Basrah, Urals crudes in spotlight as India’s ‘jewel of the desert’ refinery nears completion

India is just months away from launching its first greenfield integrated refinery complex in nearly a decade, leading to active negotiations with global oil producers for term crude imports for a project that has the potential to generate incremental annual feedstock demand of up to 9 million mt.

Dubbed the “jewel of the desert,” HPCL Rajasthan Refinery Ltd. (HRRL) — an integrated refinery and petrochemical complex with a capacity of 9 million mt/year currently under construction in Pachpadra, Balotra district of Rajasthan — has already put certain units into the precommissioning stage.

The complex, jointly built by state-run Hindustan Petroleum Corp. and the Rajasthan government with equity stakes of 74% and 26%, respectively, is poised to commence operations as India is projected to surpass China’s oil demand growth rate. This has led the International Energy Agency to anticipate that India will become the biggest center for oil demand growth until 2030.

“The refinery is designed to run with over 83% of imported medium-grade crude and the remaining being domestic crude. Russian Urals could indeed be a favorite choice,” said Abhishek Ranjan, South Asia oil research lead at S&P Global Commodity Insights. “The refinery will try to diversify its crude basket for better security as future tightening of Russian barrels cannot be ruled out. The Arabian and Basrah grades are next in the top three crude types that the refinery will use.”

Ranjan said that the refinery’s configuration includes large vacuum distillation, delayed coker and petro-fluid catalytic cracking units, which should allow it to process various heavier crudes as well.

According to company officials, the construction of all the processing units for the new integrated refinery is on track to meet the January-March 2025 completion deadline. The main processing units, such as diesel hydrotreating and hydrogen generation, have entered the precommissioning stage.

The physical progress of the other key process units is around 94%. The refinery’s pipeline connectivity with the nearby crude import terminal in Mundra on the western coast and to the Mangla oil fields has been completed.

‘Jewel of the desert’

Petroleum Minister Hardeep Singh Puri has described the Rajasthan refinery as the “jewel of the desert,” highlighting its potential to bring many socioeconomic benefits, including the creation of thousands of jobs and a reduction in the country’s reliance on imported petrochemicals.

“It will process 9 million mt of crude and produce more than 2.4 million mt of petrochemicals, which will reduce the import bill on account of petrochemicals,” Puri said.

Incorporated in September 2013, HRRL has experienced cost escalation from the original estimates due to significant increases in commodity prices and an expanded scope of work. In addition, pandemic-led lockdowns resulted in delays in awarding orders and construction activities, pushing the completion deadline back by a few years.

“Being an integrated refinery-cum-petrochemicals complex, the project is expected to have a cost advantage over standalone petrochemical facilities that source raw material from other refineries,” CRISIL, a unit of S&P Global, said in a research note. “The flexibility in using a mix of imported and Rajasthan crude should help improve profitability and benefit the company.”

The refinery is expected to mainly produce Euro 6-grade high-speed diesel, gasoline and value-added petrochemical products, such as polypropylene, butadiene, linear low-density polyethylene, high-density polyethylene, benzene and toluene.

Analysts have indicated that the project’s high complexity will enable it to achieve higher gross refining margins than the existing HPCL refineries in Mumbai and Visakhapatnam.

“As far as the cost economics is concerned, the management has highlighted that its Rajasthan refinery will have one of the highest petrochemical integrations, with expectations of gross refining margins of around $20/b,” said Sumit Pokharna, vice president at Kotak Securities Ltd. “The operational expense for its Rajasthan refinery would be in line with other refineries at $2/b-$3/b.”

Overcoming deficit

According to CRISIL, HPCL’s volume of petroleum products sold currently exceeds the production capacity of its own refineries. However, with an offtake agreement with HRRL, HPCL’s dependence on other refiners is expected to reduce. Additionally, the project’s strategic location positions it well to cater to the growing demand for petrochemical products due to its proximity to demand markets in western, northern and central India.

“The refinery is expected to be diesel-focused, with the associated petrochemical complex expected to start in 2025. As a result, the refinery is expected to largely focus on the domestic market and help HPCL reduce its net deficit position,” said Tushar Tarun Bansal, senior director at consulting firm Alvarez and Marsal.

HPCL already owns and operates refineries in Mumbai and Vizag, with annual capacities of 9.5 million mt (190,000 b/d) and 13.7 million mt, respectively. Both refineries have been upgraded to produce Euro 6-compliant transport fuels.

HPCL also holds a 48.99% equity stake in joint venture company HPCL-Mittal Energy Limited, which operates an 11.3 million mt/year refinery in Bhatinda, Punjab. It also has a 16.96% equity stake in the 15 million mt/year Mangalore Refinery and Petrochemicals Ltd.

The Paradip Refinery, operated by state-run Indian Oil Corp., was the last standalone refinery commissioned in India in 2016 with an installed annual capacity of 15 million mt. Since then, many refiners have pursued expansion projects, but HRRL will be the first standalone refinery to be developed.

“The new Rajasthan refinery of HPCL and the state government will be able to cater to the demand-intensive northern India, which has a net deficit in terms of refined oil products balance,” Ranjan said.
Source: Platts