We need more and better oil refineries

Fatih Birol | Updated on March 09, 2018 Published on December 17, 2017

Faced with stringent emission norms and rising oil demand, India needs a modern refining sector to grow in a sustainable way

Two years ago, the International Energy Agency said that India was moving to the centre stage of global energy markets. This prediction, found in the World Energy Outlook Special Report on India, is now increasingly evident across many parts of the energy sector, including in oil refining.

Moreover, given the projected increase in Indian oil demand in the next decades, its large refining industry, like many other parts of its energy sector, have the opportunity to play a role in improving the country’s environmental footprint.

Rising incomes and higher car ownership mean that the number of passenger cars in India could be eight times higher in 2040 than it is today. While a growing share of these cars are likely to be fuelled by alternatives to oil, particularly if the push for electric cars gains further momentum, combustion-engine vehicles will remain the baseload of India’s consumption for many years to come.

Twin challenges

Today, India’s oil refining capacity of about 5 million barrels per day (mb/d) exceeds the country’s demand for oil products, resulting in exports of more than 1 mb/d. But the expected sharp rise in demand for mobility could more than double demand for refined products to nearly 10 mb/d by 2040. This surge poses twin challenges for India. In IEA projections, India becomes a net importer of oil products in the not-too-distant future notwithstanding the excellent progress that is being achieved in increasing upstream investment through India’s new Hydrocarbon Exploration Licensing Policy. Also, more oil burned for transport means more emissions in towns and cities across the county. This is a pressing issue for India where around 500,000 people die prematurely every year due to poor air quality.

But India can stem the growth in refined product imports and reduce air pollution at the same time. It is trying to minimise the impact of demand growth on the environment, particularly on air quality. The Government announced plans to move to full electric vehicle sales by 2030. Some vehicle fleets are also switching to natural gas. And India is one of a small number of countries, along with Canada, China, Japan and the US, that have introduced fuel-efficiency standards not only for cars but also for trucks.

Better quality standards

One of the most significant developments is the nationwide adoption of the Bharat Stage IV (BSIV) emission standards for transportation fuels (equivalent to the Euro IV standards) from April 2017, which require the sulphur content in gasoline and diesel to be no more than 50 parts per million (ppm).

The Government plans to move to an even more stringent standard by 2020 that limits sulphur content in transportation fuels to less than 10 ppm. The adoption of this BSVI standard, which leapfrogs BS V entirely, was brought forward in New Delhi by two years to address serious pollution concerns.

The tightening of emission standards for transport fuels is a welcome development for India’s sustainable future. However, its successful implementation depends in large part on the capability of domestic refineries to meet the more stringent BS VI standard. If domestic refineries cannot produce compliant fuels, moving to a tighter standard would result in more imports. The refining sector’s ability to produce the superior fuels in required volume was already a key question when migrating to the BS IV standards.

In the IEA’s latest World Energy Outlook projection, India’s refining capacity grows by around two-thirds over the next 25 years, adding some 3 mb/d of new capacity. As a result, India becomes the world’s third-largest refining centre by 2040, behind the US and China. Headline capacity growth is important for India’s energy future.

But the really critical indicators for India’s future are the qualitative ones – will this investment leave India with a modern refining sector with all the technical capabilities to produce high-quality fuels, and the infrastructure required to make them available across the country?

An opportunity

While more investment might be seen as a burden, it also presents an economic opportunity. Tightening emission standards for transport fuels is not only a phenomenon in India but fast becoming an irreversible global trend.

The Euro V standards have been widely adopted in various countries. China introduced the national V standard (equivalent to Euro V) this year and plans to leap forward to the Euro VI-equivalent standard shortly. Other countries in Southeast Asia are moving in a similar direction.

Beyond road transport, the International Maritime Organization has limited the sulphur content in marine transport by 2020. In this rapidly desulphurising world, those able to produce a better quality fuel stand to benefit, and gain market share in an increasingly competitive refining market.

Surging demand in domestic and export markets offers an attractive growth opportunity for Indian refineries, but they will only be able to take advantage of it if they stay competitive and are able to meet ever-tightening emission standards. The growth of India’s refining industry and the country’s sustainable future are therefore closely interlinked. India is one of the bright spots of the global economy and is emerging as a major driving force in global energy trends, with all modern fuels and technologies playing a part. This is why I was so pleased to welcome it into the IEA family when it recently joined as an Association member.

Also, the IEA helps governments around the world provide energy access for all, reduce air pollution, and tackle the climate change crisis. The World Sustainable Development Summit 2018, held by TERI in India, comes at a crucial time as we seek innovative solutions to achieve sustainability goals.

With India, the IEA now accounts for over 70 per cent of the world’s total energy consumption, compared with less than 40 per cent just two years ago. As India continues to move to the centre of the global energy stage, it is my hope that our very productive relationship continues to grow closer.

The writer is Executive Director, International Energy Agency.

Published on December 17, 2017
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