India’s Petrochem Industry Seeks 15% Growth as Reliance Takes 70% of Sector

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Researched by Industrial Info Resources (Sugar Land, Texas)--According to a study by Tata Strategic Management Group (TSMG) on the outlook of India’s organic chemicals and petrochemical industry, the sector is poised for a growth of 12% to 15% over the next five to seven years, which is a quantum increase from the current rate of 3% to 4%. The study states that this growth rate over the period would translate into investments of $12 billion to $15 billion.

At current price levels, downstream petrochemical industry production is expected to increase from the current $15 billion to $18 billion to $30 billion to $35 billion over the upcoming five to seven year period.

The country’s refining capacity is expected to increase from 135 million tons per annum (mtpa) (about 2.8 million barrels per day) in 2006-07 to 210 to 225 mtpa (about 4.6 million barrels per day) by 2011-12 according to Petroleum Ministry estimates. This expansion would create an export surplus of refined products of between 78 to 93 mtpa by 2011.The refinery sector has been India’s top performing product exporter of products worth $11.3 billion in the period of April to October 2006.

Reliance Industries (NYSE:RLNIY) (Bombay, India) is the leader in refining capacity and will complete its second 29 mtpa (600,000 barrels per day-bpd) refinery in 2008-09. This will mean that the company has added 62 mtpa (about 1.2 million bpd) of capacity in a decade. This increased volume is comparable to the entire capacity of the regional refining hub in Singapore with a refining capacity of 67 mtpa. Essar’s new refinery will add 10.5 mtpa (220,000 bpd), and the public sector’s Greenfield projects could add another 35 to 50 mtpa (up to 1 million bpd). The study estimates that this 60% growth could lead to the availability of 8 to 10 mtpa of naphtha by 2011.

During the same period, the power and fertilizer industries will reduce naphtha use by 2.5 mtpa, increasing availability of this basic chemical feed in the country to 12.5 mtpa. Taking the opportunity from the naphtha availability, major petroleum players, such as Reliance, ONGC and Hindustan Petroleum, have already announced downstream expansions in naphtha crackers.

In this petrochemical industry scenario, the olefinic base chemical capacity is expected to increase from 4.5 mtpa to 8-10 mtpa. The aromatic base chemical capacity is expected to increase from 3.2 mtpa to 5-6 mtpa over the next five to six years.

Vertical integration of these base chemical capacities would lead the capacity in fiber intermediates and basic petrochemical end products nearly doubling. The TSMG study predicts that in the five-to-six-year period, India’s petrochemical sector could become a regional production hub. This development would translate into the availability of base petrochemical products for further processing in numerous customer applications, with availability of building blocks like olefins and aromatics for other organic chemicals at globally competitive costs.

Outside the terms of reference of the TSMG study, these major expansions will also enhance the profile in the market of the major corporate players. This can be witnessed by the fact that this month, Reliance completed the acquisition of Indian Petrochemicals Corporation Limited (IPCL) after a share swap and court approval. The merger gives Reliance almost 70% market share in India’s petrochemicals market. For more information, view August 18,2006, news article – India’s Reliance Fast Tracks $6.1 Billion Refinery to Edge High Margin Competition and September 1, 2006, news article – India Looking for $17 Billion Investment in Refining and Petrochemicals

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