Indian Oil Marketing Companies to Invest Over 2 Trillion Rupees to Boost Refining Capacity

Indian Oil Marketing Companies to Invest Over 2 Trillion Rupees to Boost Refining Capacity

India's oil marketing companies are planning to invest between 1.9 trillion and 2.2 trillion rupees to increase their crude oil refining capacity by approximately 35 to 40 million tonnes by the end of the financial year 2029-30. This initiative aims to meet the growing energy demands of the nation, according to a recent report from Crisil Ratings.

The report states that the additional refining capacity will elevate India's total installed refining base to 295 million tonnes by 2030, with a focus on brownfield expansions that involve upgrading existing facilities to reduce project risks. Despite fluctuating oil prices, refiners have achieved rolling average returns of 9 to 11 dollars per barrel from fiscal years 2016 to 2024, translating to a return on investment of 12 to 14 percent.

India's demand for petroleum products has been steadily increasing, with domestic consumption growing at a compound annual growth rate of 4 percent over the past decade. During this period, the country’s refining capacity rose from 215 million tonnes to 257 million tonnes. Transport fuels, which make up 56 percent of total consumption, also grew by 4 percent, while naphtha increased by 2 percent.

Looking ahead, Anuj Sethi, Senior Director at Crisil Ratings, forecasts a slight moderation in overall petroleum product consumption, predicting a 3 percent CAGR over the next six years. This deceleration is attributed to slower growth in transport fuel consumption, expected to be between 2 and 3 percent, influenced by improvements in fuel economy and a rise in cleaner fuel vehicles.

The report indicates that project risks related to these investments are likely to be low, which, along with stable return expectations, will strengthen the credit risk profiles of oil marketing companies. In 2023, India ranked as the fourth-largest exporter of middle distillates and the sixth-largest exporter of refined products, with exports reaching 1.2 million barrels per day. The new refining capacity is anticipated to boost product supplies to global markets, projected to rise to 1.4 million barrels per day by the middle of the decade before stabilizing at 1.2 million barrels per day by 2030 due to consistent domestic demand.

The International Energy Agency has projected that India's oil demand growth will surpass that of China by 2027, with consumption expected to reach 1.2 million barrels per day between 2023 and 2030, representing over one-third of the anticipated global demand growth. Currently, India's refining capacity stands at approximately 5.8 million barrels per day, with plans to expand by an additional 1 million barrels per day by the end of the decade, mainly through public sector undertaking refineries.

Three major state-owned oil marketing companies—Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation—are actively working to enhance their refining capabilities to meet both domestic and export needs. Crisil also noted that these companies may pursue refining capacity increases alongside petrochemical expansion strategies to diversify their business portfolios. However, the successful execution of capital expenditures and the returns generated will require careful oversight as the sector evolves.