipat, in the northern state of Haryana.

The refinery's capacity will increase 25% to 300,000 barrels per day (BBL/d) when the new capacity is commissioned in October this year. Current capacity is 250,000 BBL/d.

IOC, which is the largest oil marketing company in India, currently boasts an oil refining capacity of more than 1 million BBL/d. Once the Panipat expansion is complete, IOC's total refining capacity will climb to nearly 1.1 million BBL/d. IOC's current installed capacity from the company's 10 refineries stands at almost 1.25 million BBL/d.

IOC Chairman B.M. Bansal told local media that most modifications at the plant were complete and that a planned plant shutdown would be executed in August to increase the plant's capacity from 257,000 BBL/d to 321,000 BBL/d. B.N. Bankapur, chief of IOC's refineries, confirmed this, adding that the shutdown would probably take place in the second half of August. "The shutdown period will last for one and a half months at the crude distillation unit and the coker plant," Bansal said at an event hosted by IOC at Panipat. During this period, the refinery will shut down operations of its 120,000-BBL/d crude distillation unit, a hydrocracker unit and a delayed coker unit for about 45 days.

At the event, Bansal officially commissioned the first batch of polymers produced at the recently inaugurated naphtha cracker plant. This was a historic moment for IOC, marking the company's entry into the polymer-manufacturing sector, which has been hitherto monopolized by petrochemical, refinery and oil & gas giant Reliance Industries Limited (BSE:500325) (RIL) (Mumbai). RIL, which services 75% to 80% of India's 6 million-ton-per-year, $7 billion polymer market, happens to be the largest player in the domestic refinery sector.

Until now, IOC has restricted itself to the production of relatively negligible volumes of polymers, but after its polymer unit is ramped and revamped in the next few months, IOC's polymer production will be hiked to 1.6 million tons per year.

The greenfield naphtha cracker unit, set up at an estimated cost of $3.2 billion, is India's largest such operating facility. In order to feed its naphtha cracker unit, IOC plans to source nearly between 2 million and 2.4 million tons per year of naphtha from its captive refineries in Panipat, Koyali in the western state of Gujarat, and Mathura in the northern state of Uttar Pradesh, reducing its naphtha exports by nearly two-thirds. In the last fiscal year ended March 31, 2010, IOC's naphtha exports amounted to nearly 2.5 million tons.

The naphtha cracker facility also includes units for the manufacture of ethylene, propylene, benzene and other related products, all of which are used in the production of films, tanks, pipes and automotive parts.

IOC has been attempting to enter the petrochemicals sector from its traditional liquid fuel market. Unfortunately, IOC's profit margins are always compromised because most of the company's products, including diesel, kerosene and liquefied petroleum gas are subsidized at uncompetitive rates that are pre-determined by the Indian government.

Although IOC wishes to continue its expansions in the petrochemical sector, Bansal believes that a lack of finances and 'visibility over revenues' is currently pouring cold water on the enthusiasm and urgency to expand capacities. He added that the company is in possession of $4 billion in Government of India bonds and is struggling with debts of almost $11 billion.

With an installed refining capacity of about 3.8 million BBL/d from 19 refineries, India has emerged as one of the largest and most important oil refining centers in Asia. The country currently exports $25 billion worth of petroleum products every year and aims to breach a refining capacity of 256 million tons per year by the end of 2012.

India's demand for fuel and oil is expected to grow at a rate of 6% in the coming year, Petroleum Secretary R.S. Pandey told reporters in 2009. Meanwhile, the automotive sector, which is the driving factor for fuel consumption, ranks 10th globally, with a yearly production of 2 million vehicles of the world's 73 million produced globally.

According to a report by the Asia Economic Institute (Los Angeles, California), India's automotive market is set to rise to a leading global position by 2020. However, some industry analysts believe that the new capacity additions planned to be implemented by 2012 will be accompanied by a growing mismatch in demand and supply of vehicles, with demand growing at the relatively slow rate of 10% to 12% each year.

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