A growing appetite for crude oil that has overtaken the slow rise in refining capacity may be the reason why India is unable to cash in on the oil price boom, even as the country stares at a much larger import bill.
Even as international crude prices continue to rise steeply upwards and inbound shipments of oil have risen significantly, export volumes of processed crude have continued to decline. Trade figures show much less oil – processed or crude – is being exported. Oil imports during the last financial year 2017-18, stood at $ 109.11 billion, more than 25 per cent higher than the year before.
On the other hand, India’s earnings from processed crude exports, one of the largest export segments, trailed expectations in the same year. “While exports of processed petroleum and other substances were $32.43 billion in 2016-17, they have tentatively gone up to $35.33 in 2017-18. This represents a rise of 8.9 per cent,” a Commerce Ministry official said.
However, monthly data shows a series of contractions. Exports of refinery products declined 4.48 per cent in April, the last month for which data is available. That said, the rate of contraction narrowed from 13.22 per cent in March and 27.44 per cent in February.
India guzzling oil
During March, petroleum product consumption was up 7.2 per cent over the the previous year. Interestingly, export of petroleum, oil and lubricants (POL) products decreased by 19.8 per cent during March 2018 from March 2017. On the other hand, the production of petroleum products in India stood at 254.39 million tonne (MT) during the financial year 2017-18, up 4.8 per cent from 242.69 MT in 2016-17.
“India is experiencing fastest growth in oil consumption among all major economies, in excess of 5 per cent per annum. The refining capacity is not able to keep pace with growth in consumption, possibly the reason for falling export of petroleum products,” said Debasish Mishra of Deloitte Touché Tohmatsu.
According to the Petroleum Planning and Analysis Cell (PPAC), the total refining capacity of the country increased from 234 million tonne per annum (MTPA) in April 2017 to 247.6 MTPA in April 2018. Meanwhile, there was growth of 3.5 per cent in joint venture and 10.2 per cent in private refineries capacities. Production of petroleum products during March 2018 saw a marginal growth of 1 per cent over March 2017.
Exports hit as refineries shut down
On the other hand, officials from oil marketing companies cite that the shut down for maintenance and up-gradation by some refineries like Paradip in Odisha, Bina in Madhya Pradesh and Bhatinda refinery in Punjab. “There was a spur in demand in the last couple of months. As far as exports are concerned, the shutdown of and export-oriented refinery like 300,000 barrels per day (bpd) Paradip refinery in mid-March and April would have had an impact,” said an OMC official. The refinery was shut due to maintenance at its hydrogen unit for more than a month.
Experts have predicted that India’s oil bill will continue to expand in the current financial year as external pressures such as the fallout of the Iran deal and a possible cut down in production by oil producers again heat up prices.
“Assuming an average price for the Indian crude oil basket of $70/barrel, we expect the net petroleum, crude and products import bill to surge to $93 billion in FY2019 from $70 billion in FY2018. This is likely to push up the current account deficit to $65-70 billion or Rs 2.4 per cent of GDP in FY2019,” Aditi Nayar, Principal Economist at ICRA, a credit-rating agency, said.