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Rising refining surpluses
With the commissioning of the 120kbpd Bina refinery, India’s refining surplus rose
to 1.4mbpd by FY11. With 674kbd of capacity expected over the next couple of
years and a further 1.6mbpd under various stages of evaluation, we expect this to
reach ~3mbpd by FY17 making India the third largest refiner globally and also the
largest export hub. We anticipate continued pressure on return ratios of the
refiners but the ~US$30bn capex opportunity bodes well for L&T and ENGR.
Capacity surplus at 1.4mbpd by end FY11
q The commissioning of the 120kbpd Bina refinery, optimisation at RPET and capacity
adds at Kochi and Chennai has taken India’s refining capacity to ~4.3mbpd in FY11.
q Refinery capacity has now increased at a 10% Cagr over the last three years
(+1.1mbpd) easily outpacing the 3.2% Cagr in demand (+260kbpd).
q India’s capacity surplus, therefore, rose to 1.4mbpd– the largest after Russia.
Over 650kbpd of new capacity over FY11-14
q A further 674kbpd of additional capacity in various stages of implementation.
q These include the 180kbpd HPCL-Bhatinda, the 300kbpd IOC-Paradip, upgrades to
Essar-Vadinar (+120kpd), MRPL (+30kbpd) and Chennai Petro (+14kbpd).
q Surpluses should rise to 1.8mbpd by FY13, therefore, even as demand expands.
Nearly 3mbpd of capacity surpluses by FY17
q Despite the suspect return profiles in these projects, all refining companies in India
– especially the state owned ones – continue to evaluate further expansions.
q Nine separate projects aggregating 1.6mbpd are currently on the drawing board in
IOC (+500kbpd), HPCL (+360), BPCL (+170), Chennai (+180) and Essar (+360).
q HPCL (2.6x capacity increase over FY11-17), Essar (2.7x) and IOC (1.9x) have the
most aggressive plans while BPCL (1.6x), MRPL (1.2x) and Reliance (1.1x) lag.
q These should take India’s overall capacity to +6.5mbpd making it the third largest
refiner in the world behind US (currently 18mbpd) and China (currently ~9mbpd).
q In fact, by this time we expect India’s surpluses to reach 3mbpd making India the
largest refinery export hub in the world well ahead of Rotterdam and Singapore.
US$30bn+ expansion capex opportunity
q Given the significant expansion costs (US$18k/bpd for projects under evaluation),
realised refining margins need to be +US$12/bbl to earn just a 10% ROCE.
q Rising surpluses may also pave the way for a change in pricing norms from import
to export parity; this will cut tariff protection and lower margins by US$0.5-1.5/bbl
q We continue to expect return ratios of the refiners to remain under pressure.
q Nonetheless, the upcoming expansions represent a US$30bn+ capex opportunity
that bodes well for the likes of L&T (EPC) and EIL (PMC, LSTK).
q Upgrade projects in several legacy refineries and integration with petrochemicals
adds to this potential; IOC alone is evaluating US$8bn of such projects.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Rising refining surpluses
With the commissioning of the 120kbpd Bina refinery, India’s refining surplus rose
to 1.4mbpd by FY11. With 674kbd of capacity expected over the next couple of
years and a further 1.6mbpd under various stages of evaluation, we expect this to
reach ~3mbpd by FY17 making India the third largest refiner globally and also the
largest export hub. We anticipate continued pressure on return ratios of the
refiners but the ~US$30bn capex opportunity bodes well for L&T and ENGR.
Capacity surplus at 1.4mbpd by end FY11
q The commissioning of the 120kbpd Bina refinery, optimisation at RPET and capacity
adds at Kochi and Chennai has taken India’s refining capacity to ~4.3mbpd in FY11.
q Refinery capacity has now increased at a 10% Cagr over the last three years
(+1.1mbpd) easily outpacing the 3.2% Cagr in demand (+260kbpd).
q India’s capacity surplus, therefore, rose to 1.4mbpd– the largest after Russia.
Over 650kbpd of new capacity over FY11-14
q A further 674kbpd of additional capacity in various stages of implementation.
q These include the 180kbpd HPCL-Bhatinda, the 300kbpd IOC-Paradip, upgrades to
Essar-Vadinar (+120kpd), MRPL (+30kbpd) and Chennai Petro (+14kbpd).
q Surpluses should rise to 1.8mbpd by FY13, therefore, even as demand expands.
Nearly 3mbpd of capacity surpluses by FY17
q Despite the suspect return profiles in these projects, all refining companies in India
– especially the state owned ones – continue to evaluate further expansions.
q Nine separate projects aggregating 1.6mbpd are currently on the drawing board in
IOC (+500kbpd), HPCL (+360), BPCL (+170), Chennai (+180) and Essar (+360).
q HPCL (2.6x capacity increase over FY11-17), Essar (2.7x) and IOC (1.9x) have the
most aggressive plans while BPCL (1.6x), MRPL (1.2x) and Reliance (1.1x) lag.
q These should take India’s overall capacity to +6.5mbpd making it the third largest
refiner in the world behind US (currently 18mbpd) and China (currently ~9mbpd).
q In fact, by this time we expect India’s surpluses to reach 3mbpd making India the
largest refinery export hub in the world well ahead of Rotterdam and Singapore.
US$30bn+ expansion capex opportunity
q Given the significant expansion costs (US$18k/bpd for projects under evaluation),
realised refining margins need to be +US$12/bbl to earn just a 10% ROCE.
q Rising surpluses may also pave the way for a change in pricing norms from import
to export parity; this will cut tariff protection and lower margins by US$0.5-1.5/bbl
q We continue to expect return ratios of the refiners to remain under pressure.
q Nonetheless, the upcoming expansions represent a US$30bn+ capex opportunity
that bodes well for the likes of L&T (EPC) and EIL (PMC, LSTK).
q Upgrade projects in several legacy refineries and integration with petrochemicals
adds to this potential; IOC alone is evaluating US$8bn of such projects.
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