Boost in Indian Refinery Output due to Cheap Russian Crude
India is a rapidly growing economy, and with it comes an increasing demand for oil. India imports more than 80% of its crude oil requirements, making it the third-largest oil importer worldwide. In recent years, India has increasingly looked to Russia as an important source of crude oil. The reasons for this choice are twofold: the distance between the two countries is considerably less than other oil-producing countries such as the Middle East, and secondly, Russian crude is considerably cheaper than that from other suppliers.
This strategic move by India is now paying off as there has been a significant boost in Indian refinery output due to the availability of cheap Russian crude. The year 2020 has been exceptional, with Russian crude accounting for nearly two-thirds of India’s oil imports, up from 50% in the previous year.
One of the most significant beneficiaries of this surge in crude imports from Russia has been Indian refiners. Refineries are the backbone of the downstream oil industry, where crude is processed and refined into various products, including petrol, diesel, and other petroleum products.
India has 23 refineries, with a combined refining capacity of approximately 250 million tonnes per annum. These refineries have recently undergone upgrades and modernization to process low-quality crude, and they have been successful in processing cheap Russian crude into high-quality petroleum products.
The boost in refinery output has been significant. In 2020, Indian refineries operated at higher utilization rates, which enabled India to become a major exporter of refined petroleum products in the international market. India exported a record 64 million tonnes of refined petroleum products in the 2020-21 financial year, up from the previous year’s 61 million tonnes.
The increase in exports was due to the availability of cheap crude from Russia. This made Indian refineries more competitive in the international market, where they could offer high-quality petroleum products at lower prices than other countries. India’s refinery output has also been boosted by a decline in domestic demand in 2020 due to the Covid-19 pandemic, which forced widespread lockdowns across the country.
One of the most significant beneficiaries of this boost in refinery output has been state-run Indian Oil Corporation (IOC), India’s largest refiner. IOC has been successful in refining the low-quality crude from Russia and processing it into high-quality petroleum products such as petrol, diesel, and aviation turbine fuel (ATF).
IOC refineries operated at around 100% capacity, with clear guidance from the government to increase capacity utilization rates. The company has also invested in infrastructure to expand its refinery and petrochemical capacity, with plans to spend $7.5 billion on these projects by 2024.
The other major beneficiaries of the boost in refinery output have been Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL). BPCL and HPCL have also been expanding their refineries to process low-quality crude and increase refining capacity.
In conclusion, the boost in Indian refinery output due to cheap Russian crude is a significant development that has benefitted the Indian economy and the downstream oil industry. It has enabled India to become more competitive in the international market and has created an opportunity to become a major exporter of refined petroleum products. The Indian government and state-run oil companies have recognized the potential of this development and have invested in infrastructure to expand their refining capacity further. With this boost in output, India can continue to meet its demand for petroleum products and likely become a more prominent player in the global downstream oil industry.
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