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Indian Oil Corp betting on plastics to cushion fuel shocks

Bloomberg September 24 | Updated on September 24, 2020 Published on September 24, 2020

Ahmedabad, Gujarat, 09/09/2018: A worker fill Petrol and Diesel at Indian Oil Corporation Petrol Pump in Ahmedabad on September 09, 2018. Photo : Vijay Soneji.   -  THE HINDU

The company plans to double the amount of crude processed at its refineries to make petrochemicals

India’s biggest oil refiner is betting on plastics as it seeks to diversify from an increasingly challenging fuels business.

Indian Oil Corporation plans to add petrochemical plants to all of its future refinery expansions and boost existing output at its current facilities, Chairman Shrikant Madhav Vaidya said. Overall, less than 10 per cent of the crude processed by the refiner is used to make petrochemicals — the building blocks for everything from food packaging to car parts — but the business contributes almost a quarter of the company’s profits, he added.

While there is consumer and government pressure across the world to reduce the use of plastics, processors in Asia are building or planning petrochemical plants, with demand for transport fuels set to ease in the years ahead. Indian Oil this week finalised a $2.4-billion expansion at its Gujarat refinery to include a polypropylene unit, which can make products for packaging and textiles.

“We realised that the volatility of the fuel market can be easily controlled by having a good footprint in the petrochemicals sector,” Vaidya said in an interview. “Petroleum fuels continue to be my main business as far as turnover is concerned, but profitability I intend to get from petrochemicals.”

Indian Oil, which operates nine refineries, saw its profit tumble more than 90 per cent in the year ended March 31 as volatility in oil and product prices led to narrow or negative margins. Overall, the company plans to double the amount of crude processed at its refineries to make petrochemicals. At major plants Panipat, Paradip and Gujarat, the proportion of oil processed to produce petrochemicals is expected to climb to 25 per cent, from 15-20 per cent currently, Vaidya said.

Vaidya, however, is optimistic about India’s demand growth outlook for petroleum fuels and future investments in the sector. In the short term, he sees consumption reaching pre-virus levels as early as year-end, allowing the refiner to boost processing rates to 90-100 per cent, from about 75 per cent now. Fuel stockpiles have also eased closer to a more typical level that’s sufficient enough to meet two weeks of demand, he said.

Indian Oil, which controls 40 per cent of the nation’s petroleum fuels market, also plans to expand into natural gas and renewable energy. “We have every intention of becoming an energy company, not just restricted to fossil fuels,” Vaidya said.

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Published on September 24, 2020
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