Emerging business dynamics indicate that conventional petroleum refiners are expected to face tough challenges in the years to come. In Europe, diesel is expected to face a dead end by 2040 as Europe is geared to promote the electric car over fossil fuels. In recent times, the electric vehicle (EV) revolution has gathered momentum in the US, China, UK, and Canada.  An estimate by Bloomberg New Energy Finance states that by 2038, EVs sales will surpass sales of internal combustion vehicles. Therefore, demand for diesel and petrol will come down, resulting in the displacement of about 8 million barrels a day (b/d) of oil production — 1.7 times India’s existing refining capacity of 4.6 million b/d. 

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In the context of EV revolution, the refining industry is expected to face massive loss of sales and jobs. India’s surplus refining capacity may pose multiple challenges and demand business and strategic reorientation. Refiners may have to rationalise their existing product mix and explore expanding the production of alternative products to compensate for the loss of diesel and gasoline production in the future. Realistically speaking, the refiners started sensing the inevitable; and strategic planning groups of downstream companies are working relentlessly on alternatives. During a recent interaction with 22 officers of an Indian refiner, I got the impression they were preparing for tough times ahead — tough by 2030 and even tougher by 2040. Unequivocally, all of them agreed that refiners need to adapt to pass Darwin’s test of ‘survival of the fittest’. Over the last eight years, some European refiners succumbed to Darwin’s test resulting in closure of refining capacity over 21.9 million b/d. 

Can the Indian refiners overcome forthcoming challenges and sail through? Possibly modern and state-of-art refineries in India are in a much better position to adapt and face the emerging challenges than old refineries. Further, higher production of renewables and integration with national smart grids could complicate the matter for the refiners. Such initiatives will serve as catalysts to the successful adoption of electric mobility the world over.

Consequently, shrinkage in sales of diesel and petrol in the domestic and export markets would be a future reality for refiners. Under the emerging circumstances, profitability and survival of the refiners would largely depend on efficient sourcing of crude oil including low-quality crude, producing finished products in line with global standards, and placing in suitable markets. 

Refinery-petrochemical integration is emerging as a viable option to combat possible losses from conventional products. As such integrations enhance production of value-added products, especially petrochemical products like man-made fibres may address profitability and other concerns. 

From interactions with Indian refiners, it could be inferred that integration is a strategic choice, not just an option. Therefore, refinery headquarters are fully empowered to exploit petrochemical opportunities in domestic and overseas markets. Existing refineries are fully charged to fast-track integration activities wherever possible. Further, upcoming refineries like West-Coast refinery — tipped to be the largest in India — may have a greater emphasis on petrochemicals. 

Arguably, integration makes logical, financial and economic sense. Ideally, single site refinery-petrochem integration offers reduction in transportation cost and avoidance of duplicity of storage facilities resulting in cost competitiveness. Also, synergy in infrastructure and resource optimisation along with economies of scale and scope may improve firms bargaining power and competitive position.

In 2015-16, India’s net import of major petrochemicals like synthetic fibres, polymers, synthetic rubber, synthetic detergent intermediates, and performance plastics stood at 2.9 million metric tonnes, 3.6 times higher than 0.8 million in 2008-09. Therefore, there is a strong need to drive refinery-petrochemical integration in the country to address trade imbalance in the petrochemical and chemical industry. I believe, refinery-petrochemical integration would offer a strategic survival route to the refiners. 

The author is the Head of Department of Management Studies at the Rajiv Gandhi Institute of Petroleum Technology