PET PROJECTS

Why state-run oil companies are spending billions on petchem capacity, amid oversupply and weak margins

- S DINAKAR

In the boardrooms of Indian state refiners and in the halls of the oil ministry, there is a buzz surrounding an esoteric term: The Petrochemical Intensity Index (PII). Indian oil companies plan to produce more of value-added chemicals from processing crude oil while reducing the volume of fuels, whose demand is expected to eventually extinguish as the world shifts to cleaner energy.

Until now, many of these chemicals, the building blocks of plastics and paint used in homes, hospitals, and industries came from China. India depends on imports to meet 19 per cent and 30 per cent of polypropylene and polyethylene, respectively, the basic commoditised chemicals, and 67 per cent and 81 percent on PVC and Toluene, which are valueadded substances, shows CareEdge data.

But Indian refiners plan to catch up. By 2030, these chemicals may be shipped from Panipat, Paradip, Kochi, Barmer, Dahej, or Nagapattinam.

Hindustan Petroleum's new 180,000 barrels per day Barmer refinery has a PII of above 20 per cent, the highest among state refiners, former company chairman Mk Surana has said.

Fears of attrition in the fuels business and robust demand for chemicals have prompted refiners to add petchem units as a form of insurance, state-run refining officials tell Business Standard, despite concerns about oversupply.

The energy transition will reduce demand for oil products, but increase opportunities to capture the growing demand for petchem, McKinsey says.

Refiners will need to find ways to make much less gasoline, marginally less diesel, and more jet fuel and petchem feedstocks, the US-based management consultant has said. Petchem is expected to be the most important driver of global oil demand growth over the medium term, says Paris-based International Energy Agency.