Theme Session 5 on Downstream “The Growing Prominence of Asian Refining”

The fifth theme session was held on Downstream “The Growing Prominence of Asian Refining” at PETROTECH-2016 at Vigyan Bhawan, New Delhi. Dr. Fereidun Fesharaki, Founder & Chairman, Facts Global Energy, chaired the session. The galaxy of speakers in the session included Mr. Sandeep Poundrik, Joint Secretary (Refineries), Ministry of Petroleum & Natural Gas; Mr. Sanjiv Singh, Director (Refineries), IndianOil; Mr. Prabh Das, CEO, HMEL; Mr. Fahad Al-Dihani, Deputy CEO, Mina Al-Ahmadi Refinery, Kuwait National Petroleum Company; and Mr. Lalit Kumar Gupta, CEO & MD, Essar Oil. The Knowledge Partner for the session was Mr. Paul Sheng, Senior Partner, McKinsey & Co.

Mr. Paul Sheng commenced the session by expounding on the high-level prospects and the role of Asian Refining and the global trends in downstream sector. Sharing the insights of demand in Asia, he said that the refining capacity will also grow in Asia and overall, distillation capacity will grow by 1.1 per annum globally between 2015-20. The conversion capacity will grow at twice this rate at 2.2 percent per annum in this period. Going forward, he emphasisied that this growth in capacity additions will lead to oversupply. ‘The combination of these effects will lead to decline in utilization globally till 2020. There is real potential for bump up in utilization post 2020. This is particularly strong in Asia as that is where the demand growth is’, added Mr. Sheng. He was of the view that industry should prepare for at least for a few years for gradually declining conditions but with potential for improvement post 2020. Talking about the potential scenario after 2020, he opined,’ the improvement will be seen particularly in Asia and the US Gulf Coast so refiners should be looking forward to this period and not just focus on the very near term’.

After the theme presentation by Mr. Sheng, the panel discussion commenced with the remarks of Mr. L. K. Gupta, MD & CEO, Essar Oil Limited. Having a sense of accord with Mr. Paul Sheng for his theme, Mr. Gupta underlined the relevance of Asia for the world in terms of refining. Peeping into the future of growth in the region, he presented the fact that Asian demand is expected to grow by 1.5 to 1.8 billion tonnes. As four of the top oil consuming countries are from Asia-India, China, Malaysia, and Indonesia, they will fuel the growth in the future. India is going to develop at 7-8 percent and energy demand will keep growing. Mr. Gupta advised that Asian refiners should focus on sustainable growth. Capacity should be set up at competitive costs. Refineries should be integrated with petrochemicals. Going forward, there will be push for capacity so refineries have to achieve integration to be viable. As large investment is expected in adding refining capacity in India, refining is expected to be 1% of GDP growth during construction phase. “Cement, steel and heavy engineering will see growth and so this will be real differentiator in the success of‘Make in India’ policy, he concluded.

Mr. Fahad Al- Dihani, Dy. CEO, Mina Al-Ahmadi Refinery, KNPC, spoke about the GDP of India and China which are at the top of the world. He drew a parallel between such a high growth and high energy demand in the future. Refined product demand growth in Asia accounts for half of the world’s total refined product growth demand and with such growth, there will certainly be increase in demand for cleaner products. Low Sulphur fuel oil demand is also increasing.

He informed that Kuwait is the fifth largest consumer of petroleum products among OPEC countries and 20% of refined petroleum products are consumed domestically while the rest is exported. 72% of this export is to Asia, 16% to Africa and 12% to Europe. Giving a new dimension of domestic investments, he spoke about clean fuels projects to upgrade existing refineries to meet the Euro IV product specifications and enhance conversion capacity with minimum bunker fuel oil, and ZOR refinery & Petrochemical to process heavier crude to meet the low sulphur fuel oil demand. This calls for 14 billion USD investment. He also talked about the investment planning of KNPC in Asia.

Mr. Sandeep Poundrik, Joint Secretary (Refineries), Ministry of Petroleum & Natural Gas, also underlined the growing prominence of Asia with 34% of global refining capacity. He narrated the brief history of refining in India, mentioning that the first refinery came up in Digboi, Assam in 1901 and century old refinery is still running. From 1901, to the present day, India has built its most modern refinery - the Paradip refinery. He said that India’s refining capacity has doubled from 115 million tonnes to 230 million tonnes, driven both by the public and the private sector. He also stressed on the incorporation of petrochemical fuels to the refining industry for a significant growth in the future.

Mr. Prabh Das, CEO, HMEL, took the session ahead with insights into major investment in the Indian refining sector which has come from private players in India, Indian Public Sector Units (PSUs) and their Joint Ventures (JVs). He gave the reasons for staying away from investing in Indian refining of International Oil Companies (IOCs) & National Oil Companies (NOCs). Appreciating the story of Indian refining industry from its inception more than 100 years ago at Digboi in Assam, he said that it now accounts around 6% of the total refinery throughput in the world. He also highlighted the achievement that the country recently overtook Japan to become the 3rd largest oil consumer after US and China. ‘Not investing in the Indian growth story would be a great opportunity missed for any player in the industry’, said Mr. Das.

Mr. Sanjiv Singh, Director (Refineries), IndianOil, began his thoughtful lecture with saying that more than 50% refineries in India are coastal and very modern to process heavy fuels. He was confident of the view that India will move from BSIII in 2010 to BS VI in 2020. He said that consumption is moving from diesel to gasoline and the refineries are designed to produce more gasoline today. He highlighted the challenges faced by the industry and gave an insight to curb the situation by capacity addition, project management, enhancement of port infrastructure, and investment in hydro-trading capacities. Mr. Singh presented some of the key facts of India’s refining margin.

Dr. Fereidun Fesharaki, Founder & Chairman, FACTS Global Energy, in his closing remarks, talked about the price of oil for the next several years which is going to be between 50-60 USD/barrel. ‘As long as it is 60 USD/barrel, the demand for gasoline will continue to grow as with low oil prices, demand for cars grows’ he mentioned. He went on to say that the demand for diesel depends on GDP. With a dip in economy, the demand will also decrease. But gasoline demand is not affected if the oil price is low. The most significant change going forward is that gasoline will be more important than. He made it clear that in 2016-19, many new refineries will be set up globally. Hence, the only threat to refinery is from refinery. Summarizing the whole session, he said that there will be a short of gasoline in the coming years, so capacity should be built towards gasoline otherwise it will have to be imported from the US.