India to increase crude oil refining capacity by 35-40 tonnes by fiscal 2030: Crisil Ratings, ET EnergyWorld

New Delhi: India’s oil marketing companies (OMCs) are expected to increase the country’s crude oil refining capacity by 35-40 million tonnes (MT) by the end of fiscal 2030, Crisil Ratings said.

This will take the country’s total installed crude oil refining capacity to 295 MT by 2030, according to the rating agency.

This expansion will be driven by projected growth in domestic oil consumption as India’s existing refining capacity is currently operating at optimal utilization levels of 100-103 percent.

According to the rating agency, the expansion will require a capital expenditure of around Rs 1.9-2.2 lakh crore and most of the capacity additions will be brownfield expansions.

He further added that these investments are expected to carry low project risk and stable returns from the refinery business will help strengthen the credit profiles of OMCs.

Over the past decade, India’s capacity has increased by 42 MT, reaching 257 MT in fiscal 2024.

This was primarily in response to increased domestic demand; Exports remained constant at 60-65 MT annually during this period.

Domestic consumption of petroleum products has increased at a compound annual growth rate (CAGR) of 4 percent over the last decade.

Anuj Sethi, Senior Director, CRISIL Ratings, said: “We expect overall petroleum product consumption to moderate slightly and register a CAGR of 3 per cent over the next six years, mainly due to slower growth of 2-3 per cent in transport fuel consumption. “The reason will be improved fuel economy, increasing share of vehicle sales with alternative clean fuels and the 20 percent ethanol blending target proposed by the Government of India.”

Transportation fuels, which account for approximately 56 percent of total consumption, also recorded a similar growth rate of 4 percent, while naphtha (a flammable, straw-coloured liquid hydrocarbon mixture), which accounts for 7 percent of consumption, increased by 7 percent. 2 percent

Other products such as liquefied petroleum gas (LPG) and bitumen collectively recorded close to 4 percent growth.

Going further, diesel consumption in the country is expected to grow at a more moderate pace of 2-2.5 percent compound annual growth rate over the next six years.

The rating agency said the shift to electric vehicles (EVs) and natural gas-powered buses will reduce diesel demand as electrification efforts in the commercial vehicle sector gain momentum.

Petrol consumption, driven mainly by two-wheelers, is also expected to face downward pressure, according to Crisil Ratings.

According to the rating agency, sales of electric two-wheelers are projected to reach 12-15 per cent of the market share by fiscal 2030. Similarly, compressed natural gas (CNG) passenger vehicles are expected to capture 17-19 percent of the market by 2030.

In addition, India’s target of achieving a 20 percent ethanol blend with gasoline by 2026 will further reduce oil demand, he added.

On the other hand, naphtha demand is expected to see a strong CAGR of 6-7 percent, supported by rising demand from planned petrochemical capacity additions in India, the rating agency said.

This growth in total consumption will require an increase in refining capacity of 35-40 tonnes as existing capacities are currently operating at an optimum utilization level of ~100-103 percent.

Joanne Gonsalves, Associate Director, CRISIL Ratings, said: “Most of the capacity additions will be brownfield expansions to meet demand for end products, thus reducing project risks. We have also seen oil refineries stabilize operating profits amid the volatility seen in 2019 and 2016-2024.” “Oil prices achieved an average return of 9-11 US dollars per barrel between fiscal years and recorded a return on investment of 12-14 percent. In addition, the sector also benefits from its strategic importance for the government.”

The rating agency added that a strategic focus on brownfield expansion will reduce risks and allow OMCs to adapt more quickly to the changing energy landscape.