In conversation with Mr. Siddhartha Mitra, an Independent Expert in Chemicals & Petrochemicals segment at PwC, about the future of Oil to Chemical and Petrochemical industry of India.
What is the future of O2C (Oil to chemical) in India specially with serious energy transition owing to global warming?
I think in this oil to chemical business there would be in any way a reduction of the fuel requirement particularly the transport fuel requirement with respect to gasoline since the government has mandated the ONCs to blend 15% ethanol right now and which may go up to level of about 20% by 2025. In which case, considering the current consumption of gasoline of about 25-27 million tonne, there are requirements of 6-7 million tonne of ethanol which need to be blended. So, in any case the fuel proportion would come down. Now, if I talkabout diesel – gas oil, which apart from being used as a transport fuel in the domestic sector is also used for transportation by railways as well as some of the agriculture requirements. If you have to consider widespread change of the driving force from fuel to power, there would be a huge requirement of power which is very difficult to be met currently with the commitment being given for the domestic consumers as well as to the industries. It will be very difficult. So, I think that oil to chemical – basically oil as transport fuel will remain to a lesser extent. If I consider today’s integrated refining and chemicals-petrochemicals complex: Reliance is having the largest share of the chemicals -petrochemicals – something close to about 18-20%. Now, what can be done is that in phases the fuel proportion can be cut down. maybe the chemicals and petrochemicals share in the total integrated complex can be increased maybe from 20-40% and then max to a level of 45-50%. This way the fuel will come down to the level of 40-45%. So, you can almost bring down 50% of the fuel production from the integrated complex system. But then you also have to keep in mind that you are talking about net zero approach in energy sector. Which means that the CO2 emission has to be reduced. For which there are alternatives. There are opportunities. You can go for the sequestration. You can actually make the plans in such a way that you convert your CO2 generations, CO2 emissions into value added urea ones you actually integrate into your complex. Or even, in today’s scenario there is a technology which has been commercialized wherein the CO2 can be used as feedstock for conversion to acetic acid. And acetic is a product which is getting imported in India to a large extent – almost 800-900 KT or even 1 million tonne. So effectively, we are talking about increasing the different segments of the chemicals and petrochemicals but if you’re bringing in the crude oil and without generating the fuel to chemicals and petrochemicals on a 100% or maybe even 80-90% level would be very difficult. For this you need a separate type of technology which is crude oil to chemicals which has been commercialized by us and is being offered – which can generate 70-75% of chemicals and petrochemicals. Almost nil fuel. But then as I mentioned to you in the beginning, you will require some fuel because complex shifting of the energy to other medium like hydro projects or wind energy generation or solar energy generation or nuclear energy generation could be a limitation as far as India is considered. So, to a small extent some of this thing can be brough down by more and more use of the gas in the process and cut down your fuel requirement. So, you can plan. But then this requires proper planning of the utilization of all the molecules of the refining complex. So, the weatherization of all the molecules is a need of the hour if you are looking into the concept of net zero and the shift of the energy. There is a possibility of cutting down the share of the fuel, but you cannot completely avoid it in the production. Because that will take ages. And even in current projections which has been given by probably BP oil and gas book and journal, that oil and gas as fossil fuels are going to remain quite firm till 2050. So, we are talking about 25-30 years from now. So, if other energy segments can come up significantly, like in Europe and US, who have shifted majorly to nuclear power – which I think is difficult for India – this fossil fuel energy generation are going to stay.
Oil Marketing Companies focus on petchem project solely on their own feedstocks. Considering handsome EBITDA and general deficit supply, do you feel it is right strategy for Indian Operations?
The integrated approach for chemicals and petrochemicals is primarily for securitization of the feedstock. Now, suppose if you are planning for some chemicals and petrochemicals products on 100% import basis. Any issue – any environmental issue, social issue, political issue, geopolitical issue, affecting the availability of the feedstock would be a big challenge for those type of projects. So, that’s why it is always advantageous to plan an integrated approach. Number two, people generally think about the integration with the pattern and supply in the feedstock that all the other facilities and infrastructure on a common basis can be used. You talk about utilities, you talk about storage facilities, you talk about engineering appliances, you talk about any of the workshops and other things, fire and safety – so many of those things can be obviated if you really integrate. Which ultimately leads to saving in the CapEx and the OpEx. In the chemicals and petrochemicals parlance, optimization of the OpEx is extremely necessary to become competitive with respect to the global capacities and at a global level. So, I believe that integrated approach should be or is the best option. Of course, on a stand-alone basis you can plan for a chemical and petrochemical project but you have to be absolutely sure about it.Your comfort level should be to ensure that there may not be any disruption in the availability leading to your overall project becoming infructuous. So, I believe that this could be the right approach. Then again this will depend on the type of the products. Particularly, I think these are more applicable for the chemical products. Which are actually low volume but high value products. The consumption or the value of the consumption in the Indian market is low. Even if you take a gross rate the volume is not like that of a petrochemical products which are actually in millions of tonnes. So, this could be in hundreds or thousands of tonnes. So, there of course a judicious view can be taken on stand alone approach of sourcing the feedstock on a long-term contract basis. I think an example I can give, Reliance is importing ethane for cracking, and they are having a whole supply chain built up. Which means that they have got six dedicated VLECs. So, all those types of approach where you get a complete security of the feedstock and totally planned and implemented supply chain there of course a judicious view and approach can be taken.
How do you look at prospects of Ratnagiri Refinery and Petrochemicals Limited projects and it’s petchem avenues?
I think as regards prospects for RPCL it is very difficult to give a comment on that one. First, because there have been changes in the locations. Now with the change in location, you have to update your feasibility study, you have to update your environmental study, you have to have fresh approvals of the MoEF, MoCF for the environmental clearance. So, it is very difficult to tell. However, given the magnitude of the refinery estimated at about 60 million tonnes and even 120 million tonnes ut even if you restrict it to 60 million tonnes) there would be four distillation towers, distillation units of 15 million tonnes because 15 million tonnes is the maximum capacity. Even if you plan for 20 million tonnes you have 3 units of 20 million tonnes. Now, you have to look into the CapEx part. And if you have to really integrate it with the downstream chemicals and petrochemicals, I think this type of a project will be not less than 10-15 billion dollars. So, you can imagine the stakes, the challenges, and the risks that will be available, that would be required. Talking about Ratnagiri which is in the western coast. If you consider the petchem revenues, they will be competing with the many players operating in the western zone. To name a few, obviously Reliance is the leader in the western coast, in multiple regions in the western coast, then we have OPal. In Barmer, HRRL is coming up who, of course will also be targeting some products in the western region. I think Adani is also planning in Mundra. So, if you consider all those things, whatever the products list this complex can think of, because you need large volumes to utilize the feedstock or utilize the streams of the refinery. So, I mean it can come in a truncated version and then gradually go on integration in 10-15 years’ time period.
Technology for derivatives and specifies product is scarcely available with lot of conditions levied by licensor. Is it not time for Indian company to invest in research for seeking license capabilities?
This would be the dream of any of the Indian industries.. As you know most of the technologies in the hydro power sector depend to a great extent on the catalyst. Now what type of a catalyst should be used, what type of catalyst can give better ease which ultimately lead to economic benefit is a question. Companies have set up R&D departments to work on that.. You talk about Reliance, you talk about IOC. I think HPCL has also set up a large R&D unit in Bangalore. So, they are all working to develop a technology to develop new catalyst. While I am not sure when it would be commercialized, but, if you look at the challenges that have been faced in commercialization of Indmax technology which was developed by IOC R&D; If you think about the time taken for the development of that technology and the commercialization – it was pretty long. So, one needs to be absolutely persuasive in achieving that goal. But I think this is a point which has to be kept in mind by most of the R&D wings of such companies that one day India should emerge as a technology player in some of the areas. And once this type of achievement comes in then there would be a motivation to go in for many of the other technologies also. And I think in this approach, when it is coming to the stage of commercialization, many of the engineering companies will have to be included in the process. This is because you can develop a technology but there has to be some back up requirement for who will be develop the basic engineering package. If you are commercializing any technology you require a basic engineering package to be delivered. Which means it is inclusive of your process flow diagram, heat and mass balance, piping and instrumentation diagram, equipment datasheet, process control system and the approach for that one single line electrical diagram. So many of the things will have have to be worked out. Unfortunately, I don’t think the existing companies have the required skill set available. So first, they have to develop a skill set or they may have to tie with some of the engineering companies or some other private engineering companies, who can help in the development of such packages. So, definitely it’s a point that needs to be driven home. And a lot of hard work is required to achieve this one.
What in your view would be single most challenge faced by the petrochem industry in India?
I think there are many, many challenges, many points and risks being faced by the petrochem industry. –In the petchem industry in India, as far as the market is considered, there is no problem because there is a huge market which is available, lots opportunities are available. But if you want to indicate the single most challenge, two-three points come to my mind: one is the feedstock, and the costing for the feedstock. Because the petchem industry, and the products from the petchem industry will have to be competitive at a global level. Generally foreign based companies generate power and steam based on gas and least cost option. Which is not so in case of India. So, basically, the OpEx level is high in India. So, that’s a challenge – how you can become competitive at a global level of the supply of the product. Number two is technology. For some commodity products technology are available – you can go and select a technology. You can choose a technology based on techno commercial assessment and all those exercises. But if you are planning for a specialty product, particularly in the chemical segment, where technologies are not available, technology presents a challenge. The basic technologies are not available to us. It may, however, be available on the joint venture basis. So, people have to be open to consider the approach of a joint venture for such projects. And number three, I think, in many of the chemicals and petrochemicals, the challenge lies in the availability of the skillsets. Particularly for the new projects which are being thought of, being conceptualized, will require additional manpower, additional resources. Now to acquire all these resources is a big challenge. So, this of course is quite important. And to a lesser degree the challenges could be that for most of the projects, the cost of the projects would be quite high. The CapEx would be high. Not all companies may have the capability of going into such mega projects. Because in any of the projects unless you really target minimum economic size capacity and commercial capacity that are operational on a global basis you may not stand to become competitive gloablly. So off hand these points come to mind.
Mr. Siddhartha Mitra
Independent Expert in Chemicals & Petrochemicals Segment
Mr. Siddhartha Mitra is an Independent Expert in Chemicals & Petrochemicals segment at PwC. Alongside, he is an advisor to an international company in the textile parks area in India. He is also a consultant for project development for two companies in the filed of chemicals & polymers.
He has work experience spanning over 43 years in Petrochemicals businesses, Refinery operation and Planning & Technical Services including project planning, conceptualization, feasibility studies, technology selection & contract execution.
He has been a Director in the Board of Indian Synthetic Rubber Private Limited, a joint venture of Indian Oil Corporation Limited, Trimurti Holding Corporation, BVI (subsidiary of TSRC Corporation) & Marubeni Corporation.
Siddhartha Mitra is an engineer by profession, holds a Bachelor of Chemical Engineering Degree from Jadavpur University, Calcutta and is a post graduate in Polymer Engineering. He has undergone Advanced Management program from Indian Institute of Management, Kolkata.
He has also been conferred with award for Distinguished Contribution to the Petrochemical Industry by FICCI under the aegis of Ministry of Chemical and Fertilisers, Government of India.About InfEneTy
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