Oil refineries: Today’s Talk on Editorials
Significance: 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 oil refining. It even predicts that by the early 2020s it will replace Russia as the world’s third-largest refinery.
Importance of studying India’s refinery sector:
- Globally important oil consumer: India was the world’s fourth-largest consumer of crude oil and petroleum products after the United States, China and Japan, with product consumption growing by about 5-7% per annum despite the effects of the global recession in 2008.
- Impact on budgetary stability: Issue of petroleum product pricing has implications on India’s national budget and for India’s macroeconomic stability as a whole. With India emerging as the world’s fourth-largest economy (in purchasing power parity terms), macroeconomic instability of this kind is of global concern.
- Investment: Investment in India’s refinery sector will determine the ability of the domestic downstream industry to meet strongly growing Indian refined product demand. If capacity addition lags demand growth, Indian downstream firms will be required to draw on global refined product markets to meet product demand. It compromises India’s energy security.
Policy goals in Indian petroleum refining: The key policy goals on the Integrated Energy Policy of 2006 for India’s refining and retail sector are fourfold:
- Market-based pricing throughout the downstream value-chain.
- Significantly enhanced refining capacity to meet growing Indian demand in order to allow economic growth and standard of living appreciation and establish India as a competitive liquid fuels exporter to take advantage of expanding fuels demand in East- and South-East Asia.
- Ensuring Indian refineries are equipped to process cheap, sour and heavy crudes while still producing internationally recognised clean-product grades.
- Maintaining a streamlined, enabling sectoral regulatory framework that stimulates the private sector and joint-venture investment in order to meet growing demand and be a competitive global exporter.
Challenges faced by Oil refineries:
- Projections of becoming a net importer: IEA projections conclude that India will soon become a net importer of oil products in the near future even though there are signs of progress that is achieved in increasing upstream investment. The expected sharp rise in demand for mobility could more than double demand for refined products to nearly 10 mb/d by 2040.
- Inefficient burning: Oil refineries in India are comparably less efficient. When these processed oils are used in the automobiles of our country, it could mean 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 and when India is leading the fight for climate change through her commitments in INDC.
- Inadequate qualitative standards: Quantitatively, India is improving its capacity. 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. However, when quality standards are tightened around the globe it becomes important for our oil refineries to keep up with the trends of adopting equal BS VI standard. This requires better technology standards which we lack now.
- Non competitive: India’s modern refineries are mostly owned by private. They are capable of efficiently processing Middle Eastern oil into high-quality products and were able to gain market share from less complex refineries in Europe and Japan. However, the public sector refineries suffer from lack of innovation and operational efficiency, thus it leads to higher operating costs.
- Ageing refineries: Most of India’s oil refineries are ageing and it is time to retire these and open new refineries at the most suitable location with maximum cost-effectiveness.
Conclusion: India needs new and efficient oil refineries. The government can collaborate with IEA to achieve the aim. It is because 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 can be used to seek innovative solutions to achieve sustainability goals.