If you charged your phone this morning, used a toaster, or drove yourself to work in your car, there’s a significant chance that OIL played a big role in your life today! Crude oil is extracted from oil refineries located on oil fields both onshore and offshore. This raw material is converted into valuable finished products like petrol, diesel, kerosene, aviation turbine fuel, sulphur, and PetCoke. Along with these products, many refineries have started setting up petrochemical plants, predominantly polypropene and polyethylene, more commonly known as plastic granules.
Mr Harak Banthia, CFO at HPCL-Mittal Energy Ltd (HMEL), has over 37 years of experience in the steel, oil, and gas industry. Starting work at the age of 18, he revolutionised himself first in steel and then in the oil industry.
Oil refineries, as we know, are massive and require detailed strategic planning from an economic and financial aspect. Refineries are stationed where they can access economic advantages with regards to their business models as well. Pricing of liquid products are predominantly based on import parity pricing, thus, inland a sales depot of products like petrol and diesel is from the port, the higher its prices.
HMEL refinery is stationed in the northern region of Punjab, where 100% of crude oil is imported at Mundra ports and then transported to the refinery in Punjab in a pipeline of 1017 km. There are 6-7 units in their branch, out of which HMEL has built their own power plant that internally generates and supplies electricity to their other factories. Each of these units specialises in a specific product. All crude oil sourced first arrives at the ‘mother unit’ called the CDU, from where it is further segregated into other units based on demand and supply.
Setting up refineries requires tremendous manpower and resources, especially financially. Rs 20,000 crores were needed, for example, to set up this refinery of 9 million tonne capacity. In India, moreover, countless government approvals are required in setting up greenfield refineries. Transportation and logistics require multiple rounds of planning too. Roads and routes need to be mapped out thoroughly to ensure diseconomies of scale are not experienced in the process.
India is short in production of crude oil; thus, a large amount of crude oil is imported annually. While the demand and supply are generally balanced in the country, the demand far exceeds the supply in northern India. So, these products are transported from other parts of India into the northern region. Companies like HPCL notice the gap between the amount of oil sold versus the amount of oil produced, since the sales exceeded the production capacity. Therefore, this HMEL refinery was set up in the north.
In fact, the margin of production of crude oil fluctuates from time to time. About 90 tons of finished product is retrieved from 100 tons of unprocessed crude oil, giving the plants about 90% efficiency in terms of resources and production. Even in the “wasted” 10 tons, it is equally lost machinery and production, as well as for internal power generation.
Other than just household usage, crude oil products are heavily demanded by agricultural industries. Despite Covid-19, diesel was heavily manufactured for agriculture, even though auto industries were less in demand. Even today, however, the largest sector demanding oil usage is vehicles. Despite lower demand due to the pandemic, the market is so significant that the refinery has been producing at close to full capacity.
As countries worldwide become more environmentally conscientious, there are new laws fining corporations on excess levels of carbon emissions. While strict rules aren’t imposed in India just yet, they are soon to come. However, international petrol demand will eventually decline. The exact number of oil refineries may not be set up in the future due to declining demand, but the current market still strongly acknowledges oil’s importance.
Electric vehicles and renewable energy sources spur the future. Even India projects a considerable augmentation in the number of electric cars by 2030. The HMEL refinery is also investing in solar power due to the high incentives, pricing that this source of energy production is growing steadily.
Crude oil and non-renewable sources, especially at present, provide a more considerable amount of power produced per dollar/per capita compared to the renewable sources mentioned earlier. Oil has a significantly lesser cost of production as compared to other non-renewables. Petrochemicals (a by-product in the manufacturing of crude oil), for example, are themselves used as sources of power for oil refineries; thus, the cost of production has reduced, shining light on a new opportunity for the future.
Oil may or may not be the future, but it indeed runs the present. These oil refineries control our lives and the entire world, especially in this digital age. Whether government regulation and public favour of crude oil alter in India or not, we know the HMEL refineries are well-equipped to accommodate market demand changes!
