World-scale grassroots refinery offers
unique opportunity to diversify & expand petrochemicals slate
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The
formalisation of an earlier decision last fortnight to set up a world-scale
refinery-cum-petrochemicals complex in the west coast of India with an
eventual crude oil processing capacity of 60-mtpa, at a capital investment of
US$40-bn, is a welcome development. The project will go a long way not just
in meeting India’s growing needs for fuels, but has the potential to
significantly broaden and expand the portfolio of petrochemicals made in the
country.
Foreign hand?
The
West Coast Refinery is to be built by a consortium of the three major public
sector refining companies – Indian Oil Corporation (IOC), Hindustan Petroleum
Corporation Ltd. (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL). As of
now the shareholding proposed has IOC – the largest refining company in India
– taking a 50% stake in the joint venture that will be formed for the
project, and the other two 25% each.
But
this could change in the months ahead, if a foreign partner is roped in – as
in the case of the Bharat Oman Refinery Ltd., in which BPCL brought in Oman
Oil Company as investor. In such an eventuality, the stakes of the three
Indian PSUs could be proportionately reduced.
Several
upstream companies in the Middle East – in particular Saudi Aramco and Abu
Dhabi National Oil Company – have been eyeing opportunities in India and
could be possible investors in this project. Saudi Aramco was even interested
in the 9-mtpa Bhatinda refinery in Punjab, but exited in 1998, following
which HPCL set it up in a joint venture with steel baron Lakshmi Mittal. It was
also reported to be interested in IOC’s recently commissioned 15-mtpa Paradip
(Odisha) refinery, but that too did not materialise, forcing IOC to go on its
own.
The
advantage of a foreign partner will be a tie-in of crude oil supplies, albeit
at prices determined by the market.
Hurdles likely
The
West Coast refinery is to come up in Ratnagiri district of Maharashtra, but
details on its location is not yet available. It is expected to require a
significant parcel of land – anywhere from 12,000-acres to 15,000-acres,
depending on the detailed project scope – and land acquisition could pose challenges.
Large projects in the area have been the target of environmentalists who do
not wish the pristine coastal belt spoilt by industrial activity.
The
project will also need significant quantities of water, which will most
likely have to be met through seawater desalination. Drawing on ground water
or surface freshwaters – despite the region receiving good annual rainfall –
should be ruled out from a sustainability point of view.
Phase-wise implementation
The
exact timelines of the project are unclear as of now, as it is still earl
days, but it will be set up in two phases.
The
first will include a refinery with 40-mtpa of crude oil processing capacity,
an aromatic complex, naphtha cracker and polymer complex. This is expected to
cost about Rs. 120,000-crore to Rs. 150,000-crore and will come up in 5-6
years from the zero date. The second phase will add another 20-mtpa of
refining capacity, and is expected to cost about Rs. 50,000-crore.
This
two-phase approach is prudent – both from a project management perspective as
also a financial one. Remember, the biggest refinery the PSUs have hitherto
set up is 15-mtpa, and for most even 6-mtpa was considered a large project to
take on. Even the Reliance mega-refinery at Jamnagar was built in two phases,
with the first commissioned with a capacity of 27-mtpa and then expanded to
33-mtpa, and the second (export oriented) built to a capacity of 29-mtpa,
about three years after.
From
a financial perspective too the two-phase option makes sense. All three PSUs
are currently committed to investments of thousands of crores of Rupees to
upgrade their aging refineries to produce Euro 6 compliant
fuels as part of government mandates, and this task alone will stretch their
balance sheets as well as management capabilities.
While
the size of the refinery and its complexity will also pose challenges, so
will product evacuation. The amount of refined products that will need to be
moved to markets – especially in the under-served southern States – will
require an extensive network of pipelines. Creating these will involve
additional costs and, as recent experience has shown, could be another cause
for delay if planning does not begin immediately.
Flexible and efficient
The
proposed refinery will almost certainly have the flexibility to handle a
range of crudes – heavy to light, sour to sweet, high in aromatics or
otherwise, etc. This will enable it to benefit from the dynamics of crude oil
pricing and enable better margins on sales of refined products.
It
is also near certain that the refinery will deploy a slew of secondary and
tertiary processing units to maximise production of desired products such as
diesel, motor gasoline, LPG etc., and make them to quality standards on par
with the best in the world. There will in all probability be – at some stage
or the other – efforts to capture value from the bottom of the barrel,
including the petroleum coke (petcoke) invariably produced.
The
Reliance refinery at Jamnagar is a good model to follow, as it does all of
the above. This has enabled it to enjoy one of the highest gross refining
margins in the world. When the current petcoke gasification project is
completed, it will produce synthetic natural gas at costs that will greatly
enhance competitiveness.
Refinery-petrochemicals integration
Integration
of refining and petrochemicals takes several forms: process integration
(downstream petrochemical plants); utility integration (steam, power,
hydrogen); and fuel integration (hydrocarbons present in waste gases can be
potential feedstock for petrochemicals). In integrated concepts, low value
products of refineries can be used as feedstock for petrochemicals, and even
vice versa. For example, refinery gases and LPG can be used as feedstock for
petrochemicals, as can benzene-rich streams. In the reverse, hydrogen (from
crackers) can be taken back to refineries for fuel upgradation (through
hydroprocessing).
Besides
value addition opportunities, the benefits of integration include reduced
transportation costs; energy savings through heat integration; reduced
expenses on account of shared manpower, maintenance, infrastructure etc.
But
integrated plants are decidedly more complex, operationally less flexible,
could result in conflict between operation objectives & planning, and in
diffusing of business focus. But all these can be overcome with the right
business organisations and clarity of vision.
It
is noteworthy that the mega-refinery project now planned includes a naphtha
cracker, whose capacity of ethylene, though unspecified as of now, could be
about 2-mtpa or thereabouts. This kind of scale will afford several
opportunities to recover by-products such as styrene, isoprene, naphthalene
etc. – each of which can be a platform molecule for several downstream
derivatives. More importantly, it will afford opportunities to overcome the
handicap of expensive naphtha that has so far plagued Indian petrochemical
plants using this feedstock on non-integrated or sub-optimally integrated
modes.
Opportunities
to reduce the cash costs of ethylene production from the naphtha cracker
could come from, for example, adding value to raw C4/C5 streams that are
traditionally hydrogenated and recycled back to supplement cracker feed.
Another possibility is upgradation of pyrolysis gasoline from the naphtha
cracker through the recovery of petrochemical building blocks such as
styrene, mixed xylenes and naphthalene. At another level, petcoke
gasification can through synthesis gas production open routes to competitive
manufacture of ammonia and methanol and products based on C1 chemistry.
The
promoters of the mother refinery need implement not all schemes. Indeed,
value addition can be done in partnerships forged with third party investors,
but co-located to derive synergies and efficiencies. The West Coast refinery
must hence serve as a nucleus around which several downstream units
manufacturing commodity, fine and speciality chemicals gravitate to and
benefit from the advantages of shared infrastructure, proximity to raw
materials and even markets.
Petrochemical
integration is widely recognised as a proven route to enhancing profitability
of refining over the long term. A world-scale refinery, as now mooted, offers
an excellent opportunity to deploy an array of technologies and so lay a
platform for a diversified and vibrant petrochemical industry as well. Such
an opportunity will not come often and must not be wasted.
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- Ravi Raghavan
CHWKLY 27JUN17
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