New Delhi: Indian Oil Corp will be cautious in taking on new foreign refinery projects until 2011/12 as it is committed to large domestic projects, although it would consider projects if it got a stake in exploration and production assets.
S. V. Narasimhan, director of finance at the state-run firm that controls over half of India’s retail fuel market, said cash flow from fuel sales could not be predicted due to volatile markets and government controls, making it harder to commit to long-term projects.
“Purely going and setting up refineries outside India doesn’t make sense for us, when demand is contracting. We already have about Rs300 billion ($6 billion) projects in hand,” S. V. Narasimhan told the agency in an interview.
“Putting investment in refinery without quid pro quo like investment in E&P (exploration and production) doesn’t make sense for us ... All investments have to be guarded,” he said.
The global slowdown has cut world oil demand by as much as 2.5 million barrels per day (bpd), according to the International Energy Agency.
In May 2007 Turkey’s energy watchdog approved an application by Indian Oil and local company Calik to build a refinery. Italy’s ENI and KazMunayGas of Kazakhstan later joined the project, but since then there has been no progress.
“We will not be able to support investment at this stage,” Narasimhan said, adding that his firm would look for investment in new refinery projects from 2011-12.
“We will take up new projects in 2011-12 depending on priorities... but in 2012-13 we will be certainly looking up more aggressively for new foreign projects,” he said.
IOC’s 10 Indian refineries can process 1.20 million bpd. Narashimhan said IOC would invest 110-120 billion rupees in 2009-10 and 2010-11, mainly to upgrade fuel quality and set up a new 300,000 bpd refinery at Paradip on the east coast. The Paradip refinery is expected to be completed by March 2012.
“Cash flow is a function of retail prices. Because of volatility of crude oil prices we need to be careful in making long-term funding commitment,” he said.
Despite an increase in state-set retail fuel prices in July, oil firms were likely to suffer a revenue loss of Rs492.7 billion on retail sales in the fiscal year ending March 2010, junior oil minister Jitin Prasada said on Monday.
Though India partly compensates state-refiners for selling fuel at government-fixed rates, uncertainity over the extent and time of compensation limits oil firms’ investment capabilities.
In 2008-09, IOC exported about 1.95 million tonnes of naphtha and exports in 2009-10 could rise by around a quarter, he said.
“There was sudden increase in naphtha demand last year because of shutdown of Petronet’s LNG terminal. But this year exports will be higher because of higher availability of domestic gas,” Narasimhan said.
Reliance Industries Ltd began pumping gas in April from its deepwater block in the Krishna Godavari basin, off India’s east coast. The gas is being sold to fertiliser plants and resulted in less local sale of naphtha.
“Based on current demand and supply balance, possibility is that naphtha exports will about 2-2.2 million tonnes or it could go up to 2.5 million tonnes. depending on stabilisation of our naphtha cracker plant in Panipat,” he said.
IOC plans to commission its naphtha cracker plants in December.
“Stabilisation will take another 2-3 months. Till than, naphtha absorption will be strictly in line with capacity,” he added.