Prabodh Das
(prabodhhh@gmail.com)
This question highlights the uncertainty surrounding the future of Assam’s oil refineries as they navigate potential obstacles such as market fluctuations, environmental regulations, and technological advancements. Their ability to adapt and innovate will be crucial for their sustainability in a rapidly changing industry.
On 26 March 1867, oil was struck at merely 118 feet (35.97 m), Asia’s first mechanically drilled well at Makum near the Margherita area of Upper Assam, and the historic commercial exploration of crude oil began. Over the century, the major players of petroleum-producing companies have been active in the upstream, midstream, and downstream petroleum sectors. Over the years, Oil India Limited (OIL), Oil and Natural Gas Corporation (ONGC), Indian Oil Corporation Limited (IOCL), Numaligarh Refinery Limited (NRL), Bongaigaon Petrochemical Limited (BRPL), and others have been able to make Assam a significant player in the world oil map. At present, there are four major downstream refineries: Digboi Refinery, Guwahati Refinery, Numaligarh Refinery (NRL), and Bongaigaon Refinery. A new petrochemical plant based on gas, ‘Brahmaputra Cracker and Polymer Limited’ (BCPL), is being set up to tap the natural gas in upper Assam. The four refineries produce normal fuel like LPG, naphtha, gasoline, kerosene, aviation fuel, gas oil, RPC/petroleum coke, etc. These petroleum industries have, over the years, developed a pool of diverse technical expertise in the field and created job opportunities for millions over the years. The state government earns revenues from these companies as royalties and taxes and even has shares in some of these companies.
India is a major oil-importing country, as it imports crude oil and even imports thousands of petrochemical products from other countries. The consumer market is also expanding very fast for petrochemical products at a staggering 18 to 20 per percent. Assam has a golden oil history and has a great opportunity in the petrochemical sector, and Assam should initiate major steps to tap the potential that is not explored very well in this region. In Assam, it is very important and essential to create an appropriate oil-related ecosystem where medium- or small-scale further downstream ancillary industries can be set up. It is of great concern that there is a lack of study or research, and very little is known about the relationship between oil refining and its value chain of petrochemical end products. There is a lack of initiatives to attract investors on a large scale in this region. Education about products like plastic, rubber, fertilizers, chemicals, medicine, medical equipment, paints, adhesives, sports shoes, telephones, piping, valves, fabrics, cosmetics, and thousands of value-added goods. Interestingly, these products can be manufactured from petrochemicals locally. There is a lack of proper initiative on the part of any stakeholder so far, whether it’s an institution or government. Institutions have to introduce courses to enhance knowledge about resource availability vis-à-vis the manufacturing of goods for markets and the creation of job opportunities, which are interconnected. Understanding the need for the sustainability of our existing oil industries is an impending challenge. Knowing and formulating strategies is essential; what change must be adopted to remain competitive? Now it is time to understand the demand of the market globally and what products we can offer; it is very urgent. To address these challenges effectively, we must engage in comprehensive market research and innovation. By leveraging emerging technologies and sustainable practices, we can position ourselves to meet global demands while ensuring the longevity of our resources.
Numaligarh Refinery (NRL) and Brahmaputra Cracker and Polymer Limited (BCPL) came into being as a result of Assam’s student agitation, where the Assam Accord was signed between the All Assam Student Union (AASU) and the Government of India. BCPL, another important petrochemical project, started production with available abundant natural gas and naphtha from Numaligarh Refinery as feed, and now, it is producing linear low-density polyethylene (LLDPE), high-density polyethylene (HDPE), and polypropylene (PP), which are the raw materials of plastic-based industries.
It is a known fact that Assam has been rich in mineral oil production for centuries, and there is further scope for increasing production as an upstream oil industry by 2030. With the four refineries in close proximity, Assam has enough downstream refining capacity, is in surplus fuel production, and is dependent on markets outside the state. If we see the scenario of the downstream industry remaining profitable, these refineries have to transform from basic, simple refineries to complex refineries or else become integrated refineries and produce enough value chain products, such as petrochemicals, to meet India’s domestic market needs (presently India is heavily dependent on imports of such petrochemicals).
Refinery-petrochemicals integration is the most active interface springboard for newer process technologies. It will achieve value addition/upgradation of our refinery streams to maximum value out of the hydrocarbon refinery-petrochemicals value chain. It will bring in strategies for better energy conservation, logistics, and better environmental management.
In the field of chemicals and petrochemicals, a recent development has approved 10 plastic parks in the country, out of which Assam has one plastic park at Tinsukia. The petrochemical industry is a rapidly growing industry that produces a wide spectrum of useful products. It is a capital- and energy-intensive business that produces value-added material, therefore attracting large investment and cyclic business. The manufacturers who remain well integrated with feedstock have an edge over others; technological advancement is the key driver for the growth. In the changing scenario where liquid fuel is under threat, refinery-petrochemicals integration has become a reality and a golden opportunity to increase profitability. Plastic parks will help to achieve environmentally sustainable growth and increase employment.
The motivating factor behind the subject of studies is the presence of hydrocarbon industries in Assam, which are rated as simple refineries on a complexity index scale. The idea has been derived from the changing world scenario where challenges to keep lone-standing petroleum industries sustainable and profitable. The ever-rising demand and price of crude oil have made India highly susceptible to the impact of imports. The dependency on imports from countries depletes the foreign reserves of our country. Now it is high time India adopted strategies to develop as many simple refineries to ‘integrated refineries’ so that as many value chain products can be produced. The sooner, the better, as we adapt to the changes and minimise the import bill that India spends on petrochemical finished products.
India is going for renewable energy on a larger scale. Now, India ranks third in the renewable energy ‘country attractiveness index’ in 2021. India stands as the third largest energy-consuming country in the world. India has set an ambitious target to achieve a capacity of more than 175 GW worth of renewable energy, which will expand to 500 GW by 2030. This is the world’s largest expansion plan in renewable energy. India can replace the hydrocarbon imports bill, worth a whopping Rs 1 lakh crore. India’s three Oil Marketing Companies (OMCs) are currently setting up 12 second-generation ethanol plants across the country, which will collect agricultural waste from farmers and convert it into bioethanol, increasing the farmers’ earnings from the same produce and the same land. Oil PSUs are setting up second-generation ethanol bio-refineries across 11 states, and Assam is one of them.
‘Indian Railways’ with 94% of the broad gauge network electrified, the demand for diesel (HSD) from the railway sector has significantly declined. This shift is set to have major consequences for the oil industry, particularly for state-run companies like Indian Oil (IOCL), Bharat Petroleum (BPCL), and Hindustan Petroleum (HPCL) that supplied high-speed diesel (HSD) to Indian Railways. Indian Railways was the largest consumer of diesel in India. In 2018-19, Indian Railways consumed around 3 billion litres of diesel annually. As electrification progressed, diesel consumption fell sharply, leading to a reduction in refinery production of HSD; lower sales of HSD for oil companies are affecting their refining margins. There would be a shift in revenue streams for oil companies; IOCL, BPCL, and HPCL had long-term contracts with Indian Railways to supply diesel; these sales of HSD to the railways contributed a significant portion of revenue, and this decline of HSD sales will require oil companies to think twice and find alternative markets. Since many Indian refineries were configured to maximise diesel production, considering its high demand from transport and railways, declining railway demand means refineries may need to shift toward producing more petrol, aviation fuel, or petrochemicals. Investment in hydrocracking & FCC units to diversify product output beyond diesel. Refineries may need to adjust operations to meet the changing demand patterns. The oil industry must adapt quickly to this shift or risk a significant loss in revenue and market relevance. There would be a financial impact on OMCs & government revenue. As Indian Railways was one of the biggest bulk buyers of diesel, lower sales could affect the profitability of oil marketing companies (OMCs). Excise duty & VAT collection on diesel sales will drop, affecting government revenue. Now, the oil industry needs to shift towards alternative fuels & renewable energy to remain relevant, and therefore, the transition towards new opportunities for oil companies is inevitable.
If we study a state-of-the-art modern refinery in India, then Reliance’s Jamnagar is the best example. It is the largest refining complex in the world, with a total capacity of 68.2 MMTPA (DTA: 33 MMTPA + SEZ: 35.2 MMTPA). The Nelson Complexity Index (NCI) of the Jamnagar DTA Refinery is 11.8, and the Jamnagar SEZ Refinery is 14.0. The high NCI indicates its ability to process heavy crude and produce high-value products through advanced secondary processing units like delayed coking, hydrocracking, FCC, alkylation, and residue gasification. Compared to the Reliance refinery, the refineries in Assam are basic and have been serving the nation with conventional fuel oil. Now, as the demand for conventional oil decreases daily, the question of the Assam refinery’s profitability and sustainability is in doubt. These three refineries, Digboi Refinery, Guwahati Refinery, and Bongaigaon Refinery, under Indian Oil Corporation Limited, are India’s oldest operating refineries, commissioned in 1962, and 1974, respectively. The refineries have an NCI of 7.64, 8.4, and 8.44, respectively, indicating a relatively simple configuration compared to more modern refineries like Paradip Refinery (NCI 10.8) of IOCL and Reliance Jamnagar Refinery (NCI 14.0). The challenges for Digboi Refinery, Guwahati Refinery, and Bongaigaon Refineries to become integrated are manifold. An integrated refinery typically includes.
a) Advanced processing units like hydrocrackers, fluid catalytic crackers (FCC), coking units, etc.
b) Petrochemical integration, like the production of chemicals like polypropylene, ethylene, and other petrochemicals.
c) Upgraded infrastructure like modernised crude distillation, secondary conversion, and storage facilities.
d) Refinery-Petrochemical Complex, which is a seamless integration between refining and petrochemical production.
While a full-fledged integration may not be practical due to size, crude supply, and economic constraints, a partial integration with petrochemicals or speciality chemicals could be explored. If large-scale integration is required, investing in expanding or modernising the refineries or setting up a new facility may be a more strategic option.
The fourth refinery of Assam, Numaligarh Refinery (NRL), is well on its way to becoming an integrated refinery, focusing on refining expansion to 9.0 MMTPA. Integrate petrochemicals like BTX (a mixture of benzene, toluene and xylene) complex and polypropylene in the future. Establishing bio-refineries like ethanol, green chemicals, and green hydrogen & alternative fuels, with these developments, NRL is evolving into a multi-product integrated refinery, making it a key energy hub in Northeast India. Numaligarh Refinery (NRL) and Brahmaputra Crackers and Polymer Limited (BCPL) are entering into a joint venture and are interconnected. At present, BCPL requires naphtha as a raw material for its petrochemical production, whereas NRL supplies naphtha to BCPL as a feedstock. And NRL’s upcoming expansion (9 MMTPA) and new petrochemical complex could enhance this supply and allow for additional chemical production. It is the need of the hour that both entities are collaborating and their relationship is evolving. NRL’s new petrochemical complex (BTX unit) will produce benzene, toluene, and xylene, which can support additional downstream industries and possible future collaboration where NRL’s expansion could provide more raw materials (naphtha, LPG, petrochemicals) to BCPL for producing advanced plastics and polymers. There is immense potential for integration in the future, and if Assam’s petrochemical ecosystem grows, allowing both companies to act as a single integrated refinery-petrochemical complex makes sense.
There is no doubt that the NRL and BPCL partnership alone is moving toward a Northeast petrochemical hub, with NRL’s refinery expansion and BCPL’s polymer production. Assam is moving toward becoming a major petrochemical hub in India. Now the question arises: can ‘Numaligarh Refinery Limited’ and ‘Brahmaputra Crackers and Polymer Limited support the other three ageing oil refineries of Assam for their long-term sustainability? These ageing refineries are facing numerous challenges like limited crude availability, ageing infrastructure, and low economies of scale. Numaligarh Refinery, with its ongoing expansion to 9 MMTPA and petrochemical integration, can play a crucial role in stream-sharing and resource optimisation to ensure the long-term sustainability of all refineries in Assam. NRL can supply excess imported crude to smaller refineries through intra-Assam pipelines. The sharing of infrastructure may ensure the continuous operation of smaller refineries even if Assam’s crude output declines. NRL can share its intermediate products with other refineries for better product yield. The understanding can reduce wastage and increase value-added production, and as a result, smaller refineries can focus on specialised products instead of competing on bulk fuel refining. The increased infrastructure sharing, like pipeline networks, tank-farm sharing, and common storage for crude and products at strategic locations, can reduce logistics costs. Sharing of hydrogen and green energy, where NRL’s green hydrogen production can be used by other refineries for desulfurisation & clean fuel initiatives. Moreover, the small refineries can integrate for diversification. Guwahati and Bongaigaon refineries can receive petrochemical feedstock (naphtha, BTX) from NRL to enter speciality chemicals or plastic production. Bongaigaon Refinery once had an aromatics unit, which can be revived and integrated with NRL’s petrochemical complex for efficient production.
Assam’s refineries can shift from only fuel refining to high-value petrochemicals and start increasing profitability. Long-term sustainability strategy for Assam’s refineries with NRL as a central hub: these Assam’s refineries can definitely process a mix of local and imported crude (ensuring steady supply). Focus on speciality production. Reduce competition and optimise operations through stream-sharing and joint infrastructure use. By leveraging NRL’s growth, Assam’s refineries can remain competitive and sustainable for the long term, instead of facing closure due to crude constraints or inefficiencies.
The author is very much concerned regarding the existence of the oldest refineries of India, and being very small-statured refineries, these are the mothers of all refineries of India. Compared to today’s mega hydrocarbon industries with sophistication, these tiny refineries cannot compete as the energy sector is evolving very fast. And if these small refineries do not change or embrace newer technology, then it would be very difficult to remain profitable and face inevitable consequences. In this article, the author is independent in appreciating the exponential growth of the Numaligarh refinery and its strategic partnership with BCPL, likely to undergo a revamp and even grow three times bigger, embracing newer technology and processes to counter every upcoming market threat. In this article, it is an appeal made to bring Digboi Refinery, Guwahati Refinery, and Bongaigaon Refinery together and collaborate with Numaligarh Refinery regarding stream, resource sharing, and avoiding competition at any level. The author reserves the right, and it is a personal opinion, to bring all four refineries of Assam together, irrespective of different strategic existence and business interests. The author wants to draw attention from every stakeholder who is directly or indirectly related to the economic development of Assam. The timely response to develop and revamp our old refineries to keep relevant in the business, else it would be very difficult and we cannot avoid the imminent closure of these old entities. Nonetheless, it is to say that these old refineries have immensely contributed to the energy sector and nation-building.
(The author is a management PhD scholar currently serving at a refinery PSU.)