India’s oil demand ceiling miles away despite energy transition: Nayara CEO
India is unlikely to see its oil products demand hitting the ceiling at least until 2035, although the energy transition process will create opportunities for the electric vehicle charging space and biofuels in coming years, said the CEO of the country’s second-largest private refiner Nayara Energy.
“I don’t see the plateauing of fuels demand in India before 2035,” Alois Virag said during a CEO conversation session with Chris Midgley, global director of analytics at Platts, at the S&P Global Platts Asia Pacific Petroleum Conference, or APPEC, in Singapore.
However, Virag, who took charge of the company earlier this year, said that product diversification would be crucial in order to make the company’s refinery more resilient to any long-term changes in demand patterns.
“Petrochemicals is an area you have to look at to boost profitability and build resilience to any plateauing of fuels demand that might happen,” Virag said.
In 2017, Nayara, which was then called Essar Oil, closed a $12.9 billion takeover deal by Rosneft, Trafigura and United Capital Partners. As part of the deal, the consortium took over the 20 million mt/year Vadinar refinery, which has a complexity index of 11.8.
Following the takeover, Nayara in 2019 spelled out its first big expansion strategy by announcing its foray into petrochemicals, saying the proposed asset development at the Vadinar refinery would see the setting up a 450,000 mt/year polypropylene plant and a 200,000 mt/year MTBE plant.
“India is the growth market in Asia and the best market to be in,” Virag said.
Near-term market outlook
Virag said demand for gasoline in India has been robust recently, but the recovery in diesel demand has been somewhat slower, while the gasoil consumption should pick up once the monsoon season is over.
“What is lagging behind is jet fuel and this is a global phenomenon,” he said, adding that demand was only about 60% of pre-pandemic levels. “Forward-looking, we see a pick-up in flight activity and improving cracks for jet fuel. I think everything is geared towards a recovery, now that the second wave of the virus is over.”
Virag said Nayara was hopeful that domestic fuel demand would post a growth of close to double-digits in India in the current year, making it imperative for Nayara to ensure that it maintains it crude runs at 100% of the capacity.
“Our average crude runs were at 90% last year. And this year we will keep our utilization rates close to 100%. The excellent configuration of our refinery gives us the flexibility to change our crude and products slate as per demand,” Virag said.
In addition, export markets also offered an opportunity to sell products that witness subdued demand at home. “We have the support from our partners Trafigura and Rosneft in reaching out to international markets. So that’s a competitive advantage.”
Commenting on the changes in the global crude market, Virag said that the market had witnessed unusual price moves in recent times, with heavy and sour crudes being more expensive than lighter crudes. “The demand pattern shifted — less jet fuel — so we had to also adapt to that.”
Virag said that the company was sourcing crudes from across the globe, keeping in mind their economic viability.
“There are some crudes that are not available for the time being, such as Iranian crudes, and potentially others. At Nayara, we wish that the political tensions can be sorted between the countries and there will be open and competitive markets again.”
Before the US sanctions on Tehran, Nayara used to import about 6 million-6.5 million mt/year from Iran, or roughly one-third of its requirements.
New energy initiatives
New Delhi in June 2021 moved up its target to achieve 20% ethanol blending with gasoline to 2025 from the prior target of 2030.
India’s fuel ethanol consumption is expected to reach nearly 3 billion liters in 2022 and 3.2 billion liters in 2023, up from an estimated 2.7 billion liters in 2021, according to estimates by S&P Global Platts Analytics. That would equate to an ethanol blending rate of roughly 6.1% and displace 30,973 b/d of fossil fuels.
“Nayara will try to maximize its ethanol blending capabilities as we support the green agenda of the government. The biggest question is if there is enough ethanol available to achieve the target,” Virag said.
“We don’t see this as competition to the current business because fuels demand is growing so fast in India that even with 20% blending with gasoline, there will be additional demand for fossil fuels,” he added.
He said that electrification of mobility would offer opportunities in the future and Nayara was looking at expanding its presence in the electric vehicle charging space at its retail fuel stations.
“This is a mega trend and we want to be prepared. We are taking the first steps to look into the opportunity,” Virag said.