India sets out plans for rapid petrochemicals growth

Six in hand

01 April 2009 00:00  [Source: ICB]

In its drive to attract international investment, India is seeking to develop six special zones for refineries, natural gas and chemical production

SINCE THE start of India's economic deregulation in the early 1990s, the country has seen increasingly rapid economic expansion. Annual rates of growth in GDP have varied between 7.5 and 9.6% over the past six years.

This has driven even more rapid increases in the country's chemical output. India's chemical production (including pharmaceuticals) was valued at $40bn (€31.6bn) in 2006, the result of an average growth rate of 10.8%/year between 2002 and 2006.

Estimates made shortly before the current economic turmoil indicate that growth was still accelerating, to around 13.6%/year over the period to 2011. This would have taken output to an expected value of $75.8bn, according to the latest analysis on India's chemical sector made by Mitsubishi Chemical Techno-Research.

The Indian government is promoting further investment in chemicals and an upgrading of supporting infrastructure in its 11th five-year plan, which runs to 2012.

Two major elements in this support for India's chemical sector are the government's decision to allow 100% ­ownership of foreign direct ­investment projects in this sector, and its establishment of a series of special economic zones (SEZs) and a number of petroleum, chemicals and petrochemical investment regions (PCPIRs).

The establishment of SEZs was spurred by enabling legislation passed in 2005. Prior to that date, 19 had been established or proposed, but none were dedicated to chemicals. Since then, some 222 SEZs have been proposed for development, with 14 devoted solely to the chemical industry.

Of these, 12 are for pharmaceutical-related business, one for petrochemicals and oil refining (located at Baikampady and being developed by Mangalore SEZ) and one for general chemicals (at Baruch, being developed by Jubilant Infrastructure).

Several are already up and running, for example Divi's Laboratories' project at Visakhapatnam and Serum Institute of India's project at Pune.

But there has been little concrete ­progress at the Mangalore petrochemical SEZ, although India's Oil and Natural Gas Corp. (ONGC) has plans for an aromatics plant there and is looking for other, down-stream investors.

The Baruch facility is perhaps closer to development. Jubilant announced in April last year that it would invest Indian rupees 4bn ($77m) in fine chemicals at the site in 2008/09.

More attention is being focused on the larger PCPIRs, an idea launched in 2006 when it became clear that the SEZs were too small in scale to attract global chemical players to make foreign direct investment in petrochemicals. "The basic concept is to provide large-scale sites with sufficiently upgraded infrastructures to attract investment for oil refining, chemical and petrochemical production," says the report.

The sites are generally around 250km2 (97 square miles), of which 40% is earmarked for primary production. Investment of $15bn-20bn in each PCPIR is envisaged, with start-ups targeted at around 2013 (estimated in pre-crisis times last year).

So far, six states have come forward with outline plans for PCPIRs. Complexes are thus proposed at Dahej (Gujarat), Mangalore (Karnataka), Cuddalore-Nagapattiman (Tamil Nadu), Visakhapatnam-Kakinada (Andhra Pradesh), Paradip (Orissa), and Haldia-Nayachar Island (West Bengal), with total investment proposed of some $280bn (see table).

The Indian government gave its approval to three of the developments at the end of February - those in Gujarat, West Bengal and Andhra Pradesh. The other three, say reports, will need to rework and resubmit their plans.

However, even before the current downturn, several of the proposed projects had been delayed, or are now under review. Timescales for any developments must now be a question of conjecture given the current global downturn in petrochemical demand.

For instance, the consortium proposing to develop a grassroots refinery in the Andhra Pradesh PCPIR, led by Hindustan Petroleum Corp. Ltd. (HPCL), has yet to start detailed studies. The partners include Singapore's Mittal Energy Investment, France's Total, Oil India Ltd. and GAIL (India). The export-oriented project would also include an aromatics unit and naphtha cracker.

OLEFINS EXPANSIONS
India is not over-endowed with basicolefins capacity. According to the Mitsubishi Chemical Techno-Research report, ethylene capacity stands at around 2.9m tonnes/year, just a quarter the size of China's, and only 41% the size of the six ASEAN states.

However, rapid development is expected and the report identifies plans and projects for 7.4m tonnes/year of new capacity. It forecasts, therefore, that capacity should reach 8m tonnes/year by 2014, with energy and materials group Reliance Industries still holding the lion's share (3.53m tonnes/year, or 44%), followed by Essar Oil (16%), ONGC (14%), Indian Oil Corp. (10%), Haldia Petrochemicals (8%) and GAIL (India) (5%).

Even so, says the report: "India's 11th five-year plan target will not be met for ethylene, unless the ONGC project in Gujarat can come on stream in 2012", which it deems unlikely.

The developments will, however, move India from being short in ethylene to long. The country is currently around 450,000 tonnes/year short of its ethylene needs for downstream products such as polyethylene (PE), ethylene glycol (EG) and vinyl chloride monomer (VCM). This situation, says the report, "will be relieved by the dramatic expansion of ethylene capacity post-2011," leading to a substantial surplus of some 1.4m-2.6m tonnes/year in terms of ­ethylene equivalent.

For propylene, however, the situation is more positive, and capacities by 2011-2012 are expected to exceed by a fair margin the levels set out in the five-year plan. The report expects propylene capacity to reach nearly 7m tonnes/year by 2012 and 8m tonnes/year by 2014.

This is largely down to expansions at Reliance, which is expected to increase capacity at Jamnagar by 900,000 tonnes/year in 2009, a further 450,000 tonnes/year in 2011 (doubled in 2012), and add a 900,000 tonne/year unit in 2012. In terms of supply and demand, the Indian market is fairly balanced, but is expected to become increasingly long after 2010.

Reliance's ambitious expansion plans will see it move up the table of major olefins producers, albeit slowly. The report expects the company to lie just outside the top 10 producers of ethylene in 2014, at No. 12, up from 16th position in 2007. In Asia, though, it will become the third-largest producer, after China's Sinopec and PetroChina, overtaking Formosa Plastics of Taiwan and Yeochun NCC of South Korea.

The story is the same in propylene, as by 2014, Reliance will hold the fifth spot globally and the third slot in Asia, again after the two Chinese majors.

Much of the investment under discussion in India, like much in the rest of the world, will now be reviewed as a result of the economic downturn and loss of business confidence worldwide. This resulted in a sharp decline, by as much as 20-30%, in chemical demand in the final quarter of 2008, a state which has persisted into the first three months of 2009.

Will India's grand plans for petrochemical expansion be able to attract foreign investment in today's climate? Or will the country have to go it alone, albeit at a slower pace? It may be several years before the answer is clear.

PCPIR LOCATIONS AND PROJECTS
Location Area, km2 Project and anchor tenant Investment, $bn
Dahej, Gujarat 453 ONGC: petrochemicals + LNG complex and C2, C3 extraction 23.37
Mangalore, Karnataka 300 Mangalore Refinery & Petrochemicals Ltd./ONGC: refinery expansion + petchems + LNG complex and C2, C3 extraction 22.22
Cuddalore-Nagapattinam, Tamil Nadu 252 Nagarjua Oil Corp.: refinery + naphtha cracker 60
Visakhapatnam-Kakinada, Andhra Pradesh 604 HPCL: refinery and expansion; ONGC: refinery 88
Paradip, Orissa 284 IOC: refinery + petrochemicals 68.84
Haldia-Nayachar Island 164 IOC: refinery + hydrocracker-based existing refinery 18.75
TOTAL 2,057 281.18
 SOURCE: MITSUBISHI CHEMICAL TECHNO-RESEARCH   

Chemical Industry In India - A Perspective Of Exciting Chemical Industry In India is published by Mitsubishi Chemical Techno-Research of Tokyo, Japan


By: John Baker
+44 20 8652 3214



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