Will PSU Oil Giants To Diversify Wholesale From Now On?

By Manish Gandhi, Chief Editor

The oil and gas business is certainly seeing a global downslide due to climate change fears, low end crude prices and geo political concerns too. India, a net importer of huge crude, is struggling to get that monkey off its back, but with little success despite Mumbai High and the more recent KG gas find. The late ONGC Chairman & Managing Director, D Subir Raha had hinted at diversifying the company’s portfolio way back and locked horns with then Petroleum Minister,Mani. S Aiyar on the issues. The clock appears to have a turned a full circle by 2017.

India’s state oil refiners are planning to diversify with a $35 billion push into petrochemicals to meet an expected surge in demand for goods ranging from plastics to paints and adhesives. This is a major shift from traditional business and is a sign of times to come. The oil business has transformed in the last couple of decades driven by the newer realities of climate change and economic viability.
On the one hand, crude is selling low for a very long time and E&P is delivering losses worldwide. On the other, the coming of alternatives like solar power, wind power, electric vehicles and others has scripted a very different story for the future of energy.

There is demand for durable, cheaper materials in industries such as farming and food packaging and it is wise to join the gravy train. Petroleum minister Dharmendra Pradhan had said in July that the government wanted to set up petrochemical clusters in the eastern, western and southern regions around refineries. India’s per capita consumption of synthetic polymers, which is used to make various grades of plastics, is just 10 kg a year as compared to the global average of about 32 kg.

“India is one of the fastest growing economies globally, but our petrochemical use is one-fourth the world average. We import half of our petchem consumption,” said S. Mitra, executive member at trade body, the Chemical and Petrochemical Manufacturing Association. He estimated demand would jump from 30 million tonnes to 40 million tonnes in the three years to 2019-20, catapulting the country’s petrochemicals market to around $65-70 billion.

The government is in the process of formulating a national policy for petrochemicals after a white paper that proposed a fund to boost investment and encourage the use of plastics in areas like packaging and farming wasn’t taken forward.

However, India’s big three state refiners, Indian Oil Corp (IOCL), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL), have already decided to spend about $35 billion to boost their petrochemicals business, according to interviews given to media persons by senior company executives.
It remains to be seen what happens now. Is this the first step towards a total rejection of hydrocarbons or polluting fuels? If so, will alternative sources be sufficient fill the yawning gap? Looks difficult for now, but then, all of a sudden, India’s oil and gas segment seems to have acquired a new found penchant to spring surprises.

Watch this space.