Refiner to the world

That oil is India's No. 1 import item by value is a well-known fact. That it is also today the country's largest export item is, however, something not as well-known. In the fiscal year just gone by, petroleum product exports fetched India over $58 billion, helping to offset a portion of its hefty crude oil import bill of $141 billion for the year. This has become possible as a result of many developments.

The first is, of course, the sheer growth in domestic crude refining capacities – from hardly one million tonnes (mt) at the time of Independence to nearly 215 mt now. Two, much of these capacities have come up after the 1990s. Indian refineries are, hence, modern and can process even the most inferior quality, high-sulphur, ‘sour' crude. The ability to convert relatively cheaper oils into high-value products also translates into higher gross refining margins. That, in turn, makes it possible, especially for coastal refineries, to import discounted heavy crude all the way from Venezuela, turn it into petrol or diesel, and export these to the US or Europe.

The third factor responsible for petroleum products emerging as the biggest export earner – ahead of gems and jewellery, which also involves importing rough diamonds and polishing for sale in overseas markets — is somewhat ironic. It has to do with restrictions on pricing of petro-products sold domestically. Public sector oil companies are not only obliged to cater to domestic demand, but also to sell petrol, diesel, kerosene and domestic LPG at controlled prices. No such regulations exist for exports, where refiners can freely adjust product prices in tandem with global price movements. The ones to have taken advantage of this freedom are largely private players — Reliance and Essar — which have established global-scale coastal refineries to exploit differentials in both light/heavy crude as well as product/crude prices. Their efforts have helped turn India into a global refining hub a la Singapore or Rotterdam.

India's refining capacity now far exceeds the domestic demand. The surplus would widen in the years ahead. The fact that many refineries in North America and Europe are small and old — and environmental concerns rule out addition of new capacities — throws open huge opportunities for Indian oil firms to sell their surplus produce in these markets. India's tendency to hop on to the bus long after others have boarded it has, ironically, helped it leapfrog to the latest technologies on offer. This happened in the case of telecom, which saw India sidestep the more expensive landline-based connectivity approach in favour of mobiles, achieving a huge expansion in teledensity in the process. The same story seems to be playing itself out in refining, where larger capacities (more than the global norm), with a higher degree of complexity in production processes, are being set up almost on a routine basis. There is no harm in the Government promoting petro-product exports as an activity in itself and helping India become a much bigger refining hub than it already is. It should do so before the competition arrives — in this case, not from China, but from Thailand and Indonesia.

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