India's IndianOil Pens Growth Roadmap With Energy Game Changers In Mind
New Delhi 08-Nov-2017
Mr.Sanjiv Singh,Chairman,IndianOil
Striking a balance between meeting India's fast growing demand for oil products and preparing for potential game changers in the long term is the biggest priority for Sanjiv Singh, the chairman of state-run Indian Oil Corp., as he crafts out a roadmap for the country's biggest oil company.
""If you look at the next five years, we are very confident about the potential for oil demand growth. But probably we cannot rely on similar levels of growth for subsequent years. It is extremely important for the company to prepare itself for changing demand patterns in the future,"" Singh told S&P Global Platts in a wide-ranging interview.
While the state-run company will be aggressively pushing refining and petrochemicals growth over the next few years, boosting investment in gas infrastructure in an effort to play a bigger role in clean fuels is also going to be a key priority, Singh added.
We are preparing not only our existing refineries, but whatever new projects we are building, we are building in capability to have a lot of flexibility in order to meet the challenges of the future,"" he said.
""Tomorrow, if there is penetration of electric vehicles and our demand pattern changes, refineries should have the capability of converting gasoline into something else. We are also very aggressively building capacity for petrochemicals so that if and when swings in demand patterns happen, we should have the flexibility to adjust to those changes quickly and profitably,"" he added.
OIL DEMAND GROWTH
India posted the highest growth in demand for oil products in 13 months in September at 9.9% as the effects of some key economic reforms started to fade, while an uptick in manufacturing and robust auto sales boosted consumption of industrial and transport fuels.
The year-on-year oil demand growth was the highest since August 2016. Oil demand growth had been moderate after November 2016, when New Delhi demonetized 80% of its currency to curb illegal cash transactions.
""Today, LPG penetration is close to 77 %, and after a couple of years, we should be very close to a saturated market. In the next 2-3 years, I am very confident LPG will see double-digit growth,"" Singh added.
He added that gasoline would also continue to see robust demand growth in the near to medium term.
""There is a push to EVs in many other countries. But in the real sense India has yet to come up to those levels. In India, a bulk of the gasoline consumption goes into two-wheelers -- 80% of our total vehicle population are two-wheelers. Therefore, the Indian market is fairly different from others. We are seeing continuous growth in gasoline demand,"" Singh added.
Commenting on the near-term outlook for diesel demand, Singh said he expected consumption to bounce back in the October-December quarter, compared with the previous quarter, as the monsoon season had ended.
""As far as jet fuel is concerned, we are seeing consistent growth in demand in India and there is no reason why it should not continue to grow at similar levels,"" he added.
FEEDSTOCK, REFINERIES
IndianOil has set a capital expenditure target of about $28 billion over the next five to seven years, Singh said.
IndianOil was the first Indian state-run company to seal a deal for US crude this year. It received its maiden US crude cargo of 1.6 million barrels at Paradip port on the east coast in October. The arrival of the US crude marked the first cargo of a total contracted volume of around 8 million barrels by Indian state-owned refiners this year.
""We have not only received the first cargo, we have also processed it and our refinery faced no issues,"" Singh said. ""We have widened the basket of US crudes that are acceptable to our refineries.""
He said that IndianOil had clearance from the government to aim for more US spot crude cargoes, but purchases would depend on competitive offers. ""It's too early to talk about term contracts, but there is no reason why we can't explore this option. We have term contracts with South American suppliers.""
Commenting on refinery expansion plans, Singh said IndianOil would be adding about 25 million mt of brownfield expansion in the next five to six years.
He added that Stage 1 expansion of the Barauni refinery from the current 6 million mt/year to 9 million mt/year had been approved.
""We are not only expanding the refinery, we are also making it fairly modern. Today Barauni operates three crude units for 6 million mt/year. We will be demolishing all three units and build a single 9 million mt/year unit,"" Singh said.
The Stage 1 expansion of Gujarat refinery to 18 million mt/year from 13.7 million mt/year had already been approved. Gujarat has five crude units. IndianOil will demolish four and build one in place of it. ""In Barauni and Gujarat we are also building petrochemical facilities.""
Commenting on IndianOil's downstream strategy, Singh said the company was keeping an eye for assets across the globe.
GAS STRATEGY
Singh said IOC was keen to play a much bigger role in gas as it prepares for its growth strategy for the future.
""Our LNG terminal in Ennore should be functional next year. We are also taking a stake in the eastern port at Dhamra. We are similarly looking at equity opportunity at Mundra. So we will be strategically placed -- as far as LNG import capability is concerned -- in three sides of the country,"" he added.
Singh also said that the government's push towards boosting domestic production as well as raising the share of gas in its energy consumption basket to 15% from the current 6.5% would also open up opportunities.
""Today, we are looking at gas as a fuel, tomorrow gas might be predominantly a feedstock -- gas is something which provides us tremendous opportunity. With increased presence in the gas market, utilizing reasonable opportunities in the upstream sector, and with a lot of flexibility in the downstream sector, we will be conveniently placed in the years to come,"" Singh said.
In addition, IndianOil is also exploring ways to join hands with established players in neighboring countries to explore business opportunities that could benefit both sides -- such as LPG storage, infrastructure facilities to distribute petroleum products, as well as transport facilities, Singh added.
""We have opened an office in Singapore which is predominantly for crude and products trading. We don't mind expanding it further. We should be soon opening offices in Myanmar and Bangladesh. For Nepal, we are layinga products pipeline,"" Singh said.
Singh said that IOC was heavily investing in new technology.
""We are working in some new areas -- new forms of energy which we think might be game changers in the years to come. We feel that tomorrow's business will be driven by technology. We may or may not be aware of those solutions today. We have made some advances and I think we should be able to move with the time, which is extremely important.""
