Govt focus on fuel demand, refining capacity needs

The government has begun a reassessment of the country’s future oil demand and refining capacity requirements as domestic consumption soars, planned refineries are delayed, and predictions of a quick end to the oil age falter, according to officials.The petroleum planning and analysis cell of the oil ministry has been asked to prepare a fresh report on the future fuel demand and refining capacity needs, according to an official who didn’t want to be identified.”In the early days of Covid or before that everyone seemed to believe that oil demand would quickly drop and give way to alternatives,” the person said. “But that doesn’t seem to be the case. So, we need to have the capacity to meet the demand that’s expected to grow for years to come.”

The International Energy Agency expects global oil demand to surpass pre-Covid levels next year.Domestic petrol and diesel demand have grown 23.4 per cent and 17.5 per cent, respectively, in the four months to July over the year earlier. The demand is 11 per cent higher than the pre-Covid level for petrol and 2 per cent lower for diesel. Overall demand for all refined products has risen 14 per cent year-on-year in the April-July period. India is a net exporter of fuel but strong local demand has pushed up imports and reduced exports.

Officials are of the view that the country didn’t face a supply shortage due to its large refining capacity at a time when robust demand and limited refining capacity in international markets had driven fuel prices to record levels. Greater control of refining capacity by state-run companies also helped keep prices from skyrocketing in the domestic market, said the person cited above. Domestic refineries have been running above their nameplate capacity for months to meet strong local and overseas demand. The current capacity of 251 million tonnes per annum, or 5 million barrels per day, will have to expand to meet future demand.

Refining CapacityThere is a need to add refining capacity in the eastern part of the country for a fair and efficient distribution of supplies, the official said. Refinery expansion has remained behind schedule and is unlikely to meet previous projections by the ministry, according to industry executives. An oil ministry report in 2018 had projected the country’s refining capacity at 259 million tonnes by 2020 and 415 million tonnes by 2025.Covid has delayed a greenfield refinery being set up by Hindustan Petroleum Corp. Ltd (HPCL) at Barmer in Rajasthan while the inability to secure land has left the prospects of a proposed 60 million tonne-a-year refinery project on the western coast uncertain. The larger issue, however, is the doubt over the longevity of oil demand.”Because of the green wave, globally, most people have been unsure whether to build a refinery or not. Nobody wants to be left with a stranded asset,” the official said. “But given the strong domestic demand, India must rapidly add capacity.”India has the fourth-largest refining capacity in the world, behind the US, China and Russia.

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