India’s fastest-growing fuel seller will spend $8 billion over the next five years to help its 60-year-old refineries earn profit margins closer to modern processors such as billionaire Mukesh Ambani’s Reliance Industries Ltd. “You can definitely expect $2 to $3 addition to the refining margin,” Mukesh Kumar Surana, chairman and managing director at Hindustan Petroleum Corp., said in an interview. “These projects will improve distillate yields and improve our margins. This will bring our margin much closer to other complex refiners.”
Government-owned HPCL, sold 34.2 million tons of oil products in the year ended in March, an increase of 7%, the fastest pace among the country’s top three fuel retailers. Indian Oil Corp. and Bharat Petroleum Corp.’s volumes increased 5.3% and 6%, respectively. HPCL reported a gross refining margin of $6.68 a barrel last financial year.
In comparison, Reliance, which operates the world’s largest refining complex at Jamnagar in western India, reported a refining margin of $10.80 in the same period. India is poised to surpass Japan as the world’s third-largest oil user this year and will be the fastest-growing crude consumer in the world through 2040, Paris-based International Energy Agency estimates.
“Today India has surplus capacity, but demand is increasing,” Surana said, adding India’s gasoline demand will grow by more than 10% and diesel by about 6% over the next few years. “Going forward, if we don’t add new capacities rapidly, we may run out of it.” HPCL’s Visakhapatnam refinery in southern India, which can process 8.3 million tons a year, and its Mumbai facility, which can process 7.5 million tons a year, were built in the 1950s and have been subsequently expanded.
The company will invest about Rs 209 billion ($3.1 billion) to upgrade and expand Visakhapatnam’s annual capacity to 15 million tons, and Rs billion to expand the Mumbai refinery to 9.5 million tons, Surana said. It will also invest Rs 40 billion to upgrade the Mumbai refinery to produce more higher-value fuels and products. The refineries will also be modernized to produce fuels that meet Euro-6 standards.